Civil Litigation Funding: Top 10 Essential Insights 2024
Why Civil Litigation Funding is Critical
Civil litigation funding provides a financial lifeline for plaintiffs involved in lawsuits without requiring them to drain their personal finances. It helps cover the costs of long legal battles, including attorney fees, court costs, and other related expenses.
Key points about civil litigation funding:
- Non-recourse: If you lose your case, you do not repay the funds.
- Quick access: Funds can be available within 24 hours.
- No credit checks: Approval is based on the lawsuit’s merits, not your credit score.
Litigation is expensive and can be prohibitively costly for many plaintiffs. Civil litigation funding levels the playing field, allowing plaintiffs to pursue justice without financial stress.
I’m Haiko de Poel. With experience in marketing and the legal industry, I’ve seen how crucial civil litigation funding is for plaintiffs. This guide will provide an in-depth look at its significance, history, and process.
History of Civil Litigation Funding
Civil litigation funding has a fascinating history that dates back to the early 1990s. It all started in Australia, where state governments began abolishing the old laws of champerty and maintenance. These laws had previously barred third parties from having a financial interest in legal cases. With these restrictions lifted, a new industry was born.
The UK and Beyond
Following Australia’s lead, the United Kingdom also abolished its champerty and maintenance laws. This was a significant step because it opened the doors for civil litigation funding to become more mainstream. By the mid-1990s, litigation funding had started to gain traction, particularly in commercial disputes and arbitration cases.
Expansion to the US
The 2008-2009 financial crisis was a pivotal moment for litigation funding in the United States. As companies and individuals faced financial hardships, the demand for alternative funding sources for legal battles skyrocketed. Litigation funding provided a solution, enabling plaintiffs to pursue claims without bearing the upfront costs.
Global Spread
From its origins in Australia and the UK, civil litigation funding began to spread globally. Today, it is a well-established practice in many parts of Europe, including Germany, Austria, Spain, Italy, France, and Switzerland. These countries have accepted litigation funding, even though they did not have the same common law doctrines that initially restricted it.
Modern Growth
In the United States, the industry has grown rapidly. According to a 2022 Government Accountability Office report, the sector has seen a significant increase in the number of funders and the amount of capital invested. Funders like Litigation Funding Co. have realized substantial returns over the past 15 years, with an impressive mix of settlements and wins.
A New Asset Class
Litigation funding is now considered just another asset class, attracting investments from hedge funds, family offices, and alternative investment firms. These funders are drawn to the high returns and the uncorrelated nature of litigation investments compared to traditional asset classes like bonds or equities.
The Future
As more companies and individuals become aware of the benefits, the industry continues to grow. Legal experts believe that civil litigation funding will play an increasingly important role in providing access to justice and leveling the playing field for plaintiffs worldwide.
What is Nonrecourse Civil Litigation Funding?
Nonrecourse civil litigation funding is a type of financial support provided to plaintiffs involved in legal claims. This funding is unique because it is “nonrecourse,” meaning that if the case is lost, the plaintiff does not have to repay the funder.
Definition
Nonrecourse civil litigation funding is when a third-party funder provides money to cover the costs of a lawsuit. This can include legal fees, court costs, and other related expenses. In return, the funder gets a portion of any financial recovery if the case is won. If the case is lost, the plaintiff owes nothing to the funder. This “no cure, no pay” principle makes it a low-risk option for plaintiffs.
Financial Support
Legal battles can be expensive. Costs can add up quickly, including fees for legal representation, court filings, and expert witnesses. Many plaintiffs cannot afford these expenses on their own. Nonrecourse civil litigation funding offers a solution by providing the necessary financial resources to pursue a case.
Legal Claims
This type of funding can be used for a variety of legal claims. Common examples include personal injury cases, commercial disputes, and class action lawsuits. As long as the funder believes the claim has merit and potential for a favorable outcome, they may provide the necessary funds.
No Repayment if Lost
One of the biggest advantages of nonrecourse civil litigation funding is that there is no repayment required if the case is lost. This shifts the financial risk from the plaintiff to the funder. As a result, plaintiffs can pursue their claims without the fear of incurring additional debt.
This funding model helps level the playing field, allowing individuals and smaller businesses to take on well-capitalized opponents. It’s a powerful tool that provides access to justice for those who might otherwise be unable to afford it.
