Tag Archives: Litigation Finance

Ethical Considerations in Litigation Funding

This blog is specifically targeted at concerns for the plaintiff’s lawyer to consider when their client is utilizing litigation funding.  There are three main concerns to keep in mind when considering litigation finance and your client: loyalty & conflicts of interest, lawyer independence, and confidentiality/attorney-client privilege.

Duties of Loyalty and Conflict Free Representation: the Rules of Professional Conduct govern conflicts of interest.  Therefore, it could be a problem if an attorney affirmatively advises a client to accept a third-party’s funding that will ultimately benefit the attorney and his/her firm in the end.  However, that does not mean that attorney’s can never advise their clients on third party funding.  Instead, the attorneys should just exercise complete disclosure of the various interests at stake when giving advice regarding alternative litigation funding.

Lawyer Independence: again, according to the Rules of Professional Conduct (particularly rules 1.2(a), 2.1, & 5.4), the plaintiff’s attorney must decide how to handle the case, not the litigation funder.  There is particularly a risk that the funder will want the largest return possible and may not want to encourage a settlement if they believe a trial will result in more money in damages.  This is why it is important to find a litigation funder that takes a hands off approach after agreeing to invest in the case.

Confidentiality and Protecting the Attorney-Client Privilege: generally, a litigation funder will require the client to authorize counsel to release information otherwise protected by attorney-client privilege as part of the underwriting process.  There is a risk here that opposing counsel will argue that by sharing confidential litigation information with a funder the client has voluntarily waived any attorney-client protections.  Different courts have handled this differently but it is best for the attorney to discuss this potential concern with their client upfront and to see how the jurisdiction may have handled this in the past.

These concerns are not meant to prohibit litigation funding but rather to just explain certain risks so that any potential problems can be avoided.  Thus, helping the funder, client, and the attorney by hopefully getting the best outcome possible for the case.

Topics:  litigation finance, alternative litigation finance, third-party funding, ethics, plaintiff attorneys, professional responsibility

 Works Cited:  David Atkins and Marcy Stovall, Litigation Funding: Ethical Considerations for the Plaintiff’s Lawyer, Connecticut Lawyer (February 2017) http://www.pullcom.com/news-publications-930.html

Types of Cases in Litigation Finance

First, it’s important to note that there is a difference between plaintiff and defendant litigation funding.  The market for defendant-side financing is still developing but any type of claim could be eligible for litigation finance.  Whereas, funding on the plaintiff-side is more common but can be limited based on the funder, either to cases that involve commercial damages claims or personal injury claims.

Each funder will have different qualities that they may require for a case to be a good candidate for financing.  The benefits and potential downsides have to be weighed case-by-case in addition to considering the overall value of the case.  Funders usually like to see a strong chance of winning to fund a case because that is ultimately how they will make money in return.  But financing litigation is not always all or nothing.  It is possible that an organization will offer to fund a particular percentage of a case.

For personal injury cases in particular, the value of a case can usually be determined by looking at the damages + liability + insurance.  Some damages are easily measured in monetary form, be it from surgery or some other form of medical bills.  But calculated the exact value can be difficult until you’ve stopped treating your injuries and you’ve reached maximum medical improvement.  Additionally, insurance is usually easily calculated.  Liability however, is very important; the defendant should only have to pay when it was their fault.  But it is much more difficult to calculate.

Even if the plaintiff may have large capital, the ability to link expenditures to a successful outcome may be extremely attractive.  Litigation finance can serve as an alternative to a contingent fee agreement since money is only paid back if there is a favorably outcome.  Therefore, litigation financing can be a good option for a lot of different people and for many different types of claims.

Topics:  litigation finance, alternative litigation finance, third-party funding, types of cases, personal injury cases, commercial litigation funding

 Works Cited: Westfleet Advisors, Guide to Litigation Financing (May 2015), https://www.americanbar.org/content/dam/aba/administrative/litigation/materials/2015_spring_leadership_meeting/guide_to_litigation_financing_may_2014_charles_agee.authcheckdam.pdf

 Bridgeway Legal Funding, The Guide to Pre-Settlement Advances, https://www.bridgewaylf.com/guide-pre-settlement-advances

A Comparison: Litigation Finance in England and Wales

Litigation funding by third parties has been a part of the English and Welsh legal systems for quite some time now.  The foundation was established through Legal Aid in England in which the government provided funding to individuals so that everyone had access to the courts.  Through a series of regulations and legislation the system today looks a little bit different, as legal costs have increased there have been cuts and reductions in the system.  But that foundation is quite similar to what organizations like TownCenter Partners try to do for individuals, allowing everyone access.

