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10 Common Questions about Litigation Funding in the United States

The buzz around litigation funding seems to be increasing in the US but surveys of lawyers indicate adoption rates are still quite low while interest is growing.  Validity offers a quick list of the top 10 questions lawyers and their clients may have about funding to help corporate professionals and their lawyers understand the basics.

(1) What is Litigation Funding?

Litigation Funding, also known as litigation finance, is a non-recourse solution for individuals, companies, and law firms to finance the costs and fees related to legal actions in exchange for a share in the resolution value.

(2) What are the types of litigation funding?

There are two principal types of litigation funding: commercial funding and consumer funding.

  • Commercial funding allows businesses to reduce litigation costs and increase profitability by partially or entirely defraying out-of-pocket litigation costs and fees. Commercial funding can also provide working capital to businesses in financial need.
  • Consumer funding is designed for individual claim holders; this funding likewise defrays litigation costs but also can also advance living and medical costs.

Most funding companies do one or the other principally engages in commercial funding, not consumer funding.

(3) What types of disputes qualify for litigation funding?

Commercial litigation finance can be used for just about the entire gamut of business disputes, including contract disputes, intellectual property infringement and theft, patent disputes, arbitration, insolvency, and ‘whistle-blower’/qui-tam suits. Consumer funding is more commonly offered to litigants pursuing tort and personal injury claims.

(4) What is the common size of a funding agreement?

Litigation funding for commercial disputes generally ranges from $2-20 million. Consumer funding tends to be smaller in size.

(5) Who uses litigation finance?

Litigation finance is used by companies of all sizes, from small businesses with capital constraints to cash-rich publicly-traded Fortune 100 companies. Law firms of all sizes also avail themselves of litigation finance solutions to smooth cash flow during long cases.

(6) Is litigation funding legal?

Courts and legislators from coast to coast have approved litigation funding, recognizing that funding provides an important market solution to the unfortunate fact that many litigants have meritorious legal claims but lack the financial wherewithal to vindicate their rights. Of course, before entering into a funding agreement, it is important to ensure that the agreement is permissible in the appropriate jurisdiction.

(7) When is a good time to seek litigation funding?

Litigation funding can be sought at any stage of litigation, from pre-filing through to appeals and judgment enforcement. It’s never too early (or too late) to seek funding.

(8) How long does it take to get funding?

The time it takes to secure funding varies depending on the amount of funding needed and the complexity of the litigation. Funder should be responsive to your needs, ideally working with you to confirm funding within 30 to 60 days of requesting funding and sharing case details.

(9) How long do cases take to resolve?

Unfortunately, litigation takes time. Most clients should expect at least 18 months to 3 years, or possibly more, before their case is resolved. The length and expense of litigation are chief reasons why litigation funding agreements have grown in popularity in recent years.

(10) How do I obtain litigation funding?

You should consult with a litigation funding professional about whether your case is a good candidate for funding. Financiers are often lawyers and will work closely with you throughout the funding process. Be sure to begin with an NDA to protect the confidentiality of information shared with your funder. Next, if your case is a good candidate, the funder will offer you a term sheet outlining the structure of the investment and returns. If the terms are acceptable to you, funders will take time to review the case in detail during a diligence phase. Finally, if diligence is successful, you and the funder will finalize a litigation investment agreement.