In the legal world, the cost of battles can be staggering. Litigation is a long, expensive process, especially for an individual and small business. However, in the past few years, one robust solution has emerged for the same which is litigation finance. Now you might be wondering what litigation finance is, how it works, etc. Litigation financing, sometimes called “third-party litigation funding or litigation funding firms,” provides financial assistance to one of the opposing parties. This is in exchange for a share of the final settlements.

In this blog, we will share with you more about litigation finance, its types, key steps, etc. So continue reading below. 

Litigation Finance Explained

Litigation finance is a game-changer in the legal industry. But what exactly is it?

In simple terms, litigation finance is a funding solution for legal disputes. It allows plaintiffs who may lack the financial resources to pursue their cases. This can cover various expenses like legal or attorney fees and court costs.  

Moreover, third-party litigation funding is a growing trend that benefits both individual plaintiffs and law firms. For plaintiffs, it provides the opportunity to seek justice without the burden of financial constraints. Law firms also benefit from litigation finance to take on more cases and mitigate the risk involved.

Types of Litigation Finance

This kind of specialty lawsuit funding falls into two broad categories: “commercial” and “consumer.”  

Consumer Litigation Financing

It refers to when people who are taking legal action get money upfront for their personal injury or other personal cases. This money does not need to be paid back unless they win their case and receive payment for their claim.

Generally, only the money advanced plus any litigation costs related to the lawsuit would be owed. The person receiving the money isn’t very experienced with the legal system and probably won’t have a lawyer representing them during the funding process.

Commercial Litigation Finance

It’s a practice where a third party, often specialized legal financing companies or an investor, provides funding to a party involved. This is common since substantial financial resources are required to defend a legal claim.

In commercial litigation finance, the funding entity agrees to cover the legal costs associated. This is in exchange for a part of the settlement or judgment if the case is successful. If the funded party loses the case, the third-party funder typically does not recoup its investment. It’s also called a non-recourse arrangement.

Other types of litigation financing involve:

  • Single-case financing. It offers financial support for a single lawsuit or arbitration to cover legal costs. Defendants can use it if they agree on a repayment plan.
  • Portfolio financing. It backs multiple cases or arbitrations for litigation funding firms or companies. This involved recovered funds going towards paying back the investor. Defense-side cases can also benefit from this arrangement.
  • Multi-party financing. It’s found outside the US. It helps finance group claims or class actions against shared opponents. Claim types vary, including securities, environment, and product liability issues.

Due Diligence Process in Litigation Finance

In legal financing, due diligence is a process that involves an examination of the legal, financial, and procedural aspects. This process helps litigation funders assess the risks and potential returns.

Here are the key steps involved:

Initial case evaluation

Identify and review the key details of the legal case. This includes parties involved, legal claims, and potential damages.

Moreover, it assesses the strength of the legal arguments and the likelihood of success in court. Consider the jurisdiction and legal environment where the case is being litigated.

Legal analysis

Conduct a thorough legal analysis of the case to examine relevant statutes, case law, and any legal precedents. Evaluate the expertise and record of the legal team representing the plaintiff.

Financial analysis

Review the financial aspects of the case. This includes the potential damages sought and the defendant’s ability to pay. Assess the estimated costs of litigation, including legal fees.

Risks assessment

Identify potential risks associated with the case. Consider factors that may impact the enforceability of a judgment or settlement.

Moreover, analyze the plaintiff’s litigation strategy and assess whether it aligns with the funder’s objectives. Consider the potential timeline for resolution and the expected duration of the litigation.

Legal and ethical compliance

Ensure that the legal case complies with ethical and regulatory standards. Confirm that there are no conflicts of interest between the funder, the plaintiff, and their legal representation.

Additionally, examine relevant case documents, court filings, and other materials. Verify the authenticity and accuracy of key documents.

Communication with legal counsel

Engage in discussions with the plaintiff’s legal team to gather additional insights and information. Clarify any outstanding questions or concerns related to the case.

Lastly, establish a system to monitor the case’s progress and any material developments. Stay informed about changes that impact the case’s outcome.

Conclusion

In a nutshell, we covered what is litigation finance, its type, and the key steps above in the blog. Legal finance or litigation finance is a valuable resource for parties involved in legal disputes. It involves providing financial help to one of the opposing parties. This practice has emerged as a helpful tool for those seeking financial support. You can get help from litigation finance firms or litigation finance companies when you are looking for a legal solution.

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