Finding Funding in Three Simple Steps
The topic of litigation funding has graced the front pages of America’s legal journals and publications since its arrival in the U.S. marketplace. While many stories highlight the positive impact litigation finance has made, from Bentham IMF’s first U.S. investment in the appellate matter of State Farm Fire & Casualty Company v. Radcliff to how attorneys interested in launching a boutique firm can utilize funding and how funding provides an alternative source of capital for claimants in bankruptcy, a few have served as cautionary tales.
In Radcliff, litigation funding helped Joe Radcliff obtain the best appellate lawyer in Indiana, provided him with working capital to grow and maintain his business during the suit, and gave him the wherewithal to litigate against insurance giant State Farm – resulting in one of the largest defamation awards in U.S. history. The positive impact of litigation funding was also exemplified in the Canadian case involving Crystallex International Corporation against Venezuela for their unlawful expropriation of the Las Cristinas gold mine. Crystallex’s claim was advanced with the support of a funder, which enabled the insolvent company to pursue its claim, resulting in a $1.38B arbitration award in their favor. On the flip side, the much-ballyhooed case against Chevron in Ecuador was again thrust into the spotlight in a recent article in The American Lawyer, which focused on the litigation funders involved.
With such polarizing stories about funding in the press, attorneys may be unsure about which company to select as a funding partner for their firms or clients. We previously discussed what qualities lawyers and their clients should look for in a funder when seeking financing for their legal expenses. From considering a funder’s track record for success, to whether the funder understands the legal issues in the case, to being mindful of the source of the capital being provided, it can be a daunting task to decide, or for that matter, to make the first call to a funder.
Prep, Select and Dial
We recommend following these three steps to find a funding partner:
1. Prepare in advance
Funders will ask for pleadings that best summarize the legal and factual arguments from each side, and documentary or other evidence that both supports the claims and refutes any facially strong arguments from the adversary. A legally sound and objectively measurable theory of damages – even if preliminary – is important, and a pre-litigation damages analysis conducted by the lawyers or their consultants is a huge plus from a funding perspective.
2. Narrow the options
Litigation funders are not interchangeable. In addition to seeking one best-suited for the type of financing sought, we recommend looking for a funder that has both the track-record and financial resources to serve as a trusted advisor and a partner who can go the distance when an unexpected turn in the case requires revisiting the litigation budget.
3. Call the funders
Most funders, including Bentham IMF, welcome inquiries from claimants and lawyers and will happily entertain a preliminary discussion to explain their funding criteria and process. A brief call wherein the party seeking funding asks to speak with someone who can provide initial feedback on whether the case meets the company’s investment criteria is, for many, the most efficient method of ascertaining whether a funder will be interested in investing in a case.
While each case presents a unique set of issues, funders at a minimum look for the following in any investment opportunity:
- a cogent liability theory supported by documentary evidence, indicating strong prospects of success;
- a sound damages theory that results in sufficient damages to cover the funder’s return, the lawyers’ contingency stake (if any), and (in Bentham’s case) enough remaining for the claimant to recover at least 50 percent of any award or settlement; and
- a high likelihood of collectability.
If there is interest, the funder will typically request the execution of a non-disclosure agreement before discussing specific details of the matter or offering proposed funding terms.
Additional information about the process of obtaining funding can be found in our four-part series entitled “How to Get Your Case Financed.” Please contact us to learn more about the funding process or receive a preliminary assessment of whether your case meets our funding criteria.