Litigation funding, or litigation financing, is a financial arrangement in which a third-party funder provides capital to cover the costs of legal disputes. These can include court fees, expert witness expenses, and attorney fees, making it a critical resource for individuals and businesses without the means or desire to pay these expenses upfront. The funding arrangement is often non-recourse, meaning repayment is only required if the case is successful, reducing financial risk for litigants.
Litigation funding structures vary to suit diverse needs. Common types include non-recourse funding, contingency fee arrangements, hybrid models, and costs-only agreements. While these options provide flexibility, they come with cost implications, such as success fees or a percentage of the settlement.
This industry is shaped by evolving regulations and ethical standards, ensuring transparency and fairness while balancing the interests of litigants, attorneys, and funders.
Litigation funding comes in various forms, tailored to meet the unique needs of litigants and law firms. The most common is non-recourse third-party litigation funding, where funders assume the financial risk and only recover their investment if the case succeeds. Below is an in-depth analysis of the primary categories:
A litigation funding agreement details payment structures and outlines the terms for repayment, risk sharing, and control mechanisms. These agreements can involve contingency fees, hybrid funding models, or cost-only structures.
By understanding how litigation financing works, firms and litigants can select a model that aligns with their strategic needs and legal objectives.
Law firms qualify for litigation funding based on specific criteria that demonstrate their financial and operational stability. Key factors include the strength of their case portfolio, historical success rates, projected recovery values, and practice area expertise. Portfolio funding typically requires firms to show a track record of managing profitable cases, while single-case financing focuses on individual claims' merits and potential recovery.
Funders also evaluate a firm’s infrastructure, attorney expertise, and risk management practices. Essential benchmarks include revenue metrics, current case inventory quality, and business planning. Firms seeking growth capital, acquisition funding, or succession financing must showcase their ability to leverage funding for strategic initiatives while maintaining strong management and operational efficiency. These qualifications ensure both parties benefit from the funding arrangement and support the firm’s long-term growth.
Litigation funding is a strategic tool across various practice areas, enabling law firms to take on complex and resource-intensive cases. In commercial litigation, funding helps cover extensive costs like expert witnesses and discovery, while in multi-district litigation and class actions, it supports large-scale claims involving numerous parties.
For international arbitration, where disputes span jurisdictions, litigation funding ensures firms can navigate varying legal systems and enforce favorable judgments. Additionally, intellectual property disputes benefit from funding, allowing firms to secure patents or trademarks and pursue infringement cases without financial strain.
Law firms also use portfolio funding for strategic objectives like practice group development and firm-wide growth. For example, funding can enable firms to acquire high-value cases, expand into new practice areas, or build a more robust client base. These use cases demonstrate how litigation funding empowers law firms to achieve their goals while managing financial risks effectively.
Litigation funding offers numerous advantages for law firms, enabling them to manage financial risks, pursue premium cases, and achieve sustainable growth. By providing capital without impacting balance sheets, it supports firms in handling resource-intensive cases and expanding their practices.
Key benefits include:
Litigation funding allows law firms to share financial risks, optimize resources, and focus on high-impact cases, creating a model for long-term, sustainable growth and success.
Answers to some of our most commonly asked questions.
Litigation funding is typically non-recourse, meaning repayment is only required if the case succeeds. Legal loans, on the other hand, require repayment regardless of the case outcome.
Costs vary based on the litigation funding agreement and case complexity but generally involve a percentage of the settlement or award.
Approval timelines range from a few weeks to several months, depending on the complexity of the case and the quality of the documentation provided.
Depending on the case's risk profile and funding terms, funders typically take 20% to 40% of the settlement or award.
Applicants usually need detailed case information, financial projections, and supporting documentation, such as evidence of case merits, potential recovery values, and relevant legal filings.
