I don't have much of a problem with the investment into lawsuits issue (and I don't think i'm being a "dumbass"). Sure, investors aren't God, and I didn't mean to imply they were all knowing. However, I did mean to imply that investors want to see returns on their money, and it doesn't take omniscience to figure out whether or not a suit has any merit. That said, I'm admittedly a bit more litigious than most, especially when it comes to commercial litigation (which are the type of claims legalist appears to bring). But, my bias aside, I think there are only a limited number of relevant scenarios here:
Scenario 1: Meritless claim that results in settlement. This is the bad scenario. I think settling is probably plan A, and plan B is actually litigating it and/or taking it to trial, because settlements are quick and cheap and lucrative. However, if KK's pessimistic viewpoint of this industry is true, settling meritless claims is a stupid decision on the part of the company. Even outside the third party investment context, settling meritless claims sends a signal to all potential plaintiffs that you can litigate cheaply and quickly against that company and expect a return, no matter the strength of your claim. So settling meritless claims is already pretty risky behavior. Adding third party investors just magnifies this risk. But if a company wants to avoid the nightmare scenario envisioned by KK, spend the money to litigate the damn thing and show plaintiffs and investors that bringing frivolous lawsuits against it are a bad investment of the plaintiff's time and the third party investors' money. Generally speaking, if a claim really is baseless, it gets booted on a motion to dismiss, or summary judgment. It can still be costly, but it's better economically than settling everything. I would venture to say most companies today aren't inclined to settle meritless claims.
Scenario 2: Meritless claims that go to trial. Defendant wins. Tough pill to swallow for the corporation, but, as stated above, companies already should (and many times do) defend meritless lawsuits to prevent the same from being brought in the future.
Scenario 3: Claims that may have merit. Not a bad thing! A great thing in fact, right?! Claims that may have merit SHOULD be brought. Not bringing such claims solely because plaintiffs don't have the time or money to do so is bad and unjust.
Maybe I'm giving the investment fund too much credit in thinking that they have no interest in investing in the "penny stocks" of the commercial litigation world, but even if they do, so long as companies act economically rational (which companies are prone to do), that type of investment will prove to be fruitless relatively quickly. So, assuming all parties are rationale and want money (which is safe to assume), the only claims worthy of investment are those that have merit, or at least appear to have merit.
