How to Propose a Case for Funding
Our last blog post, Counseling Clients About Litigation Funding, made the statement that no client or law firm should ever walk away from a good case simply because they cannot work out a mutually acceptable retainer agreement, without first talking to a funder. This post features the key questions lawyers should be prepared to answer when they contact funders to explore financing options.
While each funder uses a unique set of criteria to assess the potential value of investing in a case, lawyers are likely to find similarities in the factors taken into consideration. The following are the five key questions Bentham IMF typically asks to preliminarily evaluate whether a case meets our investment criteria. Included with each question is a brief explanation to provide context and help lawyers anticipate how we’re likely to respond to the information provided.
What type of case is it?
Litigation funding is available in a broad array of commercial cases, but there are a few exceptions. The types of commercial cases Bentham funds include: breach of contract, breach of fiduciary duty, trade secret theft, copyright/trademark/patent infringement, complex business disputes, environmental, antitrust as well as domestic and international arbitration. We do not fund personal injury, discrimination, or malpractice cases. Moreover, we are unable to fund class actions of any type in the U.S. on a one-off basis.
What is the amount of actual damages at issue?
Funders evaluate a number of financial factors to determine whether funding makes sense. Generally, damages must approach or exceed $10,000,000 (exclusive of punitive damages) to meet Bentham’s investment criteria.
How much funding is the claimant requesting and what will the funding be used for?
Bentham generally seeks to invest a minimum of $1,000,000, which can be used to cover attorney fees, costs, and various business expenses such as operating costs. Corresponding expected damages must then be approximately 8-10x of Bentham’s proposed investment to provide a reasonable return, pay the lawyers’ contingency fee and ensure that the claimant receives the lion’s share of any award.
Does the claimant have representation and if so, what is the financial arrangement between the claimant and the attorney?
It is important for a funder to understand how an attorney is being paid because this will often have an impact on the funding arrangement. If the party does not have an attorney, a funder can usually provide a referral. Bentham has extensive relationships with top-notch lawyers in every field, and often provides multiple referrals to claimants. If the claimant is represented by counsel, then the funder will want to speak with the attorney at some point to discuss the merits of the case.
What jurisdiction is the case being litigated in?
Funders must be mindful of where the case is located as some states still have active maintenance and champerty laws prohibiting or restricting litigation funding. In addition, knowledge of the jurisdiction, court, and judge informs our understanding of factors that could impact the potential recovery in the case.
This initial step in Bentham’s funding process also involves the signing of a nondisclosure agreement (NDA) by all necessary parties in order to protect attorney work product needed to evaluate the case for funding and to encourage the free flow of information.
If we determine after our brief discussion of the above questions that the case meets our investment criteria, we request the following additional information before signing a term sheet:
- The history of the case and allegations (at what stage is the case, how did the complaint arise, etc.)
- Copies of the complaint, pleadings, and any work product (ex. legal memoranda or damages analyses) that supports your legal position
- Information on the merits of the case, strengths and weaknesses, risks, settlement potential, etc.
- The anticipated length of time needed to litigate the case through trial
- The defendant’s ability to satisfy a judgement
Notwithstanding the NDA executed between the parties, claimants and their counsel should be careful not to reveal attorney-client privileged communications to funders because doing so could void protection of the privilege.