Next, we’ll explore the different types of civil litigation funding available and how they can be custom to meet various needs.
Types of Civil Litigation Funding
Understanding the different types of civil litigation funding can help you choose the best option for your needs. Here’s a breakdown of the most common types:
Private Retainer
Under a private retainer, you pay your lawyer by the hour, regardless of the case outcome. This method is straightforward but can be costly. Most firms charge in 6-minute units, so even a quick email or call can add up. You also cover “disbursements” like court fees and expert witness fees.
Damages-Based Agreement (DBA)
A damages-based agreement (DBA) is a contingency fee arrangement. You pay your lawyer a percentage of the compensation only if you win. This can be a win-win, as it aligns your lawyer’s interests with yours. However, if you lose, the lawyer gets nothing.
Conditional Fee Agreement (CFA)
A conditional fee agreement (CFA) is similar to a DBA but includes a “success fee.” If you win, you pay your lawyer’s standard fees plus an extra percentage. If you lose, you don’t pay the conditional fees. Note: Since 2013, success fees are no longer recoverable from the losing side.
Legal Expenses Insurance
Legal expenses insurance can be bought before or after a dispute arises. Before the event (BTE) insurance is often part of home or car insurance policies. After the event (ATE) insurance covers costs if you lose, including your opponent’s costs. It’s often used with other funding types like CFAs or third-party funding.
Third Party Funding
Third party funding involves a commercial funder covering your legal fees in exchange for a share of the proceeds if you win. If you lose, the funder gets nothing. This shifts the financial risk to the funder, making it easier for you to pursue your claim.
Trade Bodies, Associations, and Unions
Some trade bodies, associations, and unions offer funding assistance. This can be a good option if you’re a member, as these organizations often have resources and expertise in specific industries.
Public Funding
Public funding is available in some jurisdictions for certain types of cases. This funding is typically limited and subject to strict eligibility criteria.
Pure Funder
A pure funder focuses solely on providing financial support without any direct stake in the litigation’s outcome. They usually fund multiple cases to diversify their risk. This type of funding is gaining popularity as it offers a more straightforward financial arrangement.
Each type of funding has its pros and cons. The right choice depends on your specific circumstances, the nature of your case, and your financial situation.
How Nonrecourse Civil Litigation Funding Works
Funding Process
Nonrecourse civil litigation funding starts with identifying a strong legal case. Litigation funders look for cases with high potential for a large award. Once a case is selected, the funder and the plaintiff (or their attorney) enter into a funding agreement.
The process usually includes:
- Application Submission: The plaintiff or their attorney submits an application, providing details about the case.
- Case Evaluation: The funder evaluates the case’s merits, potential damages, and chances of success.
- Funding Approval: If the case passes due diligence, the funder approves the funding and both parties sign a funding agreement.
- Receiving Funds: The plaintiff receives the funds to cover litigation costs.
Litigation Funders
Litigation funders are companies or financial entities that provide the money needed to pursue legal claims. They do not influence the legal strategies or decisions in most cases. Their main role is to supply the financial resources to help plaintiffs proceed with their cases.
Funding Agreement
A funding agreement is a contract between the funder and the plaintiff. It outlines the terms of the funding, including:
- The amount of money provided.
- The percentage of the award the funder will receive if the case is successful.
- The funder’s role and any conditions for early termination.
Non-Recourse
The term non-recourse means that if the plaintiff loses the case, they owe nothing to the funder. The risk is entirely on the funder, making it a safer option for plaintiffs who cannot afford to lose money on legal fees.
Portfolio Funding
Some funders engage in portfolio funding, where they invest in multiple cases at once. This strategy helps spread the risk and can include a mix of high-risk and low-risk cases. Portfolio funding can provide more stability for funders and more opportunities for plaintiffs to get their cases funded.
Champerty and Maintenance
Historically, the doctrines of champerty and maintenance prohibited third parties from financing litigation. These rules aimed to prevent outsiders from influencing legal disputes. However, many jurisdictions have relaxed these prohibitions, allowing the litigation funding industry to grow.
Champerty refers to an agreement where a party with no previous interest in a lawsuit finances it in exchange for a share of the proceeds. Maintenance involves supporting another person’s lawsuit without a direct interest. While these practices were once illegal, they are now more accepted, especially in places like the United States and Australia.
