Financing a lawsuit or arbitration can be extremely expensive, especially when the case is a complex commercial dispute. Because of the substantial costs associated with these disputes, there are times when plaintiffs do not have the financial capabilities to pursue claims or are forced to settle for terms that they would not otherwise accept. Litigation financing is a resourceful way to pursue meritorious claims and obtain a satisfactory settlement or damage award by providing plaintiffs with the capital necessary to manage all aspects of a case.
- Non-Recourse Funding
- Extensive Case Analysis
- Matching the Financial Advantage of the Defendant
- Reducing Additional Financial Risks
Today we’re going to take a closer look at four benefits of litigation financing.
One benefit of litigation financing is that the funding is non-recourse. This means that the entity receiving the financing does not have to repay the funds advanced if the claim fails. Essentially, litigation financing is a no-risk proposition for the plaintiff: the litigant gets the case funded and the financier obtains a return only if there is a satisfactory settlement or damage award.
In return for the substantial risk that the funder is taking, litigation finance companies generally receive a portion of the final judgment equivalent to what is common seen in contingency fee arrangements. The litigation financing company recoups their cost and shares in the proceeds. Thus, the litigation finance company inherits all the risk, but shares in the reward.
Extensive Case Analysis
An enormous amount of research and analysis is undertaken before a litigation financing company will invest in a dispute. This robust analysis not only helps the financier in its funding determination but also the claimant, who obtains a rigorous analysis of his/her case before substantial resources have been expended. Litigation finance companies generally examine several factors including, but not limited to:
- Merits of the claim
- Potential damages
- Potential for settlement
- Estimated costs/budget
- Case strategy
Litigation finance firms will often develop their own methods for evaluating a case. Vinson Litigation Finance (VLF) takes into the account opinions of trial lawyers, retired judges, and surrogate jurors when evaluating a case. Using a proprietary technology, VLF takes an objective, scientific approach to cases analysis.
Matching the Financial Advantage of the Defendant
Too often litigation comes down which side is better financed. A large defendant can draw out proceedings and increase costs to the point that the plaintiff can no longer proceed regardless of the merits of the case. Litigation finance allows the claimant to retain effective counsel and allows for the continued prosecution of the claim. Further, a defendant who attempts to prolong litigation may find this method no longer successful when the plaintiff has obtained litigation funding.
In some cases, a litigation financier’s involvement in a case can be the impetus for swift resolution through settlement. In this sense, litigation financing levels the playing field.
Reducing Additional Financial Risks
When a plaintiff decides to pursue a legal claim, expenses can quickly begin to pile up. These costs include attorneys’ fees, legal costs, and expert witness fees. Through litigation financing, the financial risks associated with these expenses can be minimized allowing the litigants to focus on the day-to-day operations necessary to run and expand their business. With litigation financing, resources are not being shifted away from operations to the legal efforts.
For attorneys and their law firms, litigation financing helps minimize their risks as they are no longer forced to operate on a contingency fee basis. Litigation financing allows the law firm to collect legal fees as the case proceeds regardless of the case outcome.
In sum, litigation financing is a critical tool that allows businesses and law firms to pursue legitimate claims.