Ever got caught up in a legal fiasco against a powerful opponent? It may seem like a losing battle even before it starts unless you have a litigation funder on your side.
A litigation funder is a financial sidekick you’d want in your corner when you’re caught up in a legal dispute. They offer the cash you need to fight your case without worrying about money. And the best part is that you only pay them back if you win, so you won’t be caught up in losses, whatever the outcome.
If you’re interested in a litigation finance company to fund your case, keep reading this article to learn about the basic concepts of litigation finance.
3 Parties Involved in Litigation Finance
When it comes to commercial litigation funding, there are usually three main players in the game: the person bringing the case (plaintiff), the lawyer or law firm, and the litigation funders.
Plaintiff
This could be a regular person or a company that’s part of a lawsuit. The funding they get can cover things like lawyer fees, all the costs of the case, their personal expenses, or working capital while the legal fight goes on.
Attorney
Lawyers represent the plaintiff in court. Litigation finance companies team up with the plaintiff’s legal team to dig into the case and figure out if getting some financial help is the smart move.
Usually, most of the funding used for litigation costs goes straight to the lawyer to cover their fees.
Litigation Funders
They’re the ones who put up the money for the case and get a piece of the recovery of the lawsuit. Think of them like investors, but instead of putting money into companies or bonds, they’re putting it into legal battles.
Consumer vs. Commercial Litigation Financing: What’s the Difference?
Litigation financing is divided into two categories: consumer and commercial. Here’s how they differ.
Consumer Litigation Financing
Consumer litigation financing is mainly about giving cash advances to people bringing personal injury or other individual cases to court. If the plaintiff wins the case, they’ll repay the funding and the legal fees.
This kind of legal financing usually involves individual claimants who are not used to the legal system and often don’t even have a lawyer in the funding talks. The cash involved here is less than in big business cases – usually around $2,000 to $5,000.
Commercial Litigation Financing
This is when a company or an individual takes on a big commercial dispute and gets a financial boost from funders. In return, the litigation finance firm gets a chunk of whatever’s won in court, if anything.
This funding can also go towards legal claims like contract disagreements, international arbitration, or buying up law firm debts. These litigation finance transactions are usually made by people who know their way around lawsuits, have lawyers by their side, and are after some serious money – often in the millions.
What are the Characteristics of Litigation Finance?
Litigation funding possesses the following characteristics that make it valuable for businesses and individuals who want a fair shot at justice.
Litigation finance is non-recourse.
If you bring the case and things don’t go your way, you don’t need to worry. You won’t have to pay back the litigation funder that covered your legal battle.
Basically, if you don’t win, they don’t get anything back, not even the money they put in. It’s like they’re in the same boat as you.
It is not a loan.
Because commercial litigation finance is different from a regular loan, you don’t have a strict duty to pay back the principal amount. There’s also no guaranteed profit for them, and the only collateral securing the cash advance is whatever you might get from your legal fight. In other words, if you don’t come out on top, they don’t get anything – it’s all tied to the outcome.
In the United States, commercial litigation funding deals are exempted from state usury rates. They don’t have to follow the same interest rate rules as loans because litigation finance is not considered a loan.
Each deal is different.
Funding deals are custom-made. The amount the litigation funders get back depends on various factors — how strong the case is, how risky the situation is, how much money the funders are putting in, and even how certain they are about getting paid back.
The risk is shared.
Risk-sharing depends on different things — like whether the person bringing the case can pay for some of the legal fees. The lawyers are also asked if they are okay with taking on a share of the risk – like only getting paid if they win (where the law allows it), or if they’re okay with taking just a part of their usual attorney fees. Some law firms working by the hour might not be eager to jump into riskier cases for the person bringing the legal claim.
Some litigation funders may also skip the whole risk-sharing in certain situations. They might just pay the full hourly fees and all the legal costs but then get a more significant chunk of the winnings if the legal case is successful.
If you want to have a reliable and innovative partner in your legal disputes, make sure to look for a litigation funder with a proven track record and expertise like Omni Bridgeway.
