There are costs—sometimes substantial ones—attendant to any

judicial or alternative dispute resolution process. How then can parties

with meritorious claims, but shallow pockets, still utilize arbitration?

One answer is third party funding.

 

 

Third party funding occurs when an individual or institutional

lender agrees to pay a litigant’s legal costs and fees in exchange for a

share of the judgment. Lawyers and their clients have engaged in one

form of third party funding, the contingency fee, for over a century.1

The prevalence of third party funding in domestic arbitration is

uncertain. However, its pervasiveness in litigation2 and international

arbitration3 strongly suggests it will soon carry over to domestic

arbitration (if it has not already).

 

 

Commentators disagree over whether third party funding should be

decried as champerty or lauded as a social utility.4 Proponents argue

that it increases access to justice, spreads the financial risks of

arbitration, equalizes bargaining power of claimants and respondents,

filters out meritless claims, and enables clients to benefit from the

lender’s human capital.5 But critics maintain that third party funding

constitutes champerty and leads to a host of ethical issues such as

conflicts of interest, breaches of confidentiality, and the undercutting

of client control over the claim.6

 

 

This article contends that third party funding should be permitted in

domestic arbitration. Part II discusses the origins and development of

champerty, including its role in U.S. litigation and international

arbitration. Part III lays out the benefits and detriments of allowing

champertous contracts in domestic arbitration. Part IV argues that

third party funding should be permitted in domestic arbitration

because it advances public policy and will not give rise to the parade
of ethical horribles suggested by critics. Part V concludes the article.