Donald Trump & Lawsuit Funding

June 1, 2016
4min read

Throughout his campaign, Donald Trump has promised that when he becomes president, he will close the business and legal loopholes that he currently exploits as a businessman. He knows how to play the system so well, he argues, that he is the most qualified candidate to stop others from doing so as well.

In light of his new mantra of "standing up for the little guy," Trump is missing a perfect opportunity that is sitting right in front of him.

Last Thursday, John McGraw, a 78-year-old white man, sucker punched Rakeem Jones, a 26-year-old black man, who was protesting at a Trump rally. McGraw seems to have believed Trump's promise, on multiple occasions, that he would pay the legal fees of his supporters if they should hurt someone. After he heard about what McGraw did, Trump instructed his staff to "look into" following through on that promise and cover McGraw's legal fees.

That move may have gotten him a bit more support among his fans, but if he really wants to boost his image as the "superhero for the little guy," he had another option. He could have backed the other side. He could have promised to back any prospective plaintiff.

Many people don't realize that lawsuits are often much harder for plaintiffs than for defendants. Defendants, for one, especially in personal injury cases, are typically indemnified by large insurance companies. In the case of McGraw, he doesn't have a large insurance company supporting him, but he does, if Trump follows through, have the "yuge" Trump Organization behind him.

Just think about Trump's promise to McGraw and his supporters: Rest easy, if you injure someone, I'll take care of the consequences. Despite the media's outrage at Trump's promise-some called him "America's hater-in-chief" and his offer, "wrong and evil"-this is essentially quite a banal offer to insure someone's liability.

Many of us benefit from liability insurance in one way or another. If you rear-end someone while driving, you generally need not worry about the repercussions, as your car insurer will step in your shoes and take care of both the legal proceedings and the compensation owed to the victim. If someone trips on the front steps of your house because you forgot to replace a brick, your homeowner's insurance should take care of everything. If you work for a big company and end up hurting someone during the course of your work, your company will foot the bill. The list goes on. And for anyone who's thinking that liability insurance only covers unintentional acts, that's patently not true. Police officers convicted of knowingly using excessive force are almost always indemnified by cities (aka taxpayers). Commercial liability insurances generally agree to defend the insured for all kinds of intentional acts, including trademark infringements and employment discrimination.

The problem is not that liability insurance exists. It is generally good public policy to protect defendants from financial catastrophe due to a single event (although accidents are significantly more justifiable than intentional acts). But plaintiffs, who are the victims, historically haven't had the same kind of protection.

They have to recover from their injuries (which may put them out of work), fend for themselves in court, and keep up with a rising pile of medical and legal bills. It's not surprising then that plaintiffs often settle for pennies on the dollar just to quickly recover some of the costs caused by their injury.

It's one of the great ironies of our civil "justice" system that we do a better job protecting those who have injured others than those who have been injured. Plaintiffs are victims twice over.

Trump knows all of this. He knows that if he steps in, then the case is not about not Jones vs McGraw anymore-"mano a mano," as he would likely say. Instead, it's Jones vs. the "yuge" Trump Organization. This "David vs. Goliath" scenario captures what almost every personal injury case looks like: an injured individual, who is a one-time player, going up against a large insurance company, who is a repeat player. The asymmetry of power allows these professional defendants to out-maneuver and bully plaintiffs into accepting low-ball settlements. It happens thousands of times a day-literally. It's an underreported systemic injustice.

But, you might say, what about plaintiffs like sports journalist Erin Andrews, to whom a jury awarded $55M a few weeks ago in her case against Marriott Hotels, after she was filmed naked in her hotel room?

Many people make the mistake of conflating headline-grabbing verdicts like Andrews' with the rest of plaintiffs' cases. Andrews' award was so large because she was awarded punitive damages, which were intended to deter bad behavior than to compensate the victim. Her award was an outlier. Most victims don't receive more than they deserve from juries, and, moreover, many can't even afford to patiently wait until trial, settling early for less than fair offers. Punitive damages, which are exceedingly rare, come too late for many victims.

What we need instead is to help victims right away, based on the strength of their case. What we need is the mirror-image of liability insurance, but for plaintiffs. The good news is that it already exists-it's called, amongst other things, "third-party litigation funding." It involves investors offering plaintiffs, like Jones, upfront money, financed against a portion of the future settlement. The funding is non-recourse; if plaintiffs lose their cases, investors lose their money as well.

As Professor Charles Silver at University of Texas Law School explains in an interview,

"Litigation funding is seeking to maximize recovery to the plaintiff and insurance is trying to minimize payment to the plaintiff. You look at them and say they are mirror images of each other... They are both designed to help with the party to deal with consequences of litigation by shifting costs and risks to someone else."

By transferring some of their costs to a third-party, plaintiffs are freed from immediate financial pressure so they can pay medical bills and living expenses without having to settle early for less than the fair value. With funding, it now no longer matters if they are going up against Trump or a large insurance company. They will have the financial stamina to vigorously fight for their claims as long as they need to do so. As Silver notes in his paper, Litigation Funding versus Liability Insurance: What's the Difference?,litigation funding "may end the 'good times' for liability insurers by forcing them to compensate injured claimants more fully than they used to."

This was probably why Taylor Swift (yes, that one) gave Kesha $250,000 while she waits for her legal case against Sony and Dr. Luke to resolve. And this is exactly how Trump can step in to help plaintiffs.

The main difference between liability insurance and litigation funding is public familiarity. According to the International Encyclopedia of Comparative Law, "at the beginning of the nineteenth century, liability insurance would have been unthinkable" - people thought it was even "immoral to take out an insurance against the consequences of civil liability." People believed that abdicating responsibility to a third-party would incentivize recklessness, increase accidents, and distort the legal system by introducing a non-party into the proceedings. A century later, liability insurance is so ubiquitous that it's mandatory in many different contexts.

While those people have generally been proven wrong, some of their concerns still hold true. Donald Trump, with his litigious history, knew full well the systemic advantages he could exploit as a defendant when he made that promise. His motto of "never settle a case" has developed from years of expertise on the subject.

Trump could have leveraged his litigious experience and announced:

"My work in business has taught me how to manipulate the civil justice system to my advantage. I've been in more lawsuits than you can count. I know all the loopholes and backdoors that allow defendants to breach agreements or commit torts with impunity. And as president, I'm going to use my experience to make sure that doesn't happen anymore. I'll stand up for the little guy. If anyone gets hurt at one of my rallies, I will support you so you can continue living your life while you await justice from our broken legal system."

Mr. Trump, it's not too late.

Post by

Joshua Schwadron

CEO & Founder of Mighty

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