Tag Archives: in-house counsel

Poll Shows Increasing Use of Third-Party Funding

Litigation financing is a valuable instrument for shifting the risk of litigation to a third-party. In return for a share of the prospective recovery, a funder will cover litigation expenses, diminishing both the out-of-pocket and opportunity costs of litigating a dispute. This risk-shifting quality should make litigation funding very appealing to in-house counsel. But two recent studies indicate that many legal departments are hesitant to pursue third-party financing.

In a survey sponsored by a leading funding firm with offices worldwide, only 5 percent of in-house counsel said their companies had used litigation finance. Another funder undertook a similar study, of 276 in-house lawyers in 37 U.S. cities. The study discovered that 74 percent of those lawyers had no first-hand experience working with a litigation finance firm.

This reluctance to consider litigation finance seems to be linked to a misunderstanding of how litigation finance worked. In the second study, lawyers commonly cited “ethical reservations” as a reason not to use litigation funding. Apparently, such ethical concerns relate to the idea that funders will take over control of litigation. Another significant segment of the survey population said they had a negative perception of litigation financing based on information that they gathered second-hand.

These impressions are not well-founded in the reality of litigation finance. The standard litigation financing agreement includes provisions to make it unequivocally clear that the funder will have no role in selecting counsel, making strategic decisions, or weighing in on when to settle. Thus, the funder’s participation is limited to a purely economic one – providing funds in return for a repayment in the event that there is a recovery.

As more and more law firms gain familiarity with litigation finance, they are talking to their corporate clients about its potential benefits. This kind of word-of-mouth promises to correct the misapprehensions held by so many in-house counsel.

Keywords: litigation finance, third-party litigation funding, in-house counsel, corporate law, corporate legal departments

Work Cited:  Phillip Bantz, Is Litigation Financing the Next Big Thing for Legal Departments, Corporate Counsel (Dec. 10, 2018) available at https://www.law.com/corpcounsel/2018/12/10/most-legal-departments-arent-using-litigation-finance-is-that-about-to-change/

Poll Shows Increasing Use of Third-Party Funding

A recent survey shows that about 25% of in-house counsel, mainly those at tech companies, have direct experience using litigation funding. The survey results also show some ambivalence about litigation funding. Although the decision to use third-party funding is often made by in-house counsel, those same lawyers have some ethical reservations about working with outside funders.

The survey respondents mainly came from in-house legal departments in the financial and banking industries; less than 5 per cent of respondents said they were in the tech sector. Even so, among those who said they had actually worked with a funder in a litigation matter, 36 per cent came from tech companies.

According to the survey results, most of the in-house respondents said that the decision to seek litigation finance is driven by company legal departments, not by executive management. That result presents an interesting contrast with another recent survey of law firm lawyers, who believed that the decision to bring in third-party funders was usually driven by outside lawyers.

Despite their willingness to work with funders, a number of in-house counsel expressed reservations about litigation funding. Of those who had used it, 30 per cent said they would recommend it strongly, while 45 per cent said they would recommend it with reservations; 25 per cent said they would not recommend it.

Of those respondents who had not used litigation finance and said they would not consider using it, the primary reason cited was “ethical reservations,” followed by having heard “negative information” about the practice.

Keywords: litigation finance, third-party litigation funding, in-house counsel

Work Cited:  Ben Hancock, In-House Counsel Poll Finds a Quarter Have Used Litigation Finance—Mainly in Tech, The Recorder (Feb. 28, 2018) available at https://www.law.com/therecorder/2018/02/28/in-house-counsel-poll-finds-a-quarter-have-used-litigation-finance-mainly-in-tech/