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Litigation financed by hedge funds – the risks it poses to in-house budgets

According to the ABA Journal on April 9th, a hedge fund based in the United Kingdom has just raised $47 million that may now be invested in commercial litigation cases in the United States. “Juridica Investments Limited helps fund only major commercial litigation, and was behind 17 large cases, mostly in the U.S., as of last year, according to attorney Richard Fields, who serves as the company’s chief executive officer.” Fields was formerly a partner at Swidler Berlin and Dickstein Shapiro.

None of the cases is publicly known, but one last year reportedly paid off and, with the repayment of a law firm loan, earned a 4.6 percent dividend for Juridica investors, the law blog Am Law Daily recounts (See my post of Jan. 6, 2009: law suit financing offshore; March 20, 2009: cites a firm involved in hedge-fund financed litigation; and March 27, 2009: hedge funds and the secondary market for patents.).

As the war chests amassed through recoveries by plaintiffs’ firms inevitably fund more litigation (See my post of Aug. 24, 2005: plowing recoveries back into more litigation.) and so-called trolls invest in patent suits (See my post of Jan. 20, 2006: trolls and litigation costs; Oct. 29, 2006: Qualcomm’s business model; May 13, 2007: Microsoft’s litigation against trolls; and June 25, 2008: advice against troll litigation.), hedge funds will goad more, and more costly, litigation.