Today, there are about 11 principal litigation funders in the UK.  Each of these organizations has slightly different business and funding models.  Allianz Litigation Funding, a branch of the German Allianz Insurance Company, handles each investment on a case-by-case basis with some variance terms even based on the cost-reward ratio.  Whereas, Therium works by investing in law firms and their handling of a case, primarily focusing on building law firm relationships.

There is no standard litigation-funding fee across the market and each agreement may have slightly different terms, as there is no industry standard.  Many of the funders in the UK market agreed that while the idea of litigation funding has existed in some form for a while, the market is still maturing.  Funders have not yet fully embraced the idea of competing on price like insurers do.

Similar to the US system, funders highly value the change of success in deciding whether or not to invest.  UK funders said they want to see a chance of success of at least 60%.  But its not only the chance of success that the funders consider, they are also looking for meritorious cases, that would result in the enforcement of a legal right.  Funders noted that most claims require initial investigations on the evidence and merits before they will discuss potential funding.  This is in an effort to establish a high level of confidence in both the legal team and in the case.

Once litigation funders are involved many take a laissez-faire approach to the case.  Allowing the legal team and client to handle the case.  The separation of roles and responsibilities is a healthy way to handle any potential conflicts that could arise.  This is another similarity to how cases are handled in the US system.  However, UK funders noted that the funder has a contractual right in most cases to retract their involvement at any stage of the case. Ultimately, there is a Code of Conduct for Litigation Funders written by The Association of Litigation Funders of England and Wales that governs funders.

Topics:  litigation finance, alternative litigation finance, third-party funding, legal system reform, England, Wales, U.K., international

 Works Cited: Christopher Hodges, John Peysner, and Angus Nurse, Litigation Funding: Status and Issues, (January 2012) https://www.law.ox.ac.uk/sites/files/oxlaw/litigation_funding_here_1_0.pdf

Understanding Alternative Litigation Financing (ALF)

Alternative litigation finance is an outside funder (third-party) providing either an attorney or client with funds to proceed with a claim.  However, these agreements can vary greatly among funders and even greatly among cases handled by one funder, making litigation finance a complex field to understand.

What kinds of claims can ALF be used for? Even just a few years ago, third-party litigation financing was seen as only an option for personal injury claims against insurance companies.  While this remains an important aspect of litigation finance to bring justice to these victims, it is not exclusive to what alternative litigation finance can be used for at all. Now we see more use of ALF in complex commercial litigation and other types of claims.

How does a funder decide what cases to fund and how much to fund? Part of the reason the agreements between funders and clients vary so much is based on the size and risk of the case.  A lot goes into analyzing what is a smart risk for a funder to take, what kinds of cases particular funders want to take on, and doing due diligence on a potential case. But there are also many rules that limit what some funders may and may not be able to do.  For example, restrictions on the funder-attorney relationship, meaning how much or how little the funder can be involved in the case. There are also limits on contingent fee charges and lawyers advancing cash, so that an attorney may not advance more than the court costs and expenses of litigation.

Where does the money come from? Litigation finance companies receive the money they provide to clients from investors.  Investors are continuing to invest more and more because as this field grows, the proof of success continues to grow.  Most recent data has shown that litigation finance is very profitable.  The largest litigation funding firm, Burford Capital has profits of $142 million in 2017, up $27 million from the previous year.  Data like this shows that litigation is proving to be an attractive investment for many people, with its investment timeline typically requiring only a three to five year investment.

Hopefully this serves to demystify a field that is rapidly growing and proving to be very successful in the legal industry.

Topics:  litigation finance, alternative litigation finance, third-party funding, legal system reform

 Works Cited: Matthew Bogdan, Note, The Decisionmaking Process of Funders, Attorneys, and Claimholders, 103 Geo. L.J. 197 (2014).  Kevin LaCroix, The Latest on Third-Party Litigation Financing, The D&P Diary (Jan. 15, 2018).

