Currently, litigation financing is estimated to be a $50-$100 billion business with no signs of decline in growth. Investors looking for an above-average return on investment have turned to litigation financing as a more attractive alternative to equity or fixed-income investments. However, the practice of making a profit from lawsuits is not without controversy.
What is litigation financing?
Litigation finance is a non-recourse type of funding that covers legal fees and other expenses associated with a lawsuit. Typically, a return is provided to investors only in successful cases, with funding agreements usually allowing for investors to be the first priority for repayment of principal and interest, obtain a pre-determined percentage of an award, or a combination thereof, depending on the agreement. Legal claims are treated as assets, and evaluated as to the merits of the suit and its likelihood for success.
Litigation finance is most often used for high-stakes litigation like intellectual property disputes. The agreement is typically made between the investor and the litigant rather than the litigant’s law firm, although law firms do get involved in helping clients obtain litigation financing. According to a recent survey by Burford Capital, a global litigation finance firm, the average value of a financed claim was $33.5 million; the average funding amount was approximately 10 percent of the claim’s assessed value.
Public awareness — and investment interest — in litigation finance increased in 2016 due to the publicity surrounding a lawsuit by Hulk Hogan against media company Gawker that was financed by entrepreneur and PayPal co-founder Peter Thiel.
Benefits for business
For businesses, litigation financing offers a way to pursue legal claims with little effect on their balance sheets or earnings, and reduces the risk of having to settle for less than their cases are worth. It also helps companies remain focused on their core businesses without the distraction of having to fund a major lawsuit. Litigation financing can even provide companies with funding for working capital and personal expenses. In addition, litigation finance can give a company greater access to top legal talent, which increases their chances of prevailing at trial.
Williams Mestaz, L.L.P., has the experience and reputation that you want when you are dealing with a business-related lawsuit. We are here to obtain the best possible outcome for your situation. Do not hesitate to contact Williams Mestaz, L.L.P., at (602) 256-9400, and see how we can help you resolve your legal matter.