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Back-seat drivers

17 November 2015 By Reynolds Holding

The real victims of Volkswagen’s diesel-emissions shenanigans may end up being eclipsed in court. That’s the risk, at least, when firms that specialize in bankrolling lawsuits for profit get involved. One of them, Bentham Europe, is already bankrolling a case alleging the German carmaker duped shareholders. The financial muscle may improve the odds for massive awards – but also hefty gains for Bentham and others.

The basic facts aren’t much in dispute. VW admitted rigging millions of Jettas and other vehicles with software that drastically reduces emissions when the cars are being tested. Assuming that makes it likely VW will lose cases, the big question is how much it will have to pay out.

That may depend on litigation financiers like Bentham Europe, which is partly backed by hedge fund Elliott Management. The industry started in Britain decades ago, largely because rules limiting class-action lawsuits, barring lawyers from sharing awards and requiring losers to pay winners’ fees often made suing prohibitively expensive. Outside funders stepped in to foot the bill in return for up to a third of the proceeds.

It’s a decent business. Australia-based IMF Bentham, Elliott’s joint-venture partner in Bentham Europe, says it has made a 158 percent return on investment since 2001. Rival Burford Capital reports a 71 percent net return over six years and last month announced a joint venture with law firm Hausfeld to bring antitrust cases in Germany.

The benefits for victims are less clear. They get help suing in costly places like the UK and Germany, perhaps when they otherwise wouldn’t. Even in the relatively litigation-friendly United States, funding may give plaintiffs bargaining power to extract bigger settlements.

But conflicts of interest are a concern. Litigation funders stress they don’t interfere with legal strategy. But critics fear they still have indirect influence on the timing and amounts of settlements. Their cut also reduces what goes to victims.

That may seem unfair when, as in the VW cases, public outrage and government investigations already provide victims’ lawyers enormous leverage. It’s perhaps fitting that what looks like a profit-driven decision to cheat is being met with litigation motivated by lucre. When a court fight is all about business, though, the interests of the actual victims can take a back seat.

 

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