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Litigation Funding: The Role of Financiers in Legal Battles

Litigation funding.

Litigation Funding: The Role of Financiers in Legal Battles

The litigation process includes many different professionals, phases, and rules, and there are massive archives covering all those things and the roles they play in administering justice in American society.

However, the way court cases are funded, especially for those who aren’t exceptionally rich, is often overlooked.

Litigation funding is a necessary part of many cases, and it’s something everyone, from normal civilians participating in lawsuits to companies or even firms themselves, benefit from.

To help you understand this crucial part of our judicial system a bit better, we’ve put together this guide going over what it is, why it’s important, who can get it, and some other details you should know.

 

What is Litigation Funding?

 

Litigation funding refers to a company or organization providing funds to help with legal costs when someone participating in the legal process simply doesn’t have the money to initiate the court process and maintain it until a verdict is reached.

 

These organizations and companies aren’t charities, though. They’re set up like payday advance lenders. They give the money to you early so you have access to funds when you need them, but when you win the case, they get a cut of anything financially valuable. At least, this is how the vast majority of litigation funding services model their businesses.

 

Who Receives Litigation Funding?

 

This is where litigation funding services differ dramatically from more charitable forms of legal aid such as Pro Bono work, free advice, and similar things. These services are not aimed at plaintiffs and defendants. They’re aimed solely at attorneys and their firms.

This doesn’t make much sense at first, because you’d expect a firm to pay for all costs via what they’re charging their clients. However, that’s not the case, and there are many reasons that a firm or attorney might require litigation funding beyond what the client is paying for services.

Here are some of the reasons a firm might seek litigation funding:

 

1: Not Passing Up a Great Case Due to Funding

A firm, and even an individual attorney’s career, rides heavily on the portfolio of cases they’ve been able to build over their years of professional activity. The better the cases are in a firm’s portfolio, the more clients the firm is going to get, and the more profit it will make.

Unfortunately, the legal process is not financially accessible to most people in the United States. It’s simply too expensive, and most people can’t pay thousands of dollars for lawyer fees, court costs, hiring expert witnesses, etc.

Rather than find the perfect case that can elevate the entire firm, and having to turn it down because the plaintiff simply can’t afford to pay the lawyer’s fees, the firm might seek litigation funding that will cover all or part of the litigation costs upfront.

This allows the attorney to take on such cases without worry, and they can build their portfolio with confidence while also helping average Americans seek justice or compensation when they’re wronged.

 

2: The Case is Longer Than Expected

An experienced attorney can accurately determine how long most cases will take to reach their conclusion. However, nothing in the legal field is certain. Sometimes, cases end up stretching out for far longer than any attorney or legal expert would have imagined.

This can happen for any reason. The opposing team might have evidence you didn’t expect that completely changes the case halfway through, the jury might not agree with your points as easily as you thought they would, or there might be a series of delays for medical reasons, petitions, or other things.

 

In any case, the longer a case goes on, the more expensive it is. You still need to receive payment for the work you’re doing, expert witnesses need to be paid, court fees pile up, and there are just several different fees that keep growing as time goes on.

While you might have thought that $20,000 was enough to handle a case worth $500,000, you might very well end up creating $200,000 in legal costs that your client simply cannot pay.

In this case, litigation funding is crucial.

 

Without litigation funding, you’d be forced to accept a settlement well below what the case is worth or even flat-out drop out of the case. All to stop the financial hemorrhaging.

 

3: Funding a Sure Win

This is similar to our first listed reason, but it’s slightly different. Sometimes, even if the case is a sure win and will be opened and closed in months, you might not see any money from it for years. Unfortunately, a firm can’t just absorb the court costs until that big settlement is paid out. Funding can help cover the attorney’s business while waiting for the settlement to work its way through red tape and eventually get into the pockets of the plaintiff, the attorney, and if litigation funding was used, the financier.

 

4: Funding Multiple Cases at Once

Rarely does a profitable firm only work on one case at a time. Attorneys within the firm split up and take on their cases while relying on each other for support, and even some individual attorneys will have multiple cases to work on at once.

That equates to a very large financial responsibility. Think about it. If the legal costs for one case can be massive, imagine how high the costs can be if your firm is taking on 10 cases, and you don’t know how long each one will take, which resources will be needed throughout the case, or anything else.

Litigation funding can pay for some of those cases and allow the firm to maintain its high workload to maximize its profits and prevent having to turn down cases that would be great for its portfolio due to being financially restrained by other ongoing cases.

Litigation funding in legal battles.

How Does Litigation Funding Work? Applying, Receiving Funds, and Compensating

 

Litigation funding isn’t complicated. It might not be guaranteed depending on factors we’ll talk about shortly, but it is easy to pursue, use, and meet your end of the bargain.

