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Plaintiff Finance

Taylor Swift Becomes a Lawsuit Funder-What That Means for the Rest of Us

February 26, 2016
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5min read

You may not have noticed it, but Kesha hasn't recorded any new albums since 2012. That's because she's been embattled in a lawsuit with her producer, Dr. Luke, and Sony, over allegations of Dr. Luke's sexual abuse. Last week, a judge ruled that she could not record music outside of her contract with Dr. Luke, a ruling that sparked outrage among her fans and fellow musicians. Most notably, Taylor Swift stepped up to donate $250,000 to Kesha for her financial needs. As laudable as Swift's gesture is, the donation, to some, may feel like a very rich person helping a slightly-less-rich person-a story about the 0.1 percent helping the 1 percent.

But if you dig deeper into Kesha's legal saga and trace out the implications of Swift's donation, you will find that it tells a damning story about the structural injustices in our legal system that all plaintiffs face, regardless of income, as well as sheds light on a critical solution to these problems.

In 2014, Kesha sued her producer, Dr. Luke, alleging that the contract they entered into should be terminated, in part because of the systematic sexual and physical abuse she had endured for over a decade. Since her lawsuit, she hasn't, for obvious reasons, made any music with Dr. Luke or Sony. And since she is contractually tied to them until a judge says differently, she is both legally and practically prevented from earning as a singer. The virtual loss of income for the past year and a half means that Kesha's savings are likely steeply declining.

What blows up the severity of these problems is the huge, structural problem that Kesha is facing. Defendants, such as Dr. Luke, enjoy what economists call monopsony power. Monopsony power is just like monopoly power, except that one buyer has all the market power instead of one seller. Essentially, the defendant is the only legally authorized "buyer" of the plaintiff's legal claim. As Stephen Gillers, one of the most prominent legal ethicists in the United States, explains:

"[The defendant] is under no time pressure. It is, furthermore, the only authorized purchaser of [the plaintiff's] claim, the only one allowed to bid on it. Now it requires no MBA to recognize that if one person is under duress and needs to sell something and another person is the only one legally allowed to buy it, the buyer has an enormous advantage."

It is clear how much of a structural advantage the defendant enjoys not only in this case, but in all cases. And the asymmetry in financial standing between the plaintiff and defendant gravely amplifies this advantage. Kesha is, so far, unable to make any money working in her profession without going through Dr. Luke, while Dr. Luke can keep working with other clients and generating income.

All of this plays right into the defense's hands. It is quite a common strategy for the defense to "wage a war of attrition" and string out the legal process in order to exhaust a plaintiff's finances and force her or him to settle for a less-than-fair amount.

It's called "frivolous defense," a phrase you will have heard much less frequently than "frivolous lawsuits," even though many scholars believe it is the former that causes our courts to clog, not the latter. Richard L. Abel, Cornell professor of Law at UCLA, notes in an article in the New York Law School Review that the real crisis in tort litigation is caused by "defendants who assert frivolous defenses, abuse procedure, file hopeless appeals... all to discourage legitimate claims and delay payment." Justice delayed is no justice at all.

Swift's donation is more than just an amazing gift to help a friend in need. Empowering plaintiffs with money changes the whole dynamic. Taylor's funding introduces the only threat to the defendant's monopsony power: competition. Instead of being stuck with the defendant as the sole buyer, Kesha can now access financing from elsewhere and receive much-needed liquidity. Swift's donation strengthens Kesha's bargaining position, allowing her to be patient and giving her the power to negotiate for a fairer settlement than she otherwise could have. Swift didn't just help Kesha pay off some bills; she helped boost her entire legal case.

By writing Kesha a large check, Swift became a "lawsuit funder," or to put it in industry-speak, a "litigation funder." That is a phrase that is mostly circulated within certain legal niches, but the idea behind it is simple: When people file lawsuits and expect future compensation, that money from the future settlement is considered an asset today.

Assets, whether it is a lawsuit or a mortgage, can be financed. This means that plaintiffs who need immediate cash to pay their expenses can turn to investors who will give them upfront funds in the form of financing in exchange for a portion of their future settlement. These expenses are not just legal fees-in fact, plaintiffs mostly look to financiers to cover their living expenses. The financing is not a loan, because if the plaintiff loses the case, then the investor loses the investment, which is why funding is generally only available for meritorious cases. The structure is similar in many ways to the arrangement that contingency attorneys have with their clients.

The main difference between what Swift provided and what litigation finance businesses provide is that Swift did it, presumably, for free. Litigation funders usually want to be repaid the money they outlaid plus make a nice profit. But other than that, it is exactly the same service: empowering plaintiffs with the money they need to make decisions free from duress. Said differently, if a lack of money is part of the problem, then having more of it can be part of the solution.

For many plaintiffs, namely those without money, litigation finance changes everything. A car accident, for instance, can easily put victims out of work, leaving them suffocating under a growing pile of medical, living, and other bills. Wives of abusive partners often struggle with gaining financial independence apart from their spouses, making it extremely difficult for them to leave their relationships, much less sue for damages. As a result of the financial pressure, many plaintiffs either don't bother suing at all, or take a low-ball settlement just so they can pay rent, put food on the table, and so on. But instead of getting financially bullied by the defendant or by their spouses, they can choose to receive financing in order to fight for their claim vigorously. They, finally, have some options. These options come with a price-tag, yes, but unless one has celebrity friends who are willing to help out, it's clear that the alternative is often much worse.

We often think about "access to justice" in terms of whether people can afford to hire counsel. But Kesha's case, and many others like hers, shows that "access to justice" is just as much about whether people can afford to be patient and live their lives while they wait for justice, as it is about being able to have good legal representation.

Twitter has been trending with the hashtag #FreeKesha because she is locked into her contract with Dr. Luke. But Kesha is trapped by more than a contract; she is trapped by the systemic injustices of our justice system, one that every other plaintiff, especially those who are strapped for cash, also experiences. So, yes, let's #FreeKesha. But let's not forget about everyone else.

Joshua Schwadron is CEO and co-founder of Mighty, the world's first online marketplace connecting plaintiffs awaiting a fair legal settlement with the financing they need to continue living their lives.

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Joshua Schwadron

CEO & Founder of Mighty

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