Litigation funding, otherwise known as legal funding or litigation finance, is a process where a funding firm provides financial support to individuals or businesses involved in a legal dispute. This funding helps cover the costs associated with the litigation, including legal fees, court expenses, and other related costs. In return, the litigation finance company receives a portion of the settlement if the case is successful.
Litigation finance is a non-recourse form of funding, meaning that if the case is lost, the plaintiff won’t be obligated to repay the funds received. This arrangement allows individuals and businesses to pursue their legal claims without the financial burden and risk of paying for legal expenses upfront.
Read on to learn more about litigation finance in the USA, how it works, and how it revolutionized today’s legal landscape.
The Benefits of Litigation Finance
Litigation finance offers several benefits to plaintiffs, especially in complex and high-stakes cases.
The ability to level the playing field
Lawsuits can be expensive, and many individuals or businesses may not be financially equipped to pursue legal action against well-funded opponents.
Litigation finance provides access to the necessary funds. That way, you can hire top-quality legal representation and pursue your claims effectively.
Reduces the financial risks associated with litigation
Lawsuits can be unpredictable, and even strong cases can take months or years to reach a resolution. By securing funding from litigation funding firms, you can alleviate the financial stress and focus on the case itself without worrying about the ongoing costs.
Promotes access to justice
It allows individuals who may have been wronged by powerful entities to seek compensation without facing financial ruin.
In this way, litigation finance empowers individuals and businesses to hold wrongdoers accountable and seek justice.
The History and Growth of Litigation Finance in the USA
Litigation finance has a significant history in the United States, dating back several decades. The practice first gained prominence in the 1990s, primarily in the realm of commercial litigation. Since then, it has expanded to cover several other cases, including personal injury, medical malpractice, intellectual property, and class actions.
The growth of litigation finance in the USA can be attributed to various factors.
First is the increasing complexity and cost of legal disputes. As lawsuits become more intricate and expensive, plaintiffs find it too difficult and stressful to meet the financial demands of litigation. Litigation finance provides a viable solution, enabling them to pursue their claims.
Second, is the recognition of its benefits by attorneys and law firms. Many legal professionals now view litigation finance as a valuable tool to help clients access justice and strengthen their cases. As a result, the legal financing industry has gained credibility and acceptance within the legal community.
How Litigation Finance Works
The process of litigation finance involves several steps.
First, the plaintiff submits an application to a litigation finance firm. Such an application must provide the details about the case and the funding amount required.
The funder then evaluates the merits of the case. Providers of litigation finance, USA residents recommend, will consider factors such as:
- the likelihood of success
- potential damages
- the reputation of the legal team involved
If the application is approved, the litigation finance company provides the funds necessary to cover the litigation expenses. The funding can be used to pay for attorney fees, expert witnesses, court expenses, and other related litigation costs. The funds are typically disbursed in stages throughout the course of the litigation, as needed.
In return for the funding, the litigation financing company enters into a funding agreement with the plaintiff. This agreement outlines the following:
- the repayment structure
- the portion of the settlement or judgment that the litigation finance company will receive
If the case is successful, the litigation finance company will be repaid from the proceeds of the settlement or judgment. If the case is unsuccessful, the plaintiff is not required to repay the funds received.
The Impact of Litigation Finance on the Legal Landscape
Litigation finance has had a profound impact on the legal landscape in the United States. It has transformed the way individuals and businesses approach litigation, making it more accessible and equitable. By providing financial support to plaintiffs, litigation finance has empowered them to pursue their legal rights, even in the face of well-funded opponents.
Furthermore, litigation finance has encouraged the growth of meritorious claims. With the availability of funding, individuals who may have previously been deterred by the financial risks of litigation can now seek justice. This has led to an increase in the number of lawsuits filed and has helped expose wrongdoing and hold wrongdoers accountable.
However, the impact of litigation finance is not without controversy. Critics argue that it may lead to a frivolous legal claim and excessive litigation. They claim that the profit motive of litigation finance companies may incentivize plaintiffs to pursue weak or baseless claims in the hopes of securing a settlement. However, proponents of litigation finance argue that the industry is highly regulated and operates with strict ethical guidelines to prevent abuse.
Common Misconceptions About Litigation Finance
Despite its growing prominence, there are several common misconceptions about litigation finance.
Litigation finance is only available to large corporations.
In reality, litigation finance is accessible to individuals, small businesses, and mid-sized companies as well. Litigation finance companies evaluate cases based on their merits rather than the financial resources of the plaintiff.
Litigation finance encourages unnecessary litigation.
Critics argue that by providing financial support, litigation funders incentivize plaintiffs to pursue lawsuits that would otherwise not be viable. However, litigation finance companies like Omni Bridgeway conduct thorough due diligence and only invest in cases with strong prospects of success. Frivolous or weak claims are typically not funded.
The Future of Litigation Finance in the USA
The future of litigation finance in the USA appears promising. As the legal landscape becomes complex and costly, the demand for litigation finance is expected to grow. The industry is likely to expand into new areas of law, providing funding for emerging practice areas such as environmental litigation, data breaches, and international arbitration.
Moreover, as commercial litigation finance becomes more widely accepted and regulated, it is expected to gain further traction within the legal community. Attorneys and law firms will continue to recognize the benefits of litigation finance in helping clients access justice and strengthen their cases.