Is Litigation Finance a Good Fit for Me?

Litigation finance is a helpful tool for many plaintiffs.  Here are four ways litigation finance can be useful to parities involved in lawsuits.

First, litigation finance levels the playing field for all people.  By that I mean that it promotes access to justice for everyone, including people who otherwise wouldn’t be able to afford it.  Litigation is expensive, from fees associated with discovery to attorney’s fees, filing fees, and much more, the cost of litigation would be a strain for most individuals and even some companies.  Using litigation finance allows plaintiffs to have more even power when going against a large company.

Secondly, litigation finances helps with risk management.  Even when your chances of winning a lawsuit are strong, it is never 100%.  There is always a risk in litigation.  But when using a litigation finance company it helps to mediate the risk by spreading it amongst all claims that the company is currently handling, thus there is a lower risk when you have a portfolio of claims rather than just one single claim.  Additionally, the typical litigation finance is not a loan but a cash advance, meaning that repayment is not required unless the lawsuit is won.  This lowers the risk on the plaintiff of worrying about how they will afford to pay back the funder if they do not win.

Litigation finance allows attorneys to do what they do best.  If you find yourself in litigation, you want to make sure you have the best representation possible for the situation, no matter what the costs.  By using litigation funding, you don’t have to look for attorneys that will take your case on contingency or on some alternate fee schedule.  Using outside funding will allow your attorneys to give their best effort to your case.

Lastly, litigation finance may allow for a faster and easier litigation process.  Particularly when facing large insurance companies, defendants may try to drag out a case causing the plaintiff to suffer financially or quickly settle for less than what they deserve just so that it doesn’t continue.  By involving a litigation finance company, defendants may see that you will be able to last longer in a law suit.  Thus, it can sometimes be the extra little push a defendant needs to settle the case earlier, but for a fair and reasonable amount.

Topics:  litigation finance, litigation costs, third-party funding

Works Cited:  Is Litigation Finance Right for You?, Uplift Legal Funding (Nov. 10, 2017), available at https://upliftlegalfunding.com/litigation-finance-right-for-you/

Millennials Spurring on the Growth of Litigation Finance

As the millennial generation, people born between 1981 and 1999, continues to advance in the workplace, they bring with them many thoughts and ideas for innovation. This is no different in the legal field.  In fact, the millennial generation, with its older individuals making partner in the last few years, will soon replace baby boomers as the dominant generation in working society.

As a group of individuals that have only experienced the legal market post-2008 recession, the millennial generation understands that the traditional hourly rate may not be the only way for firms to generate income.  Litigation finance is viewed by this generation as another avenue for firms to be more entrepreneurial.

Additionally, the millennial generation has grown up in a legal service’s buyer’s market, meaning they recognize the importance of innovation to keep the client happy and provide the best service possible.  They are pushing the market to change from a dormant market to a dynamic, collaborative one.

In a recent report entitled, “The Rise of the Millennial Lawyer,” legal industry consultant Jordan Furlong suggests, “predictably priced” as one of seven features that clients will expect to see from millennial-oriented law firms.  By that Furlong suggests that the “billable hour will survive but as an exception rather than the rule.”  As pricing structures evolve in the legal field, it will open up even more room for alternative litigation finance as a viable option to assist in legal endeavors.

With millennials at the helm of firms and as clients, alternatives and choice will become expected.  This generation is accustomed to having multiple choices for products at the tip of their fingers by being able to compare and contrast everything online.  Furlong suggests that this generation will weigh their options and use the most appropriate legal supplier for what they need.

By embracing these alternatives now, firms can set themselves up for future success as the transition from baby boomer to millennial only grows.

Topics:  litigation finance, millennial generation, legal innovation, pricing structures

 Works Cited:

 Michael Perich, Finance-Savvy Millennials are Shifting Business of Law, Law 360 (April 12, 2018)

Jordan Furlong, The Rise of the Millennial Lawyer, Lawyers On Demand (May 24, 2017)


Litigation Finance Opening Doors for Plaintiffs

While laws continually change and evolve, many believe that the legal system is stagnant.  Things have continually been done the same way for years and years.  However, new innovations such as litigation finance are in fact changing the system and producing growth.

