When you’re involved in a legal dispute, the costs of pursuing your case can quickly add up. From attorney’s fees to expert witness costs to court filing fees, the expenses can be overwhelming, especially if you’re an individual or a small business. That’s where litigation finance companies come in. Let’s walk you through it.
Litigation finance, also known as legal funding or third-party funding, is a way for plaintiffs and law firms to get the financial support they need to pursue their legal claims.
In this article, we’ll take a deep dive into what litigation finance companies are, how they work, and why they can be a game-changer for those seeking justice.
What is Litigation Finance?
Litigation finance, also known as lawsuit funding or pre-settlement funding, is a specialized form of financing that provides plaintiffs with the financial resources they need to pursue their legal claims.
Definition of Litigation Finance
At its core, litigation finance is a form of non-recourse funding provided by a third party to a plaintiff or law firm involved in a legal claim. The funding is based on the anticipated settlement or judgment in the case.
If the case is successful and results in a financial recovery, the litigation finance company receives a portion of the proceeds. If the case is unsuccessful, the plaintiff owes nothing to the financier. It’s a risk-free way for plaintiffs to pursue their legal rights without worrying about upfront costs.
How Litigation Finance Works
The process of obtaining litigation funding is relatively straightforward. First, the plaintiff or law firm applies for funding with a litigation finance company. The financier then conducts due diligence on the case, assessing the merits of the claim and the likelihood of success.
If the financier decides to provide funding, they will offer a funding agreement outlining the terms of the arrangement, including the amount of funding and the percentage of any recovery that will be paid to the financier. Once the agreement is signed, the funds are typically disbursed in stages as the case progresses.
Types of Litigation Finance
Litigation finance comes in various forms, each designed to meet the unique needs of plaintiffs in different types of legal cases. The most common types of litigation finance include:
Consumer Litigation Finance
One common type of litigation finance is consumer litigation funding. This is designed for individual plaintiffs who have been injured due to the negligence or wrongdoing of another party, such as in a personal injury or civil rights case.
The funding amounts are typically smaller than in commercial cases, ranging from a few thousand to a few hundred thousand dollars. The funds can be used to cover medical expenses, lost wages, and other costs while the plaintiff awaits a settlement or judgment in their case.
Commercial Litigation Finance
Commercial litigation finance, on the other hand, is aimed at businesses involved in legal disputes. The funding amounts are much larger, often in the millions of dollars, and the cases are more complex, such as patent infringement or breach of contract claims.
The funds can be used to hire top-tier legal talent, cover operational costs, or even fund an acquisition or expansion. For example, a startup that has had its intellectual property stolen by a larger competitor could use litigation funding to hire a top-notch law firm and pursue their claim without having to divert resources from their core business.
Law Firm Litigation Finance
Another type of litigation finance is law firm funding. This is where the financier provides funds directly to a law firm to pursue contingency fee cases. Contingency fee arrangements, where the law firm only gets paid if they win the case, can be risky for firms, especially in complex and lengthy litigation.
With litigation finance, law firms can take on more contingency fee cases and level the playing field against deep-pocketed defendants. The funds can be used to cover case expenses, hire expert witnesses, and even expand the firm’s practice areas.
Benefits of Litigation Finance
Litigation finance offers numerous benefits to plaintiffs who are struggling to make ends meet while pursuing their legal claims. Many of its advantages include:
Access to Justice
One of the primary benefits of litigation finance is that it provides access to justice for those who may not otherwise be able to afford to pursue their legal claims. Without funding, many plaintiffs are forced to either abandon their claims or accept lowball settlement offers from defendants with deep pockets.
With litigation funding, plaintiffs can hire top-tier legal representation and pursue their claims to the fullest extent of the law. As a result, more meritorious claims are brought and the playing field is leveled between individual plaintiffs and well-funded defendants.
Risk Mitigation for Plaintiffs and Law Firms
Another benefit of litigation finance is that it mitigates risk for both plaintiffs and law firms. Because the financing is non-recourse, plaintiffs do not have to worry about being saddled with debt if their case is unsuccessful.
According to the American Bar Association, LexShares released “The Litigation Funding Barometer,” a report analyzing case types best suited for non-recourse financing. Using data from their Diamond Mine software, which evaluated over 30,000 cases, the report found that federal cases, particularly those involving trade secrets, antitrust, and contract disputes, offer stronger funding opportunities than state cases.
While the report reflects the investment potential of different case types, it serves as a valuable indicator of how the funding industry perceives the U.S. litigation landscape.
For law firms, litigation finance allows them to take on more contingency fee cases without worrying about the financial risk. If a case takes longer than expected or if there are unexpected expenses, the financier bears that risk, not the law firm.
Strategic Advantage in Litigation
Finally, litigation finance can provide a strategic advantage in litigation. With funding, plaintiffs and law firms can hire the best experts, conduct thorough discovery, and mount a robust case against even the most well-funded defendants.
In our experience, having a well-funded legal team can be the difference between a nuisance settlement and a substantial recovery. Defendants often try to drag out litigation and bury plaintiffs in paperwork to pressure them into settling for less. With litigation finance, plaintiffs can afford to play the long game and hold out for a fair settlement or judgment.
Choosing a Litigation Finance Company
When choosing a litigation finance company, it’s important to look for the following:
Track Record and Experience
When choosing a litigation finance company, it’s important to look for one with a proven track record of success and experience in funding similar cases to yours. Look for a financier that has been in business for several years and has a portfolio of successful cases.
It’s also important to work with a financier that has a deep understanding of the legal industry and the specific challenges of your case. The team at Mayfair Legal Funding, for example, has decades of combined experience in law and finance, giving us unique insight into the needs of plaintiffs and law firms.
Transparency and Reliability
Another key factor to consider is transparency and reliability. The litigation finance company should clearly explain the terms of the funding agreement and be upfront about any fees or charges. They should also have a track record of timely disbursement of funds and responsive communication.
At Mayfair Legal Funding, we pride ourselves on our transparency and reliability. We work closely with our clients to ensure they understand the terms of the funding agreement and feel comfortable with the arrangement. We also have a dedicated team of funding specialists who are available to answer any questions and provide support throughout the litigation process.
Flexible Funding Options
Finally, it’s important to choose a litigation finance company that offers flexible funding options tailored to the specific needs of your case. Some cases may require a large upfront investment, while others may need smaller amounts disbursed over time as the case progresses.
At Mayfair Legal Funding, we offer a range of funding options to suit the unique needs of each case. Whether you need a lump sum payment or staged funding, we can work with you to create a customized funding plan that fits your budget and timeline.
The Bottom Line on Litigation Finance
Litigation finance can be a powerful tool for plaintiffs and law firms seeking to pursue their legal claims. By providing non-recourse funding for legal expenses, litigation finance companies level the playing field and provide access to justice for those who may not otherwise be able to afford it.
If you’re considering litigation funding, it’s important to choose an experienced and reputable financier like Mayfair Legal Funding. Our team has a proven track record of success in funding a wide range of cases, from personal injury to commercial litigation.
We offer flexible funding options and work closely with our clients to ensure they feel comfortable and informed throughout the process. So if you’re ready to take the next step in your legal journey, contact Mayfair Legal Funding today at (888) 357-1338 to learn more about how we can help.
