Useful Factors to Evaluate Proposed Investment in a Lawsuit

1. Capability and experience of the claimant's lawyer(s)

2. Availability of any defenses which would be a bar to the action (such as the statute of limitations, laches, statute of frauds, res judicata, collateral estoppel, bankruptcy, release, to name a few)

3. The judge who is permanently assigned to the case, if any at all

4. The court in which the action has been brought (some courts and judges and jurisdictions are statistically better than others)

5. The need for discovery and the associated costs

   The law firm representing the defendant(s)

6. The number of parties, which often adds to the complexity, cost and duration of a case without adding any significant sum to the prospects for recovery

7. The history of the litigation to date; have their been any critical actions or determinations which will make recovery more difficult and costly or perhaps impossible

8. The parties and key witnesses; how they appear; what their testimony would be; their credibility and background

9. The evidence to date

10. Any related litigation

11. The law relating to the controversy

12. The amount of damages suffered by the claimant, and the cost of assembling adequate proof - perhaps the most significant thing which lawyers often overlook

    The reputation of the opponent for settling cases or going all of the way

13. Past experience with the opposing party or its counsel

14. The availability of expert witnesses and their costs

15. The length of time to prepare the case under any outstanding discovery schedules

16. The equities of the case regardless of the legal rights supposedly involved (e.g., a convicted killer who was falsely imprisoned for alleged shoplifting in a municipality which is alawmallost bankrupt)

17. The location of the court, the parties and key witnesses

18. The availability of better opportunities for the investor to invest its time and resources

19. The potential for similar suits to make use of an acquired expertise in this type of lawsuit

20. The financial capabilities of the opposing party and its counsel
21. Availability of punitive damages (usually not a factor in the case even though they are alleged in the pleading)

22. Whether the case could be decided quickly on motion, either for or against the claimant (thereby taking a shot with minimum costs)

23. The size of the record (as a cost during any appeal, and as a cost to get started in the case)

24. The percentage of the suit which the investor could obtain (a classic investment banking problem)

25. The estimated expense budget for the case, and the likelihood that the case would be settled prior to spending a substantial part of such budgeted expense

26. The willingness of the claimant's attorney to work with the investor and discuss the case with its investment bankers

27. The timing of any critical motions to ensure that the investor has sufficient staffing to deal with each new case it takes on, and

28. Other factors which will come to mind when analyzing a specific case, which may well include various factors not set forth above, such as the political pull of the defendant or its attorneys; the competence of a particular judge; the political climate of the country, which judges seem to take notice of, particularly if they seek appointment to a higher court; and the appellate court in which appeals would be taken (often there is a conflict of case law which favors one jurisdiction over another)

    Analysis of a lawsuit involves another factor which makes the difference in many cases: whether the analysis sees a legal reason why the claimant can prevail in spite of various obvious objections. This is known as "spotting the issues" and can often be determinative. If a lawyer takes a case and doesn't spot a critical issue which will win for the other side, the case will turn out to be a losing investment; and if the analyzing lawyer turns away a case because he doesn't recognize the issue on which t he case depends (probably), there is a needless loss of substantial money which could easily have been obtained by taking the case and handling it competently. Thus, each case must have a strategy to win, in which the issues are identified and analyzed i n advance, together with an estimate of the probable outcome. An analysis of the various probabilities and related costs then boils down to a decision to take or reject a case.

    Interestingly, after a case has been financed publicly, the investment analysis should be made on a continuing basis (perhaps using data processing) to be able to see when shares are over-priced or under-priced, and to buy or sell accordingly. Lawsuit st ocks can be expected to have fast movement at critical times in the case, and the stock will ultimately be retired from any activity in the marketplace when the case if finally over, and the shareholders receive their final payment in liquidation, or none at all.

    The Beauty of Investing in Lawsuits

    Investing in regular business corporations has a different set of risks and rewards. A regular business corporation has personnel, overhead, plants, continuing programs, assets which have fluctuating values, or no value at all other tan as the current goi ng business. Success is measured by earnings on a periodic basis, which earnings are capitalized, and never available to investors other than through sale of their shares, assuming there is a market for all of the shares at the time.

    Lawsuit investing is quite different. A lawsuit "business" is no more than a red folder (or several of them) which sit(s) in the files of the investor or his investment packager. When the lawsuit is in business, there are no assets purchased for the busi ness; each expenditure is consumed immediately and can never be recovered other than at one time at the very end of the case, through settlement or judgment (disregarding any individual defendants who settle early for smaller sums). If the case is termin ated unsuccessfully, the red folders are tied up and put into storage, without the normal costs of closing down a business. If, however, the suit is terminated successfully, the capital value of the shares is paid to all shareholders at the same time as a one-time capital distribution, and the business (i.e., the red folders) are put into the same storage, with no hassle. Lawsuit investments are clean, and deal with money and intangibles, rather than assets, earnings and continuing operations and manage ment. A billion dollars in lawsuit investments weights (represented by several 2-page suit financing agreements) substantially less than the documents underlying ownership of a $1,000,000 town house or $25,000,000 commercial building, or $50,000,000 in b earer bonds, and there are no coupons to clip.

    Lawsuit interests are secured in the same way as other intangibles. See the attached copy of the UCC-1 Financing Statement filed in New York County and in Albany for the Thee lawsuit interests being offered to the public.

    Predictability of Outcome

    Although it has been stated before, the unique feature of investing in lawsuits is that there is a greater predictability of financial outcome for a lawsuit than there is in whether the next Apple computer company, MCI or Federal Express will be financial ly successful. Each lawsuit is a wholly distinct business alawmallost immune from the fortunes of all other lawsuits in the country or the effects of new legislation. Each litigation stands on its own two feet and is not governed by the market forces an d governmental regulation which tend to affect an entire industry.

    Copyright © 1990 and 1995 by Carl E. Person. Permission is given for non-commercial users to send a copy of the data processing file for this work by electronic means to a specific individual for his or her own use, and then only if the entire file is sent, including this copyright notice, but no permission is given for anyone to copy or transmit this file for or to any person for public viewing or downloading. It is intended by the author of this work that the work shall be made available in elec tronic form only through LawMall.