Part II: Understanding Risk and Benefits in Litigation Finance
In the first part of this post, we discussed the various forms of legal risk that can affect the outcome of litigation and that must be accounted for by litigation funders. But there are other significant risks that do not relate directly to the legal claim itself. Prominent among these risks are those that relate to the claimant’s opponent in litigation, often known as the counterparty.
Not all litigation opponents are created equal. Their ability to defend against a claim depends upon a variety of factors. Consequently, the prospects for the success of any particular claim also depend upon the counterparty’s capacity to put up a fight.
The counterparty’s abilities begin with its attitude towards litigation, which can often be assessed from its litigation history. Some parties, whether individuals or business entities, have an inclination to avoid litigation and settle. Others are inclined to fight to the bitter end.
The counterparty’s abilities also depend upon its resources. Obviously, business enterprises typically have more money than individuals to pay for lawyers and other litigation expenses; but not all business enterprises have the same ability to spend money on litigation. If a business is cash-poor or is concerned about maintaining favorable numbers on its balance sheet, it may be less willing to take on an expensive litigation fight. Or, by the same token, it may be less willing or able to pay a meaningful settlement.
A counterparty’s willingness to fight may also vary with the relationship between the claim and the company’s business. A business enterprise may have one attitude towards a premises liability claim arising from an injury in its parking lot; but it may have a very different attitude towards a claim that would threaten its ability to conduct its most profitable activities. Knowing how a claim implicates the business’ viability is a crucial consideration in assessing this aspect of counterparty risk.
Topics: litigation finance, legal reform, third-party funding, litigation costs, cost-benefit analysis, risk, reward
Works Cited: Edward Truant, The Importance of Diversification in Litigation Finance (pt. 1 of 2), Litigation Finance Journal (July 25, 2017) available at https://litigationfinancejournal.com/importance-diversification-commercial-litigation-finance-pt-1-2/