We’ll talk about each of those aspects of it separately.

 

Applying:

To get litigation funding, you need to apply for it. This isn’t difficult, and it doesn’t take long.

First, you have to find a litigation funding organization that you’re comfortable working with. Then, you fill out that organization’s application.

This is going to require you to know how much you expect to need, the details of the case you’re taking on, and the reasoning for requiring the funds instead of covering them yourself.

Once you apply, the financier will go over your application and determine if it’s a good investment. Typically, this means they’ll weigh the risk of you losing against the amount of money at stake. Remember, this isn’t charity. The financier is taking a big risk and hoping it pays off in the form of monetary compensation. So, if you take on cases you’re likely to lose and they’re not worth much, you probably won’t be approved for funding.

 

 Receiving Funds:

Receiving funds is easy. Within a few days to a couple of business weeks, you should get a response regarding your approval. If you’re denied, you have to find another way to pay for the case or consider dropping it. If you’re approved, the funding you asked for will be added to your preferred account within a day or two.

It’s quick, easy, and doesn’t require you to do much at all. Once the funds are available, you can immediately start leveraging them to help you win your case.

 

Compensating the Financier:

Remember, this is not a charity. The financier does expect to get paid. However, you’re not technically on the hook in some cases.

Assuming you win and the settlement is paid out, the financier will be the priority when it comes to handing out cash. The amount varies dramatically from financier to financier and from case to case. So, we can’t give you an estimated amount. However, your financier will let you know this when you’re applying and signing agreements.

Now, this is why financiers care about how good your case is and what is at stake. If you don’t win, they lose their money. You’re not on the hook to pay them back, your client doesn’t have to pay them back, or any of that. If the case is lost, it was a bad investment. However, this can affect your ability to receive funding in the future. For clear reasons, the financier doesn’t want to initiate a pattern of handing out funds and losing them even though they thought the case was a sure win.

Since this is coming out of your client’s settlement, the financier is paid back, you get your part of the winnings, and then your client gets the rest.

 

Are There Any Downsides to Litigation Funding?

 

Litigation funding sounds amazing and as if you should use it all the time, but the truth is, it does have drawbacks, and you need to consider them before you start borrowing money.

Namely, there are three drawbacks to consider:

 

1: You’ll Be Paying Back with Interest

If you lose, you owe nothing. However, if you win, you don’t just pay back the amount that was given to you. A financier wants to make money; not do acts of kindness.

As such, it’s a bigger chip out of the settlement than it would have been if you had the funds to handle the case on your own. This is typically a fair amount, but it’s still less money for you and your client.

 

2: Your Portfolio Goes Up as Collateral

The vast majority of financiers will have you put up your entire current portfolio as collateral on the loan. So, let’s say you have 10 active cases, and you only need funding for one. Well, the other 9, and their settlement amounts, will be subject to the terms of your loan as well.

This is something you seriously need to consider before thinking about litigation funding. You don’t want to make the wrong move and end up with your other cases on the line. One mistake, and you can face some serious consequences.

 

3: Oversight

Finally, there is practically zero legal oversight when it comes to litigation funding. Unlike bank loans and similar lending systems that everyone uses all the time, litigation funding isn’t governed by practically any laws.

Now, that doesn’t mean it’s a shady industry or that you’re going to be scammed. It just means that it is a lot easier to get yourself into a situation where the financier has the upper hand and there isn’t any legal leverage you can use against them.

For the most part, this means only working with renowned litigation funding services, and doing your due diligence before applying for anything. Do not sign agreements unless every fine detail is outlined perfectly and suits both parties favorably and always check for recommendations from your industry-based network, as well.

There’s simply too much that can go wrong if you choose the wrong financier for you to take this decision lightly.

 

What Can Go Right with a Financier?

 

Alright, we’ve talked about the basics of being able to fund your case, but what are the other benefits that outweigh the potential drawbacks?

Well, they’re worthwhile.

 

  •       Only the Best: You don’t have to worry about finding the best expert witnesses and other vital court assets for your case. This is crucial if you have a major case that is going to be an upward battle unless you have the best of the best at your disposal.
  •   No Liability: If you lose your case, you lose your case. You’re not on the hook for all the court fees that would otherwise be a massive hit to your firm.
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How to Get Litigation Funding

 

If you’re thinking about getting litigation funding, you need to find a source that will have your best interests in mind, and you need someone with experience to determine if it’s a good idea in the first place.

Litigation Legal Insight can help. Our goal is to provide litigation consultations for attorneys, plaintiffs, defendants, and anyone else in the legal system. Contact us today.