Originally from World Arbitration & Mediation Review (WAMR)

ABSTRACT

This article will discuss the implications of the Florida Third District Court of Appeal’s decision in Abu-Ghazaleh v. Chaul on the development of third party funding in Florida. In Abu-Ghazaleh, the Third District Court of Appeal—in using a very broad definition of party—held that when a third party funder has significant active control over the claim, the funder rises to the level of party and, consequently, the third party funder could be liable for statutory cost awards and attorney’s fees. The proposition is that the Third District’s decision in Abu-Ghazaleh will have both positive and negative effects on third party funding in Florida. Abu-Ghazaleh will likely incentivize the funding of meritorious claims, which arguably can be achieved by means other than holding a third party funder a party to the claim.  At the same time it will encourage the much more passive role of the funder, which many funders will not likely agree with. It will also weaken the confidentiality of third party funding agreements by permitting the courts and other parties to know the terms of the agreement.

I.   INTRODUCTION

Let’s suppose that a Mexican corporation sold its stake in two multinational renowned companies—world leaders in the production, market, and distribution of fresh fruit and vegetables —to the CEO of the two companies, and, now the shareholders of the Mexican corporation, disgruntled with the sale, have decided to sue the CEO for civil theft and conspiracy in Florida state courts.  The plaintiffs claim that the shares were sold millions below price because the CEO bribed the officials of the Mexican Corporation.  However, the plaintiffs do not want to take the risk of bearing with the costs of litigation, including the potentially high legal fees, and then losing the lawsuit. Fortunately, or so it appears, the shareholders have the opportunity to enter into a financing agreement with a group of investors that is offering to pay all the legal fees and costs in exchange for a share in the proceeds if the lawsuit is successful. The agreement, on this occasion, gives the funders complete control over the claim, that is, they would be able to approve filing of the lawsuit, to control selection of attorneys, and to direct the proceeding and legal strategies.