The Next Frontier: Defense Funding

Third-party litigation financers are incredibly aware that most of their business is conducted with plaintiff-clients.  As a result, half of the potential market is largely untapped.

Recently, individuals and companies have begun to prefer to focus solely on their business rather than on legal matters.  As such, some of these individuals and companies have come to the realization that they can offload all or some of the defense costs and risks to a third-party litigation financer rather than paying a defense attorney entirely on their own. In response to this growing preference, third-party litigation financers have come up with two main strategies: Hybrid Financing and Success Fee.

Hybrid Financing is the most common method.   Additionally, it is usually structured in one way. The third-party litigation financer using this strategy to finance a defendant’s case agrees to provide an aggregate amount of funding for both the plaintiff and the defendant’s litigations in exchange for an overall share in the recovery.  In short, the litigation financer funds both sides of the case in part.

On the other hand, third-party litigation financers who use the Success Fee strategy finances a defendant’s case centered around the agreement of what defines a successful case. Here, if the parties come to an agreement that the case was “successful,” the client will pay the third-party litigation financer a multiple of their investment.  Because of the many ways that “success” can be interpreted, it is much less common.

As time continues to pass, more defense strategies that litigation financers are to use are likely to arise.  The market is largely untapped and a quick look to the future will show that defendants are likely to use litigation financing more and more to fund lawsuits in which they find themselves as defendants.

Keywords: litigation finance, Hybrid Financing, Success Fee, defense funding, business, risk

Work Cited: Brian Hooven, Defense Funding: The Next Frontier for Litigation Financing, The National Law Review (April18, 2019)