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INSIGHT: Litigation Financing—How to Get to ‘Yes’ After Hearing ‘No’

Feb. 14, 2020, 9:01 AM

Attorneys often seek litigation financing before they are really ready for funding, and this premature quest can often result in a denial.

However, with further preparation, attorneys can turn a “no” into a “yes.” This preparation can get the case to the stage where the in-house team of experts can adequately assess the associated risks.

Below are three scenarios that commonly result in litigation funding firms turning down an opportunity to invest in a matter. This Insight will also offer guidance on how to work with such firms to get a positive response.

Provide as Much Information as Possible

Litigation funding firms can finance only a small percentage of the matters that are brought to them each year.

To mitigate the possibility of the firm turning down a case because there isn’t enough information to do a complete assessment, a prospective client should provide:

  1. A substantive memo of the claims, including a comprehensive explanation of how the law firm counsel plans to tackle any legal hurdles that may arise;
  2. A thoughtful and supported early-stage estimate of damages; and
  3. A detailed budget for counsel’s fees and costs, keyed to the stages of the litigation.

If necessary, the litigation finance firm can assist in sourcing a damages expert or engaging an economic analyst. Because experts will be needed to help with damages discovery later in the case no matter what, front-loading this work is encouraged.

Right Matter But Wrong Time

Sometimes a “no” is simply a product of the right matter at the wrong time. Timing can prevent investment in scenarios where a “no” is more of a “not yet.” If the litigant does not have any counsel in place or has not yet engaged counsel appropriate to their needs, a litigation funding firm may reopen the conversation when a strong law firm is in place.

If the matter is at too early a stage to warrant an investment and the early risks are too high, the firm may wait until after motions to dismiss or other critical issue resolutions before making an investment decision. Perhaps a novel legal question or fundamental affirmative defense (like a statute of limitations) has not yet been decided.

Even where a case is past a motion to dismiss, the firm may need more time to gather sufficient information to understand the risks of the case (e.g., perhaps liability turns on a key fact witness who has not yet been deposed or the need to review an expert damages report).

Consider Structure if It’s a Small Matter

If the matter is too small, the litigation funding firm can help clients take a different approach. All parties involved get the best value when the amount of funding requested for the case is at least $2 million, though the majority of Burford’s investments are between $4 million and $10 million and are often significantly larger.

However, if a matter doesn’t meet that threshold, there may be other ways to structure a potential investment.

  • Diversified portfolio finance. Law firms and companies may want to consider gathering multiple litigation or arbitration matters into a single funding vehicle, where capital can be used to fund legal costs associated with all of the underlying matters.
  • Correlated portfolio finance. If the case is replicable, you might seek to retain more clients with similar claims (e.g., opt-outs from a class action or multiple filings in an MDL). The claims can then be pooled to meet investment minimums.
  • Claim monetization. If a company doesn’t require sufficient capital in upfront fees and expenses to meet minimum investment criteria, a litigation funding firm can convert a portion of the pending claim into cash, advancing capital that otherwise would be captive until the resolution and payment of the claim in question.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Kelly Daley is a director with responsibility for assessing and underwriting legal risk as part of Burford Capital’s investment team.

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