The law firm representing the defendant(s)
The reputation of the opponent for settling cases or going all of the way
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.
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.
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.