Undoubtedly, the U.S. litigation funding market has enjoyed impressive growth in recent years. According to a recent annual market survey, litigation funding companies committed $2.8 billion toward new deals in 2021, an 11% increase from the previous year. Despite its growing interest, there are several misconceptions about the benefits and impact of litigation funding for litigants and attorneys. What benefits can litigators achieve through funding? Following are 10 of the most frequently asked questions.
Benefits of Litigation Funding for Litigants
The following are some of the benefits of litigation funding for litigants:
- Enhance access to justice: Litigation funders empower claim holders to bring legal action they would not have otherwise been able to due to lack of finances. Litigation and arbitration are generally expensive and out of reach for many people and litigation finance is a tool that can be used to level the playing field.
- Improves claimant’s liquidity and budget: The finances that the claim holder would have used to finance the litigation go to other profit-generating purposes, including investing in business growth.
- Hedges your risk: Apart from being expensive, litigation is also risky. A litigation funder’s services are beneficial when a party is ready to file a suit but doesn’t want to risk sinking costs in legal fees.
Litigation Funding: 10 Frequently Asked Questions
What is litigation funding?
Litigation funding or litigation finance is an arrangement that allows a funder to pay part or all of a claimant’s legal expenses on a non-recourse basis. If the claim fails, the funder receives no recovery.
What are the types of litigation funding?
There are two primary types of litigation funding:
- Commercial funding: Commercial funding is for businesses and law firms. The funding helps reduce litigation costs and increases profitability by defraying out-of-pocket costs and fees either partially or entirely.
- Consumer funding: Consumer funding benefits individual claim holders. The funding defrays litigation costs while providing an advance to meet living and medical costs.
What are the types of disputes that qualify for litigation funding?
Commercial litigation funding is for a wide range of disputes, including arbitration, patent disputes, intellectual property infringement and theft, contract disputes, insolvency, and more. Consumer funding is explicitly for litigants pursuing torts and personal injury claims.
Is litigation finance only for plaintiffs?
This is a misconception. Although commercial litigation funding was to help plaintiffs with commercial cases pursue claims, its scope has expanded. Today, there is a wide range of funding for defense matters based on a single case or portfolio of cases.
Is litigation finance used to pay for litigation costs only?
No. Litigation finance doesn’t necessarily mean you only have to spend the money on litigation. Apart from providing capital to pay for some or all of the associated legal fees and costs, the funding can also provide a business’s working capital or operating capital. This means that you are at liberty to monetize a section of the litigation claim for a business and use the money for diverse lawful purposes, including expansion to new markets or generally paying overhead expenses.
Will the litigation funder have any control over the litigation?
Accepting money from a litigation funder will not add a decision-maker to the litigation. Although a litigation funder is a partner in litigation, they prefer to have no direct involvement in an ongoing lawsuit. While funders may communicate periodically with counsel on the case’s progress, the entire litigation strategy remains in the attorney’s complete control. In a nutshell, partnering with a litigation funding firm can’t interfere with the relationship between the lawyers and their clients.
Are litigation funding documents discoverable in court?
Many clients wrongly perceive that litigation funding documents will be discoverable in court to complicate their case. However, several courts have ruled litigation documents are not discoverable. A 2021 Westfleet Advisors review shows the U.S. courts continue to protect the confidentiality of litigation funding. Recently, several decisions have ruled that a litigation funding agreement isn’t relevant to the claims and defenses between parties. Others have also ruled that funding-related documents and communications are protected under the work product doctrine.
Will attorney-client privilege be waived once I engage a litigation funder?
Usually, engaging a litigation funder cannot waive attorney-client privilege. Although litigation funders can review confidential case materials, they can’t generally review attorney-client communications. Additionally, the attorney cannot disclose confidential information to third parties when the client gives informed consent. The client is free to tell the funder any information other than what the attorney and the client discuss together. Provided the client doesn’t disclose privileged discussions with their lawyers, they are free to discuss a great deal about the case with the funder.
When is the best time to seek litigation funding?
There is no specified time to seek litigation funding. One can seek funding at any stage of litigation, right from pre-filing through appeals and judgment enforcement.
How long will I wait to get the funding?
There are several factors that determine the time it takes to secure funding. These include the amount of funding you are seeking and the type of litigation you are pursuing. Larger funding and more complex cases generally require a couple of months to secure funding.