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Litigation Funding: What You Need to Know

Ever heard of litigation funding and wondered what it is?

Litigation funding, also known as litigation finance, has grown in prominence the past few years, and it’s about time you get up to speed with an increasingly influential factor.

What Is Litigation Funding?

Litigation funding, at the most basic level, is when a third party provides funding capital to a plaintiff and sometimes even a defendant.

In turn, once the case is won, the third party will get a portion of the lawsuit financial recovery. The capital provided most often than not goes into the costs of litigation, which include investigations fees, attorney fees, court expenses, and expert witness fees where applicable.

The litigation funding capital is not considered a loan.

If the case is lost or the plaintiff does not get any financial recovery, they don’t owe the third party anything. The funder is always aware that they will only receive a payout if a settlement is reached or the case is won. If the case is lost, they lose their investment.

Who Uses Litigation Funding?

In truth, anyone can benefit from litigation finance.

It’s presumably for those who can’t afford litigation costs and are at a disadvantage. Sometimes, litigation can be quite expensive when you factor in attorney fees, court fees, investigations, witness preparations, research, depositions, et al.

As a result, a lot of people seeking justice abandon their claims because they cannot afford it. Some have very compelling cases, and this is where litigation funding comes in. Once these cases are funded, it levels the playing field and increases the chance of winning the case and getting justice.

Still, litigation finance can benefit individuals, mass tort claimants, businesses, and even Fortune 500-companies.

Now, you probably want to know why a Fortune-500 company would need litigation funding. You see, anytime these companies undo litigation, something such companies undergo a lot, the expenses are usually deducted from their balance sheet.

These could mean millions of dollars in lost capital, something they can’t afford. Some of these companies juggle multiple lawsuits at any given time, which could cripple their business, hence the need for litigation funding.

What Are the Benefits of Litigation Funding for Claimants?

One of the most significant benefits of lawsuit financing is the fact that the less privileged can have a chance against the wealthy. Wealthy opponents use all tactics possible to exhaust the opponents through motions and delays until the legal costs are too high, which pushes them to abandon the case.

The next best thing is that litigation funding is not a loan. Most people seem to misunderstand litigation financing by thinking of it as a loan. However, it’s an advance, and claimants never have to pay investors back.

Legal funding is a non-recourse process, so neither the claimant nor the lawyer will repay anything if the case closes against their favor. This is one of the most significant benefits of litigation funding because both the claimant and the attorney will dive into the case without worry.

With litigation funding, you’d have enough time on your side to scoff at low-ball offers that are simply unacceptable.

You’d have a better chance of negotiating for an equitable payout. Beyond that, the plaintiff gets access to top legal talent that they would otherwise not afford, which could make a significant difference in the outcome of the case.

What Are the Benefits of Litigation Funding for Lawyers

Third parties also invest in lawyers and not just claimants.

Lawyers go for pre-settlement funding so they can get the flexibility that allows them to pick cases from a plaintiff who can’t afford their fees. The legal system is sadly so expensive, and lawyers are turning to litigation financing so they can take up cases they would otherwise turn away.

They can get justice for those who deserve it without thinking much about the costs. Sometimes, litigation funders fund an entire portfolio of cases and not just in single cases. Portfolio financing is a thing, and it allows lawyers to take all kinds of cases without worrying about legal fees.

Basically, with all things catered for, the chances of a higher payout are high because clients no longer accept low-ball offers.

Why Do People Invest in Litigation Finance?

More and more people are looking to diversify their investment portfolios, and under the right circumstances, most cases end up with a hefty payout. Besides, their money is not tied up to the markets, and regardless of the financial economy, there’s a chance they’ll reap the benefits, and the liquidity time is decent.

Why Some People Are Against Litigation Funding

Not everyone is for pre-settlement funding, and with some good reasons. In fact, the US Congress is pushing for industry regulation.

But why?

To begin with, lawsuit financing increases frivolous lawsuits. If people don’t have to worry about legal expenses, they can sue just about anyone and try to get an undeserved payout. Of course, investors are more diligent and don’t fund cases for the heck of it.

There is also a fear that once third parties fund a lawsuit, they’re likely to influence the outcome in their favor. However, litigation funders can’t make legal decisions when it comes to these cases.

Other people are worried that it increases the trial times, given that claimants don’t need to take an early settlement. It may also increase the number of lawsuits being filed, which is essentially true.

However, the point of the legal system in the first place is to ensure people get justice when wronged. If this means more overall cases, it should not be a problem as long as everyone gets what they deserve, right?

Litigation Financing Provides Equality of Opportunity

People don’t have the same access to the legal system, and more often than not, the less privileged lose a lot.

With litigation funding, these claimants have a better chance of winning cases as they have access to the justice money comes with. Litigation financing should be viewed as equality of opportunity. In the near future, financing a lawsuit will be as common as financing a car.

To read other interesting articles, explore our blog.

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