Understanding how nonrecourse civil litigation funding works can help you steer your legal options better. Next, we will explore the benefits of this type of funding and how it can level the playing field for plaintiffs.
Benefits of Nonrecourse Civil Litigation Funding
Nonrecourse civil litigation funding offers several key benefits that make it an attractive option for plaintiffs. Let’s explore how it can help you.
Access to Justice
Legal battles can be expensive. Without the financial means, many people might not pursue valid claims. Nonrecourse civil litigation funding ensures that lack of money doesn’t stand in the way of justice. This funding covers legal fees and other expenses, letting plaintiffs focus on their cases without financial stress.
“Litigation funding can help ‘level the playing field’ by providing claimants with the financial resources needed to pursue a case.”
Risk Management
One of the biggest advantages is the no-cure, no-pay model. If you lose the case, you owe nothing to the funder. This shifts the financial risk away from you and onto the funder. It’s a safety net that allows you to pursue justice without the fear of financial ruin.
Financial Support
Litigation costs can quickly add up. Nonrecourse civil litigation funding covers these costs, including legal representation, court fees, and other related expenses. This means you won’t have to dip into your savings or go into debt to fight your case.
Level Playing Field
Facing a well-funded opponent can be daunting. Litigation funding evens the odds by providing you with the financial resources to match your opponent’s spending power. This makes the legal battle fairer and gives you a better chance of winning.
Focus on Merits
Since funders only invest in cases they believe have a strong chance of success, their involvement adds credibility to your claim. This means you can focus on the merits of your case rather than worrying about financial constraints. A credible case often leads to better settlements and outcomes.
“The non-recourse nature of the industry means that a third-party funder gains nothing from a losing case. This binary outcome — a financial win or loss — also puts greater importance on a rigorous review of a case’s legal merits.”
Understanding these benefits can help you decide if nonrecourse civil litigation funding is the right choice for your legal needs. Next, we will look at the potential drawbacks and ethical concerns surrounding this type of funding.
Potential Drawbacks and Ethical Concerns
While civil litigation funding can offer many benefits, it also comes with some potential drawbacks and ethical concerns. Let’s explore these issues.
Non-Meritorious Claims
One concern is that litigation funding might encourage non-meritorious claims. Because funders are only paid if the case is successful, there is a risk they might back claims with little merit, hoping for a settlement. This could lead to an increase in frivolous lawsuits, clogging the courts and wasting resources.
Litigation Costs
Litigation itself is expensive. The costs can include lawyer fees, expert fees, court costs, and more. While funding can cover these costs, it also means that a portion of any settlement or award will go to the funder. This can sometimes leave the claimant with less than they might have received otherwise.
Undue Influence
There are also concerns about funders exerting undue influence over the litigation. Since funders have a financial stake in the outcome, they might try to influence legal strategies or decisions. This can compromise the independence of lawyers and the integrity of the legal process.
Ethical Rules and Fee-Splitting
Ethical rules, like the American Bar Association’s Model Rules of Professional Conduct, prohibit fee-splitting between lawyers and non-lawyers. This rule is designed to safeguard lawyer independence. However, litigation funding arrangements can sometimes blur these lines, raising ethical questions.
Control of Litigation
Another issue is control of litigation. In some cases, funders might seek to control key decisions in the litigation process to protect their investment. This can lead to conflicts of interest and may not always align with the best interests of the claimant.
For example, if a funder pushes for a settlement to ensure a quick return on investment, the claimant might miss out on a potentially larger award if the case went to trial.
“Self-regulation in the funding industry often lacks enforceable standards and sanctions, allowing funders to operate without accountability or consequences for unethical practices.”
Understanding these potential drawbacks and ethical concerns is crucial for anyone considering nonrecourse civil litigation funding. Next, we will explore the legal and regulatory landscape governing this industry.
Legal and Regulatory Landscape
Understanding the legal and regulatory landscape of civil litigation funding is essential. Different rules and regulations can affect how litigation funding operates and its impact on the justice system.
Disclosure Requirements
In some states, disclosure of litigation funding arrangements is mandatory. For example, Louisiana recently passed a law requiring the disclosure of funding from foreign countries of concern to the state attorney general. This measure aims to improve transparency and prevent foreign influence in U.S. litigation.
