Types of Litigation Finance Clients

To put it simply, the role of litigation finance is to provide funds. There are many factors that litigation finance firms must first consider, before extending financing. These factors include anything from cost-benefit analysis to the type of client acquiring the funding. There are three main types of clients: plaintiffs, law firms, and defendants. Let’s explore how these clients differ from one another.

Plaintiff Financing

The most common form of litigation finance is plaintiff fiancing. Plaintiff financing occurs when a claimant obtains funding. That funding is then typically used to finance the expenses associated with bringing a claim in litigation or arbitration. The plaintiff may also choose to use the additional capital for business purposes or to help monetize the claim. In many cases, law firms seek financing for their clients’ claims and matters. Plaintiff financing is generally used in scenarios when the plaintiff:

• lacks the funding required to hire preferred counsel
• wants to curb the impact of litigation costs
• wishes to disperse the level of risk associated with litigation

In these cases, financers are paid through a portion of the monetary recovery rewarded.

Law Firm Financing

Law firm financing is another common type of litigation finance. It occurs when there is a transaction in which a law firm, with at least one contingent fee engagements, receives funding. The capital acquired through this method is commonly used to finance or to hedge the firm’s investment in its contingent fee cases. These expenses can range from third-party specialists to travel. Law firm financing is mainly used when a law firm:

• is seeking to expand
• desires to reduce levels of risk associated with its caseload
• wishes to evade continued deferral of liquidity

A financer’s return may be determined in a few different ways: percentage of monetary recovery, a multiple of the funder’s investment, or a hybrid of the two.

Defendant Financing

Unlike the other two types of financing, defendant financing is very uncommon and seldom used. There are various kinds of defendant financing; however, the most common is “pure” defense-side financing. Pure defense-side funding appears when the financer is funding the case’s defense, and there are no counterclaims that a financer could obtain its investment against. On the flip side, there are scenarios in which the defendant has a meritorious counterclaim and gets litigation financing in order to prosecute the counterclaim and defend against the plaintiff’s assertions. The litigation financer’s recovery is generally contingent on the difference between the plaintiff’s capital demands from the defendant and the monetary relief obtained from the defendant.

For more information, visit Town Center Partners.

Topics: third-party funding, litigation finance, litigation funding, plaintiff, law firm, defendant