Understanding the Strict Criteria Commercial Litigation Funders Use to Assess Investments
Securing financing for commercial litigation cases can be difficult. Litigation is unpredictable and one adverse ruling can scuttle an entire case. Even when a case is successful, a defendant may not have the resources to satisfy a judgment.
Litigation funders assume risk each time they invest in a case. Bentham IMF has met this challenge with great success throughout its history, seeing ninety percent of its investments resulting in favorable verdicts or settlements.
A track record like ours is built on taking great care in selecting the matters we finance. Most cases proposed for investment do not make the cut—with Bentham or other funders. In fact, a Law360 survey of more than 300 attorneys points out that 60 percent who had applied for funding were subsequently denied. At Bentham, ninety-five percent of the funding inquiries we receive are rejected.
There are many factors taken into consideration when analyzing whether a case is fit for funding. We seek opportunities to fund cases that have strong indicia of success on the merits. In addition, the funding requested should be at least $1 million, with the potential judgment exceeding $10 million (exclusive of punitive damages) and a clear indication the defendant can satisfy the resulting judgment. These parameters are in place to ensure the claimant receives a fair share of the judgment after its attorneys’ fees are paid and the funder receives its return on its non-recourse investment. At Bentham, 62% percent of the proceeds recovered from our funded cases have gone to the clients.
Another factor we consider is the type of matter at issue. We focus on commercial claims, including but not limited to: breach of contract, breach of fiduciary duty, trade secret theft, infringement of patents or trademarks, environmental and antitrust cases, and domestic and international arbitrations. While we do not fund other types of matters on a one-off basis, various types of meritorious cases can be compiled as a portfolio to be considered for portfolio funding.
Bentham employs a team of experienced litigators with distinguished backgrounds to evaluate investment opportunities. Early in the funding process, the team assesses several key factors:
• The type of case
• The strength of the case
• Whether the case is time-barred
• The jurisdiction in which the case will be heard
• The strength of documentary evidence supporting the case
• The legal or factual risks involved
• The potential range of damages
• A realistic view of settlement prospects
• Whether counsel is on a contingency fee arrangement
• The likely length of time to resolution
• The amount of capital required to successfully pursue the case
• The defendant’s ability to satisfy a judgment.
As explained in our four-part blog post series on “How to Get Your Case Financed,” this preliminary assessment should allow a funder to generally understand the claims, the amount needed to prosecute the case to completion, and a reasonable estimate of potential recovery. From there, the funder can gauge its level of interest in moving forward. If that interest is strong, the funder will typically issue a term sheet that outlines the economic terms of the proposed investment and provides for a due diligence period to fully assess the merits of the case and related issues. For Bentham IMF, the term sheet is non-binding except for an exclusivity period, which generally lasts 30 to 45 days.
To learn more about how the funding process proceeds after diligence, please visit our earlier blog posts on the subject. If you have a case you believe meets our funding criteria, our team is available for a consultation on your funding inquiry.