It may not be a procedural change that people notice from the outside looking in.  But litigation finance allows plaintiffs more opportunities to bring claims that they may not have been able to bring just a decade ago due to a lack of resources.  It allows plaintiffs to enforce their rights and seek justice either in court or through another form of dispute resolution using the attorney of their choosing.

Litigation financing also benefits attorneys.  The use of litigation financing means attorneys and firms do not have to change their rates or compromise their pay structure to represent clients and take on new cases. Additionally, litigation finance also allows firms to compete for cases so that there is the best chance for a favorable outcome for the client.

Furthermore, litigation finance provides opportunities to seek global remedies.  According to Dilip Massand of SAS Asset Recovery in Dubai, “litigation finance has served to allow parties in one jurisdiction to pursue their rights and remedies in other jurisdictions where they may not have confidence in rule of law, or transparency into the legal process – not only in terms of finance, but also in terms of enforcement and collection of foreign judgments and arbitration awards.” This cross-jurisdictional impact allows for justice for more individuals and smaller parties than we’ve had in the past.

The use of litigation finance is rapidly growing, signifying a strong demand for the resource.  Whereas, litigation demand has been flat in the past decade, reports are now showing a growth in the past few years, which is thought to be at least partly attributable to new innovations in the legal field such as litigation finance.

Topics:  litigation finance, legal reform, litigation costs, third-party funding

 Works Cited:  Sanjay Kamlani and David Perla, Taste the Soup! Innovation is Hiding in Plain Sight in the Legal Profession, Above the Law (February 27, 2018)

The Mechanics of Obtaining Alternative Litigation Funding

Plaintiffs and plaintiffs’ law firms are often unfamiliar with the process of obtaining alternative litigation funding (“ALF”).  Despite differences in applicable law in various jurisdictions, this process – and the agreements typically associated with obtaining ALF — have become increasingly standardized and widely accepted.  Established companies which provide ALF have experience with the issues involved in obtaining ALF and are able to guide potential clients through this process.

A litigation funding agreement (“FLA”) will typically be preceded by a due diligence period and which may include an exclusivity agreement. This process may be concluded in weeks or even days, depending on how well developed and how close to trial the case is.  A case which is still in the early stages will most likely take longer to assess and involve more risk.[i]

Funders typically ask for pleadings and/or a summary of the legal and factual arguments.  They may also ask for the key evidence that both supports and refutes the claims.  Funders also require a measurable theory of damages, even if it is preliminary.

Maintaining the attorney-client privilege and the protections provided by the work product doctrine are central to this process and beyond.[ii]  A non-disclosure agreement is typically executed at the outset of the due diligence period, and other precautions are taken to preserve the confidentiality of information.  Provisions designed to maintain these protections are incorporated into the final funding agreement.[iii]

If the parties reach a tentative agreement regarding the budget, the use of funds, the estimated duration, and other key terms, the funder will issue a term sheet and draft agreement.  The final agreement (which may contain ancillary agreements) will typically also address issues such as termination, priorities in distribution, maximum investment, verification, and notifications.

The American Legal Finance Association (“ALFA”) maintains a Code of Conduct for its members (which include TownCenter Partners, LLC).  ALFA’s Code of Conduct requires that its members comply with the laws, regulations and other rules of applicable jurisdictions, as well as adhere to the standards set forth in the Code.  ALFA has also developed standardized documentation for funding agreements for use by its members.[iv]

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.

Topics:  Litigation finance, litigation finance market, third-party funding, alternative litigation finance, litigation finance process, litigation finance agreements, due diligence, funding agreements.

[i] Mick Smith, “Mechanics of Third-Party Funding Agreements: A Funder’s Perspective” p. 28–35.

[ii] This issue is discussed in detail in other articles posted in this Blog.

[iii] Maya Steinitz, “A Model Litigation Contract, Litigation in Theory and Practice” (April 29, 2013), available at http://litigationfinancecontract.com/2013/04/.

