If you’re not familiar with how lawsuit finance works, you should fix in which - fast. Litigation finance is growing drastically in popularity and importance, and equally litigators and transactional attorneys need to understand it - and what it means for the legal industry.
In spite of the boom in litigation finance in the past few years, many legal and financial professionals don’t comprehend it as well as these people should. So it made sense which last week’s (great) conference on lawsuit finance, hosted by IMN, included a panel called “Dispelling Myths and Myths Surrounding Litigation Finance.”
The panelists covered several misunderstandings about lawsuits funding. Here are five that struck me as particularly important.
1. It’s merely for plaintiff-side work.
It’s certainly accurate, as Lee Drucker of Lake Whillans Litigation Finance observed in an earlier panel, in which most commercial litigation-funding firms focus on support plaintiffs. But that’s changing, as several panelists mentioned.
According to Owen Cyrulnik of Curiam Money, litigation finance can give defendants an advantage previously enjoyed mostly by plaintiffs who hire contingency-fee firms: not having to pay a huge amount of money for a disappointing result. As any litigator can tell you, the litigation process entails a lot of fortune - and if you have catastrophe as a defendant, you can take a serious hit. By working with a lawsuit funder, Jay Greenberg of LexShares discussed, a defendant can offload or even manage risk, at an early on of the process. (You might bear in mind Greenberg from his appearance on Forbes’s 30 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 compared to a general counsel continually returning to the CFO with unfavorable updates about a litigation and asks for for more money. As William Evans of The alexa company Capital Consultants pointed out, litigation finance becomes more and more appealing as legal costs increase and in-house lawyers face better pressure from their fellow workers about out-of-control expenditures on exterior counsel.
2. The underwriting process is long, tortuous, and very invasive when it comes to confidential information.
The process of analyzing and funding a case can sometimes be finished in a matter of times - virtually. According to The writer Greenberg, LexShares was able to underwrite one case in simply ten days, from inbound call to deployment of money.
To be sure, that’s the exception rather than the guideline, and it’s more typical for underwriting to take days rather than days. But litigation financiers want to move quickly - which is why they use experienced litigators, both in-house and outdoors counsel, to evaluate cases and reach fast decisions about their legal merits.
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As for confidential information, the interplay among litigation finance and equally attorney-client privilege and attorney work merchandise is a complex and evolving issue : so it’s hard to make any assures, 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 product. For example, form deals used in the underwriting process will generally state which the litigation investor does not want, and shall not receive, access to privileged information.
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