At the outset of litigation of any size, we can make two predictions: First, it will last
longer than most plaintiffs will expect, despite what their attorneys warn them to
prepare for. Second, the case will cost a lot of money to prosecute. At its best, litigation
is expensive. At its worst, litigation is backbreaking.
Enter the lawsuit funding industry. Until just a few years ago, lawsuit funding was a
largely untapped - and unregulated - industry. But in those few years, the idea of
injecting funds into some phase of ongoing litigation has gripped entrepreneurs, hedge
funds, venture capitalists and even some banks like few other money making
opportunities. As a result, the lawsuit funding industry has exploded.
There are several avenues that a litigation funding company can use to make money in
a lawsuit. These avenues may look different, but they all have one thing in common.
The litigation funder will advance money to finance a party or its law firm at little or no
risk to the funder’s client.
The early lawsuit funders worked with mostly injured and unemployed personal injury
plaintiffs to cover their basic expenses, like rent and food, until the case settled. That is
still a lucrative investment, but in recent years, funding companies have ventured into
higher dollar commercial and class action lawsuits working with all players in the
game. Not only plaintiffs, but defendants, corporate legal departments, and the law
firms that represent any of these parties can benefit from commercial litigation funding.
For the funding companies, the opportunities are almost endless and the potential
rewards are soaring.
The plaintiff side is probably the easiest to picture. Just like with the individual personal
injury plaintiff, the commercial plaintiff has been damaged in some way, often
jeopardizing on-going business operations. Perhaps a vendor reneged on a contract to
supply a cornerstone component in the manufacturing process. Or, another company
infringed on a patent. The plaintiff files suit, but the damage has jeopardized its ongoing
business operations. Enter the litigation funder. The money provider will assess
the litigation to determine whether the lawsuit is viable, how much it is liable to net, the
financial strength of the defendant, and other factors that will indicate the value of the
litigation to the plaintiff. Based on this vetting, the litigation funding company will
agree to advance money to the plaintiff against any eventual settlement or award.
Whereas an individual suing an insurance company over a car accident might receive
advances totaling a few thousand dollars, the commercial case could require that
hundreds of thousands or even millions of dollars change hands in tranches tied to
milestones in the case. For this service, the litigation funding company will charge a fee,
sometimes different kinds of fees for different purposes.
These transactions are not loans. They are non-recourse investment vehicles. The
transaction is set up so that the plaintiff company is only required to pay back the
advance when the case settles or the plaintiff obtains a final judgment against the
defendant. If the plaintiff loses or the case is resolved with no money due the plaintiff,
the litigation funding company receives nothing. Consequently, it is the funding
company, not the plaintiff, that takes on virtually the entire risk in this type of
The law firm representing the plaintiff can find itself in similar straits. It may have
taken the case on a contingency basis, which could run 33% to as much a 50% of the
plaintiff’s eventual recovery. In the meantime, it will find itself advancing tremendous
amounts on the plaintiff’s behalf with little hope of replenishment for months or even
years. These expenses can be considerable. Relatively simple commercial cases can
require dozens or even hundreds of depositions at a thousand dollars or more a day for
a court reporter and transcript. Plus, the attorney can be fronting fees for court costs,
travel to depositions and hearings, hourly fees for legal research databases, contract
attorneys for company document reviews during discovery. Even the penny-ante
expenses like mail and delivery fees add up. All the while the law firm has to pay its
regular expenses like rent, salaries, phone, and equipment purchases, while it waits for
its fees to be paid.
When they need help, law firms will seek out funding resources that will advance funds
based on the attorney’s contingency fees. As with the plaintiff’s transaction, the funding
company makes a dividend on its investment in the law firm’s participation only when
the case is decided in the plaintiff’s favor and the law firm is paid its contingency fee. If
the plaintiff loses or receives no money, the law firm will not be paid its fee or obtain
any reimbursement of expenses. Because the funding transaction is structured as non-recourse
to the law firm (as it is to the plaintiff), the law firm is not required pay back
the funding company, which loses its investment in the case. Again, the investment
company takes on virtually the entire risk.
Litigation funding on the defense side is not as obvious as it is with the plaintiff.
Nevertheless, there is fertile ground for litigation funders working with defendants.
How this works may be more difficult to comprehend because we see litigation not as a
source of money for the defendant but as a source of expense. How can litigation do
anything but cost a company money, even if it wins the case? Litigation funding for
defendants is designed to limit the defendant’s exposure by reducing the risk of loss
and increasing the defendant’s bargaining power.
Imagine a defendant is sued for $100 million. It vehemently contends that the suit has
no merit. Despite that, it still has to defend the case in court. The defendant, however is
pragmatic. It recognizes that litigation is expensive. It estimates that attorney’s fees and
expenses alone will cost $3 million. Because of the expense, the inherent uncertainties of
litigation, and many other intangibles like opportunity costs and unfavorable publicity,
the defendant decides early in the case that it is willing to settle for $30 million.
That is not the end of the story. The funding company can reduce the defendant’s
potential exposure, which will allow the defendant to increase its bargaining position
and in effect hold out for a better deal. This is how it works: The funding company
agrees to put up as much as $3 million to cover costs of litigation, then take twice that
for a fee if the case settles for less than $30 million. Since the defendant doesn’t have to
put out the cost of litigation and it knows its potential outlay is lower, it will hold out
for better settlement terms.
Now imagine that the defendant settles the case for $15 million, half of its original
estimate, the funding company will be paid $3 million to reimburse it for the litigation
expense outlay plus $6 million in fees, or twice the cost of the litigation. The defendant’s
total cost is $24 million ($15 million to the plaintiff and $9 million to the litigation
funding company) instead of the $33 million it would have paid absent the funding
Because its exposure is capped at the company’s original estimate of settlement amount
Plus the costs of litigation, if the company settles for an amount at or higher than the
estimate, it is still no worse off and could be significantly better off with the funding
agreement in place.
Litigation funding companies have opened new territory and developed investment
products that reduce the uncertainty inherent in large scale litigation for plaintiffs,
defendants and their law firms. The industry is poised for virtually unlimited growth as
more litigants and their attorneys come to understand the benefits of law suit funding.
If you or your business find yourself in lengthy and expensive legal battle and want to level the playing field against deep pocketed litigants, then you should consider reaching out to a commercial litigation funding company. One of the premier legal funding companies is Tribeca Capital Group’s lawsuit loan division; Tribeca Lawsuit Loans. Applying for a legal funding with Tribeca is quick and easy, you can visit our website https://tribecalawsuitloans.com and you can to speak with one of our seasoned and knowledgeable representatives. It is completely no risk and there aren’t any upfront fees or costs. So what do you have to lose? Better yet, we can help you win. Call Tribeca Lawsuit Loans today at 866-388-2288. One of our friendly and courteous staff will explain the process and help you get the funding you need.