The Mechanics of Obtaining Alternative Litigation Funding

Plaintiffs and plaintiffs’ law firms are often unfamiliar with the process of obtaining alternative litigation funding (“ALF”).  Despite differences in applicable law in various jurisdictions, this process – and the agreements typically associated with obtaining ALF — have become increasingly standardized and widely accepted.  Established companies which provide ALF have experience with the issues involved in obtaining ALF and are able to guide potential clients through this process.

A litigation funding agreement (“FLA”) will typically be preceded by a due diligence period and which may include an exclusivity agreement. This process may be concluded in weeks or even days, depending on how well developed and how close to trial the case is.  A case which is still in the early stages will most likely take longer to assess and involve more risk.[i]

Funders typically ask for pleadings and/or a summary of the legal and factual arguments.  They may also ask for the key evidence that both supports and refutes the claims.  Funders also require a measurable theory of damages, even if it is preliminary.

Maintaining the attorney-client privilege and the protections provided by the work product doctrine are central to this process and beyond.[ii]  A non-disclosure agreement is typically executed at the outset of the due diligence period, and other precautions are taken to preserve the confidentiality of information.  Provisions designed to maintain these protections are incorporated into the final funding agreement.[iii]

If the parties reach a tentative agreement regarding the budget, the use of funds, the estimated duration, and other key terms, the funder will issue a term sheet and draft agreement.  The final agreement (which may contain ancillary agreements) will typically also address issues such as termination, priorities in distribution, maximum investment, verification, and notifications.

The American Legal Finance Association (“ALFA”) maintains a Code of Conduct for its members (which include TownCenter Partners, LLC).  ALFA’s Code of Conduct requires that its members comply with the laws, regulations and other rules of applicable jurisdictions, as well as adhere to the standards set forth in the Code.  ALFA has also developed standardized documentation for funding agreements for use by its members.[iv]

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.

Topics:  Litigation finance, litigation finance market, third-party funding, alternative litigation finance, litigation finance process, litigation finance agreements, due diligence, funding agreements.

[i] Mick Smith, “Mechanics of Third-Party Funding Agreements: A Funder’s Perspective” p. 28–35.

[ii] This issue is discussed in detail in other articles posted in this Blog.

[iii] Maya Steinitz, “A Model Litigation Contract, Litigation in Theory and Practice” (April 29, 2013), available at http://litigationfinancecontract.com/2013/04/.

[iv] https://americanlegalfin.com/