“Louisiana’s new law brings much-needed transparency into Louisiana courts,” said Rachelle Mortimer, director of legislative affairs at the Chamber’s Institute for Legal Reform.
Court Rules
Court rules regarding litigation funding vary by jurisdiction. Most courts do not mandate the disclosure of funding arrangements, but some have specific rules. These rules can impact how cases are managed and how funding agreements are treated during litigation.
State Legislation
Several states have introduced bills to regulate the litigation funding industry. Indiana and West Virginia have enacted laws that prevent funders from influencing a case or any settlement and bar foreign entities from funding commercial litigation. These laws aim to protect the integrity of the legal process and national security.
Model Rules of Professional Conduct
The American Bar Association’s Model Rules of Professional Conduct, such as Rule 5.4, safeguard lawyer independence by prohibiting nonlawyers from owning law firms or splitting fees with attorneys. Changes to these rules could impact the use of litigation funding and potentially compromise attorney independence.
“Eliminating or modifying Rule 5.4 will increase access to legal representation,” argue some proponents, but it could also accommodate the questionable use of third-party litigation funding.
National Security Concerns
One of the most pressing issues is the potential for foreign adversaries to use litigation funding to undermine U.S. national security. Research from the Institute for Legal Reform highlights how few barriers exist to prevent entities from countries like China or Russia from covertly financing litigation against U.S. companies.
“By fostering strategic litigation against targeted U.S. companies or sectors, a foreign adversary could access sensitive information or degrade the U.S. economy,” states the report.
These concerns have led to legislative efforts to limit foreign influence and improve the security of the U.S. legal system.
Understanding these legal and regulatory aspects is crucial for anyone involved in nonrecourse civil litigation funding. Next, we will address some frequently asked questions about civil litigation funding.
Frequently Asked Questions about Civil Litigation Funding
How long has litigation funding been around?
Litigation funding has a long history. The concept originated centuries ago when wealthy individuals would finance legal battles in exchange for a share of the winnings. However, its modern form began in the early 1990s in Australia. The industry expanded rapidly after state governments abolished champerty and maintenance laws, which previously barred third parties from holding a financial interest in legal actions. Since then, litigation funding has spread globally, including to Europe and the United States, especially after the 2008-2009 financial crisis.
What is third party litigation funding?
Third party litigation funding (TPLF) is a type of civil litigation funding where an external party provides financial support to a claimant in a legal case. This support covers costs like legal fees and court expenses. In return, the funder receives a share of the financial recovery if the case is successful. If the case is lost, the funder gets nothing, making this a non-recourse arrangement. This type of funding helps claimants pursue justice without bearing the financial risks.
How big is the litigation funding industry?
The litigation funding industry has grown significantly in recent years. According to Forbes, investments in litigation are consistently lucrative, with returns on invested capital often reaching 80% for larger funders. Companies like Burford Capital have realized billions from funded cases over the past 15 years. The industry now includes dozens of specialized funders, hedge funds, and alternative investment firms. The International Legal Finance Association, which represents commercial litigation funders, has seen its membership grow, indicating the industry’s expanding reach and acceptance.
This rapid growth reflects the increasing recognition of litigation funding as a valuable financial tool for claimants and businesses alike.
Conclusion
Civil litigation funding has revolutionized the way claimants and businesses approach legal battles. By providing financial resources without the risk of repayment if the case is lost, this funding model ensures that justice is accessible to all, regardless of financial background.
At Litigation Funding Co., we specialize in offering quick, transparent funding solutions custom to your specific needs. Our process is straightforward, with no hidden fees, credit checks, or employment checks. This means you can focus on your recovery and achieving a fair settlement.
We understand the urgency of your situation. That’s why our approval process is designed to get you the funds you need within 24 hours. Our commitment to clear communication and a seamless process ensures that you are supported every step of the way.
If you’re facing a legal battle and need financial support, don’t let the stress of litigation costs hold you back. Contact Litigation Funding Co. today and take the first step towards securing the financial assistance you need. With us, there’s no repayment if you lose, so you can pursue your case with confidence.
Your success is our success. Let us help you steer your legal journey with ease.
