An Oft-Ignored Use of Litigation Financing: Claim Monetization

Almost all commercial litigation finance agreements involve the nonrecourse investment of money in exchange for a percentage of the settlement or damages awarded from a legal claim.  Additionally, more often than not, the money used from a litigation financer is used to “fund” legal fees and further the claim.  Another avenue that investments from a litigation financer can be utilized is monetization.  Claim monetization refers to the principal of using money invested by a litigation financer to fund separate endeavors aside from the costs of litigation.   Traditionally, claim monetization has been available pursuant to financing in only in two ways, (1) through the “working capital” provision available to plaintiffs, and (2) after a party receives a judgment or arbitration award.  (The working capital provision refers to sums given to fund legal expenses.  Essentially, where a party stands to collect an award, monetization serves as an advance on collection)

Law firms can benefit from taking advantage of claim monetization. It is largely beneficial to law firms in two ways: (1) law firms are able to receive value from accrued hourly fees with portfolios of ongoing contingency matters, and (2) as a tool to win business.

First, law firms that receive payment upon a contingency fee often experience irregular compensation due to inconsistent paces of recovery.  By using litigation financers, law firms have the opportunity to get paid on an hourly basis and receive regular pay while using contingency fees.  Thus, they are able to capitalize on a receive reliable and steady income.

Secondly, from a business perspective claim monetization is advantageous.  Law firms can gain the competitive advantage when they are backed by a litigation financer who is willing to invest in a prospective client’s claim because they are able to pitch contingency work more often.  When a lawyer is able to pitch contingency work more often, they usually receive more work. Thus, they are able to make more money to grow their business.

In short, claim monetization is a different way to unlock litigation finance’s value. Claim monetization enables parties to receive the value of their assets without waiting to win in litigation that may take months or years.

Keywords: claim monetization, benefit, litigation finance, milestone basis, unlock

Work Cited:   

Dai Wai Chin Feman and Sean Thompson, Claim Monetization: A Lesser Known Use of Litigation Finance, Corporate Counsel (February 14, 2019)