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Abstract: The Article provides a systematic law and economics analysis of civil litigation crowdfunding. It first distinguishes between investment-based and noninvestment- based crowdfunding models. Investment-based litigation crowdfunding is generally a welcome phenomenon, because it enables parties to pursue meritorious claims and defenses without generating a significant risk of frivolous litigation. Thus, it should be minimally regulated by securing disclosure of relevant information to potential investors. Non-investment-based crowdfunding of process costs should be subject to professional vetting, which will inhibit frivolous claims and defenses that waste scarce administrative resources and do not further the underlying goals of civil law. Non-investment-based crowdfunding of outcome costs should be prohibited when it undermines the primary objectives of substantive law.
INTRODUCTION
In June 2017, Maajid Nawaz, the chairperson of a London-based think tank, launched an independent campaign for crowdfunding a defamation action against an American nonprofit legal advocacy organization that had published his name on a list of "anti-Muslim extremists."1 In the same month, Andy Wightman, a Member of the Scottish Parliament, raised over £60,000 through a British crowdfunding website to fight a defamation action brought by a wildlife protection organization over his blog posts about the plaintiff's practices.2 Wightman has pledged to reimburse contributors pro rata if the defense succeeds and he recovers his legal expenses. At approximately the same time, Igal Sarna, a journalist held liable for defamation in a Facebook post scorning Israeli Prime Minister Benjamin Netanyahu and his wife,3 raised over $45,000 through an Israeli crowdfunding website to cover his liability.4 Sarna obliged to donate any excess funding and any sums reimbursed on appeal to the Association for Civil Rights.5 These three cases-each arising in a different jurisdiction and concerning a different cost-reflect an evolving global trend that may revolutionize the civil process.
Commercial third-party litigation funding (hereinafter "TPF") has been around for decades.6 Crowdfunding, which is based on the aggregation of numerous but modest individual contributions through specialized online platforms, 7 is a relatively new finance method. Yet the dramatic growth of the crowdfunding industry in recent years, reaching $34.5 billion in the United States alone in 2016,8 was unlikely to leave the civil litigation market unaffected. In the last few years, crowdfunding has begun its incursion into this arena.
This Article is the...