What is Litigation Finance?

Too often, lawsuits are won by those who can afford to fight for a long period of time and who have most funds available to keep paying all of the legal and administrative professionals involved in the fight. Litigation finance (also called “litigation funding,” “lawsuit funding,” and “lawsuit loans”) levels the playing field for plaintiffs and defendants.

The foremost reason for litigation funding’s rise in the U.S, U.K. and Australia since the 1990s, is that the field began–and continues to operate– as a low-correlated asset class with high yields.

Investors looking for a way to reduce exposure to the stock market have found litigation funding as an  increasingly viable option to generate the large returns they expect from the stock market without the frustrating volatility.

Groups like Bentham IMF and Lake Whillans thrived in the field, by allowing investors to access lawsuit funding and law firm funding with the potential for very high returns when cases successfully settled. As word and profits spread, the field began to grow, with International investors looking to generate similar yields.

Litigation Funding programs connect Sophisticated investors with Lawsuit plaintiffs

Litigation funding provides an investment marketplace which connects investors interested in litigation finance, with plaintiffs and law firms who have strong cases and need continued capital to win them.

This type of investment offers investors opportunities in the areas of litigation finance such as,

1) Pre-settlement funding,
2) Law firm financing,
3) Financing for leveraged buyouts of law firms or case  portfolios,
4) Strategic capital for legal advertising,
5) Post-settlement funding.

1. Pre-settlement funding is essentially a cash advance against the anticipated settlement of a personal  injury lawsuit. While many call these advances “lawsuit loans,” in fact lawsuit funding advances are provided on a non-recourse basis, which means that if the plaintiff loses the lawsuit, the plaintiff does  not have to repay the litigation finance company. Litigation finance companies accept the risk that the case may not succeed, and carefully investigate all lawsuit funding requests in order to be very confident that  the plaintiff will win before extending pre-settlement financing.
   
   
2. Law Firm Financing helps plaintiffs’ law firms, or trial attorneys who offer contingency fee representation, to manage their cash flow. Trial attorneys often represent worthy Class Action, Mass Tort, and Patent or complex Litigation plaintiffs for years (think Erin Brockovich) without any payment. Contingency-fee attorneys do not get paid until suits are settled or won. As a result, many  Trial attorneys and contingency-fee law firms turn to law firm financing to cover their expenses, including expert witness fees, case costs, and other  expenses necessary to prosecute a lawsuit.
   
   
3. Financing for Leveraged Buyouts of law firms or Portfolios of cases, comes into play when law firms are for sale. A law firm sale might occur due to the death of a senior partner, a partner breakup, insufficient capital or other reasons.
   
   
4. Strategic Capital for Legal Advertising helps law firms finance major advertising campaigns. You’ve probably seen legal ads on television informing consumers of a bad drug or a malfunctioning car and encouraging them to contact the law firm if they have been harmed and want to participate in a class action lawsuit. Such advertising can cost millions of dollars and is well worth the expense as it gathers consumers for a significant class action suit.
   
   Experienced law firms can accurately estimate how many cases they will generate per advertising campaign and can define their cost per case. A best-in-class law firm seeking to finance a mass advertising campaign brings this information to an Investment firm who vets the investment  and, if approved, provides a loan the firm can use to execute a national television campaign.
   
   
5. Post-Settlement Financing helps plaintiffs, who have seen their case settle, but who are often – for a variety of   reasons – awaiting settlement funds. Like pre-settlement finance, funding is distributed to the plaintiff in order to cover their cost of living expenses while they await the funding due to them in their settlement. There is often much less risk associated with post-settlement finance opportunities, since the settlement has usually been finalised but has failed to start distributing. Investors must still deal with inconvenience, risk, and face uncertainty of when they will receive repayments, but they can  take solace in knowing the case has already settled.