July 2, 2019 - On June 26th, the LSTA hosted a litigation finance webinar presented by Ira Herman of Blank Rome and Ken Epstein and Chris Young of Bentham IMF. Litigation funding is the process by which a litigant (or a law firm) obtains financing from a third party unrelated to the lawsuit to cover all or a portion of their litigation fees and expenses (and possibly other amounts) in exchange for a portion of any financial recovery from the lawsuit. Such funding is generally made on a non-recourse basis; thus the litigant will owe the funder nothing if the case is not won. At the start of the process, the funder is typically approached by a claimant or law firm, and the parties will execute a confidentiality agreement so that information can be shared between them. The claimant will share information about the case with the funder, but care must be taken when doing so to avoid losing any attorney-client privilege. Where attorney work product is appropriately shared with the funder, the courts have been protective, and the privilege will likely not be lost. During this initial stage, the funder will also provide information to the claimant about its business model and pricing. If the parties decide to proceed, they will then enter into a term sheet that is non-binding save for an exclusivity period of about 30-45 days which allows the funder the opportunity to perform a fundamental analysis of the merits and economics of the case without the risk of a competitor coming in and funding the case. When making the determination whether to proceed, the funder carefully assesses the case’s “collectability”. Winning the case is one thing, but they must then be able to collect any amounts awarded. After that robust due diligence process has drawn to an end (this may take a couple of months), the funder who chooses to proceed will then execute the funding agreement, deploy the capital, and monitor their investment through to case resolution. The US is more restrictive about the funder taking control of the case than in certain other jurisdictions where the funder may take control of the case and even have the ability to consent to a settlement. The funding can be used to pay legal fees and litigation costs, investigations, trust administration costs of a litigation trust, working capital, appeals or enforcement. Ultimately, the claimant will receive about 60% of the suit’s financial recovery. Litigation finance can provide a valuable financial tool for parties who may otherwise be unable to pursue a case because the cost of litigation is simply too high. Click here for the presentation and replay.
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