In this short video, Professor Maya Steinitz discusses her article, “Incorporating Legal Claims” (Notre Dame Law Review, forthcoming 2015).
Recent years have seen an explosion of interest in commercial litigation funding. Whereas the judicial, legislative, and scholarly treatment of litigation finance has regarded it first and foremost as a form of champerty and sought to regulate it through rules of professional responsibility (what Professor Steinitz calls the ‘legal ethics paradigm’), this article suggests that the problems created by litigation finance are all facets of the classic problems created by the separation of ownership and control that have been a focus of business law since the advent of the corporate form.
Therefore, in this article, Professor Steinitz offers an ‘incorporation paradigm’ that is more appropriate. ‘Incorporating legal claims’ means conceiving of the claim as an asset with an existence wholly separate from the plaintiff. This can be done by issuing securities tied to litigation rights. These securities can be issued with or without the use of various business entities.
The incorporation paradigm opens up the possibility of applying practices of corporate governance to litigation governance. Indeed, in certain previously-overlooked real-life deals, creative lawyers used securities tied to litigation rights as well as corporate governance mechanisms. The article analyzes and then expands upon these instances of financial-legal innovation, suggesting how business entities can be used to deal with the core challenges presented by the separation of ownership of and control over legal claims, specifically: agency problems, information asymmetries, uncertainty, and commodification. In addition, the article discusses how incorporation of legal claims can reduce various costs that litigation imposes in other transactions, such as mergers and acquisitions.
We invite you to watch.