Finding the Right Litigation Funding Company to Manage Risk, Monetize Claims

inside-counsel-logo-litigation-funding-articleIn part 3 of Vinson Litigation Finance’s three-part series in Inside Counsel, VLF’s CEO, Dr. Donald E Vinson provides insights to in-house counsel on what to look for when choosing a litigation funder and the different characteristics each funder may have.

This article was first published in Inside Counsel and can be found here

Imagine if the risk of litigation could be quantified and the benefits monetized. For in-house counsel, that reality is finally here. By teaming up with a knowledgeable litigation funding company, in-house counsel and their clients can achieve those objectives, and more.

In our first two articles, we looked at the tools and technologies available to in-house counsel to help assess litigation risk, and we provided advice and guidance on how in-house counsel, with the help of partners like litigation funding companies, can move away from assumptions and instincts to an analytical approach. Here, we will explain the methodologies that litigation funding companies use to assess risk, how funders can provide an independent third-party assessment of a case before the company has expended substantial resources and how in-house counsel can find the right partners to work with.

In-house counsel bring a wealth of training, knowledge and acumen to their client. Yet, when it comes to litigation, well-honed instincts and years of experience alone cannot account for all the vagaries and uncertainties inherent in taking a claim to court. The complex interplay between the law, the facts and the decision-making proclivities of those tasked with making critical determinations – from the judge to the jury – often leave in-house counsel feeling as if there is no reasonable way to anticipate how their case will be decided.

How Litigation Funding Companies Assess Risk

Typically, litigation funding companies will consider a variety of factors when assessing the risks and rewards of each specific matter. When consulting with different companies, in-house counsel should remember that each one uses its own set of criteria. And since each matter is unique, different third parties may assess cases differently.

Factors litigation funding companies look at include:

  • Type of dispute
  • Jurisdiction
  • Amount that will need to be invested
  • Potential payout or size of the settlement or award
  • Projected time frame of the matter
  • The company's law firm and attorneys, and the opposing side's firm and counsel

When considering the financial aspects of investing in a specific case, many litigation funding companies will look at the ratio of potential expenses to potential recoveries. Each funder will have its own thresholds that must be met to satisfy individual underwriting criteria, and some may reject a case based on their projections while others may be willing to take on the risk.

Once litigation funding companies determine that a case meets some basic parameters, they will generally start a deeper analysis of the issues in dispute and conduct a more thorough evaluation of the specific claims.

While some funders will base their decisions on subjective reviews from their own team of litigation analysts, an objective, data-based approach will yield the best insight into aspects of a claim that have traditionally been difficult if not impossible to assess in advance. Such an approach will utilize technology to perform a statistically reliable, multidimensional risk analysis of the claim. It should encompass how key groups – including trial lawyers, judges, relevant expert witnesses and jurors – perceive and assess the case. Carefully measured input from these disparate groups can provide a realistic view of the chances that a claim will be able to overcome the various obstacles it will face before a successful resolution can be obtained.

Choosing the Right Partner

When meeting with different litigation funding companies, in-house counsel should ask about the parameters claims must meet to be considered for funding and the methodologies the funders employ in conducting their due diligence. It is important for in-house counsel to realize that not all funders will work with every case. Claimants should ask how litigation funding companies assess cases, particularly whether they rely on more subjective approaches or if they can marshal objective criteria – and how much of that information funding companies are willing to share.

In-house counsel can choose to augment their own preliminary case assessment based on what they learn from the litigation funding company. This enhanced insight allows in-house counsel to make informed decisions much earlier in the litigation process and with greater economic efficiency. Too often, corporate litigants do not have sufficient information to make important litigation-related decisions – to pursue a matter or let it go, to settle for a fraction of the alleged losses or push to trial – until they have exhausted a great deal of time, effort and money.

While counsel manage the case, a litigation funding company can provide unique insights when it chooses to fund a claim. If a funder views a matter favorably, it can strengthen the client's commitment to pursuing the case. On the other hand, if a litigation funding company has reservations about the claim yielding a satisfactory outcome, in-house counsel can use that information when advising a client about pursuing the matter.

Assessing the risk of pursuing a claim is one thing. Taking on the financial commitment to help the litigant and counsel manage that risk is another. By providing financing for the prosecution of a claim, litigation funding companies alleviate the budgetary pressures on corporate legal departments and can help them evolve from cost centers into profit centers.

By working with knowledgeable litigation funding companies, in-house counsel can avail themselves of new technologies and procedures for evaluating and managing risk. They can also receive an unbiased assessment of their legal claims from experts who do not have an emotional attachment to the matters in dispute. This not only saves the company from enormous costs, stress and disruption, it can help legal departments offer additional value to the organization.