[iv] https://americanlegalfin.com/

The Future of Litigation Financing

Alternative litigation financing (“ALF”) has seen dramatic growth in recent years, quadrupling between 2013 and 2016.[i]  Still, “the demand in the legal world is [] much higher than the supply of litigation finance”.[ii]

Several observers have noted that ALF will continue to expand in coming years, not only in volume, but into new areas.  One area set for expansion is the use of ALF by corporate law departments, where companies are increasingly interested in minimizing their litigation costs and risks.[iii]  ALF is also increasingly being used to fund an entire portfolio of cases, for many of the same reasons.

ALF is also being seen as a way to shift away from alternative fee arrangements, which currently may account for 80 or 90 percent of all revenues at many firms.[iv]  ALF provides a funding mechanism for relieving the pressures these fee arrangements place on both attorneys and clients.

Finally, the legal contexts in which ALF is utilized is expanding.  Historically used to fund plaintiffs’ personal injury cases, ALF continues to expand into the areas of appellate litigation, bankruptcy, tax matters, and private equity.[v]  It is also used during the enforcement stage of litigation.[vi]

In the appeals and enforcement context, ALF is recognized as a way to “hedge [against the] downside exposure [] and any further proceedings . . .  at a reasonable price [as well as] provide much needed liquidity” throughout resolution of legal matters.[vii]

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.

Topics:  Litigation finance, litigation finance market, third-party funding, alternative litigation finance, trends, enforcement, future, expansion, portfolio financing, bankruptcy, appeals.

[i] New York Law Journal, July 17, 2017, available at https://www.law.com/newyorklawjournal/almID/1202792922820/.

[ii] Mauritius Nagelmueller, “Recent Developments in Litigation Finance (Part 2 of 2)”, Litigation Finance Journal (December 11, 2017), available at https://litigationfinancejournal.com/recent-developments-litigation-finance-part-2-2/.

[iii] Bloomberg, “The Business of Litigation Finance is Booming” (May 30, 2017), available at https://www.bloomberg.com/news/articles/2017-05-30/the-business-of-litigation-finance-is-booming.

[iv] Thompson Reuters/Georgetown Law Center for the Study of the Legal Profession 2017 Report on the State of the Legal Market, available at https://static.legalsolutions.thomsonreuters.com/static/pdf/peer-monitor/S042201-Final.pdf.

[v] New York Law Journal, supra.

[vi] “Recent Developments in Litigation Finance (Part 2 of 2)”, supra.

[vii] Alison Frankel, “Litigation Funding in Bankruptcy ‘Should Be in Every Trustee’s Toolkit”, Reuters (March 14, 2017), available at https://www.reuters.com/article/us-otc-bankruptcy/litigation-funding-in-bankruptcy-should-be-in-every-trustees-toolkit-idUSKBN16L2HJ.


Court Rules Litigation Financing an Investment, Not a Loan

One of the current legal issues confronting the alternative litigation financing (“ALF”) industry is whether ALF qualifies as a loan – subject to statutes and regulations governing lending activities – or an investment.  Precedent is not uniform, but the most recent decision by the Georgia Court of Appeals in 2017 holds that ALF does not come within the state’s statutes governing loans.

In Cherokee Funding, LLC v. Ruth, 342 Ga. App. 404 (2017), the plaintiffs made separate litigation funding arrangements to receive several thousand dollars in exchange for agreeing to share any recovery they might receive in their lawsuits. When the plaintiffs settled their lawsuits, they claimed that the arrangements violated two state statutes regulating loans.  The court of appeals disagreed, holding that a loan was an agreement to advance money that required repayment.  Because the funding agreements at issue required repayment only if the plaintiffs achieved a recovery, the court concluded that the agreements were investment contracts that fell outside the scope of the statutes.

Cherokee Funding, LLC v. Ruth is pending before the Georgia Supreme Court. 

State courts are not uniform on this issue, however.  The Colorado Supreme Court in Oasis Legal Finance Group, LLC v Coffman, 361 P.3d 400 (Colo. 2015), held that that lawsuit funding agreements created loans that are subject to Colorado’s consumer finance statute.

Given the conflicting authority, careful attention should be paid to which jurisdiction’s law applies.  A choice of law provision in the funding agreement – an issue addressed in another blog on this site – is one potential method to address and resolve this issue.

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.

Topics:  Litigation finance, litigation finance market, third-party funding, alternative litigation finance, investment, loan, “Cherokee Funding”, “Oasis Legal Finance Group, LLC”.