Bidding Justice: A Market Approach for Governing Third-Party Litigation Funding in European Collective Actions

Collective actions function as natural monopolies. An empirical analysis of the Dutch collective action cases demonstrates that funding returns remain consistently high at around 25% regardless of case size or risk profiles, contradicting expected economies of scale. Drawing from American lessons, a competitive auction system offers a viable method for setting efficient funding returns while maintaining investment incentives in European collective actions.

After a long but successful collective action in Europe, individual class members seeking to collect their share of settlements or awards often confront an unwelcome reality: a significant percentage of their compensation must be deducted, or they receive nothing. Third-party litigation funding (TPLF) asks for such deductions, where external investors finance lawsuits in exchange for a percentage of any settlement or award. These funders operate on a non-recourse basis, risking their entire investment if the claim fails....

Verder in dit artikel:

1. Economics of Collective Actions

1.1. Economies of scale, rational apathy and natural monopoly

1.2. Public good, free riding and common fund doctrine

1.3. Agency problem

1.4. Asset pricing

2. Empirical Analysis of TPLF in WAMCA Proceedings

2.1. A primer to the Dutch collective actions regime (WAMCA)

2.2. Methodology

2.3. Summary table

2.4. General outlook

2.4.1. Case count

2.4.2. Claim type

2.4.3. Public enforcement and foreign private enforcement

2.4.4. Carriage fight

2.5. Funders

2.5.1. Funder disclosure

2.6. Funding structure and funders' return

2.6.1. Level of return

2.6.2. Return disclosure

2.6.3. Return structure

2.6.4. Funding cost-shifting

2.7. Claimant and defendant law firms

2.8. Repeat players and association

2.8.1. Association between claim organisations and funders

2.8.2. Association between funders and law firms

2.9. Regional association

3. Bidding Justice

3.1. Current approaches

3.2. Percentage cap

3.3. Multiplier cap

3.4. Comprehensive analysis

3.5. Walker's auction

3.6. Proposed bidding scheme

3.7. Potential counterarguments

3.8. Implementation

4. Conclusion