Understanding How Litigation Funding Enhances Attorney Effort
As the legal community has become increasingly aware of litigation funding as a resource for attorneys, questions have arisen about how it enhances attorney effort. We felt it important to address these questions and explain how funding for individual cases and law firm portfolios not only “enhances” attorney effort, but often makes that effort possible.
In many cases, companies and individuals obtain litigation funding to bring (and prevail in) litigation that they otherwise couldn’t afford. Even assuming the plaintiff could otherwise afford to engage the attorney, typical funding structures tend to enhance attorney effort. While every deal varies, we at Bentham will often fund 50% of the attorney’s hourly fees, and the attorney will waive the other 50% in exchange for a contingency fee, typically 20% of any recovery. This hybrid or blended fee arrangement presents the optimal balance of incentives for attorney effort.
Of course there are other variables, but all else being equal, an attorney working entirely on an hourly basis wants to work as many hours as possible, and an attorney working entirely on a contingency basis wants to work as few hours as possible. Neither is good for the client. Our typical hybrid or blended funding model enhances attorney effort by making it more efficient than it would be on a full hourly basis, and more thorough than it would be on a full contingency basis.
In addition to funding individual cases, in which the funding agreement is with the plaintiff, and the funding can pay for attorney’s fees, litigation costs, and/or the plaintiff’s operating or personal expenses, litigation finance firms also fund law firms with portfolios of cases. The law firm can use the funding for any purpose, but thefunder’s return is limited to a basket of portfolio cases. Bentham has seen considerable interest from law firms since launching its portfolio funding solution less than a year ago. Large law firms are exploring ways to create portfolios within each of their practice groups. The approach allows them to take more cases on contingency, meeting client demand for alternative ways to finance litigation, but taking measured risk.
In other applications of the model, litigation finance firms can provide portfolio funding to help launch new litigation boutiques, such as the firm that Raymond Boucher launched with funding from Bentham, as was reported in an article entitled “Litigation Attracts Wave of Investors” published by The Wall Street Journal on May 16, 2016. “Litigation is difficult. It’s expensive. It’s time consuming,” Mr. Boucher told the Journal. “Generally speaking, it takes a new firm three-to-five years to become successful. The benefit of financing is that it gives you that lead-up time.”
Some litigation finance firms, including Bentham, are equipped to provide more than money and an efficient fee structure. Bentham assists with strategic decisions in consultation with the lawyers. While Bentham has no right to control, and never attempts to control, the litigation or settlement, Bentham does have the right to be kept informed of the progress of the case and to make strategic suggestions for the plaintiff and lawyers to consider. Bentham’s Investment Managers are all former litigators, with the experience of many cases among them. There are many examples of cases that have been made stronger as a result not just of our investment, but our strategic suggestions. In this way, attorney effort is enhanced by having Bentham on the team.