If you’re not familiar with how lawsuit finance works, you should fix which - fast. Lawsuit finance is growing dramatically in popularity and importance, and each litigators and transactional attorneys need to comprehend it - and what it means for the legal industry.
In spite of the boom in litigation finance in recent times, many legal and financial professionals don’t comprehend it as well as these people should. So it made sense that last week’s (great) conference on litigation finance, hosted by IMN, included a panel known as “Dispelling Myths and Myths Surrounding Lawsuit Finance.”
The panelists covered many misunderstandings about lawsuit funding. Here are five that minted me as particularly important.
1. It’s simply for plaintiff-side work.
It’s certainly accurate, as Lee Drucker of Lake Whillans Litigation Finance mentioned in an earlier panel, that most commercial litigation-funding firms focus on backing plaintiffs. Yet that’s changing, as several panelists noted.
According to Owen Cyrulnik of Curiam Capital, litigation finance can give defendants an advantage earlier enjoyed mainly by plaintiffs who hire contingency-fee firms: not spending a huge amount of money for a disappointing result. As any litigator can tell you, the litigation process entails a lot of good fortune - and if you have bad luck as a defendant, you can take a severe hit. By working with a lawsuits funder, Jay Greenberg of LexShares discussed, a defendant can offload or manage risk, at an initial phase of the process. (You might remember Greenberg from his appearance on Forbes’s Thirty Under 30 For Legislation and Policy list.)
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This type of upfront certainty about the cost of a case is a thing that CFOs greatly value - as opposed to a general counsel continuously returning to the CFO with unfavorable updates about a litigation and asks for for more money. As William Evans of The alexa company Capital Experts pointed out, lawsuit finance becomes more and more appealing as legal costs increase and in-house lawyers face better pressure from their co-workers about out-of-control expenditures on exterior counsel.
2. The underwriting process is long, tortuous, and highly invasive when it arrives to confidential information.
The process of evaluating and funding a case can sometimes be finished in a matter of times - actually. According to The author Greenberg, LexShares was able to underwrite one case in merely ten days, from incoming call to deployment of capital.
To be sure, that’s the exception rather than the guideline, and it’s more typical for underwriting to take months rather than nights. But lawsuits financiers want to move swiftly - which is exactly why they use experienced litigators, both in-house and exterior counsel, to examine cases and reach fast decisions about their particular legal merits.
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As for confidential information, the interplay among litigation finance and equally attorney-client privilege and attorney work product is a complex and changing issue – so it’s hard to make any guarantees, as noted by Joshua Meltzer of Woodsford Lawsuit Funding. But as a general matter, both litigation funders and fundees go to great lengths to safeguard attorney-client privilege and attorney work merchandise. For example, form contracts used in the underwriting process will generally state in which the litigation investor does not want, and shall not receive, entry to privileged information.
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