Five Things Law Firm Management Committees Should Know About Litigation Finance
By: David Gallagher, Investment Manager and Legal Counsel
Law firm management committees seeking to improve firm realization rates, achieve expansion and client development goals, and reduce their institutional financial exposure can look to litigation finance as a strategic tool. As they begin assessing how it can help their firms, there are five facts that law firm management committees need to understand about litigation finance:
Top Law Firms and Well-Capitalized Companies are Using Funding. Litigation finance may be best known for supporting individual or small business plaintiffs or small law firms lacking the resources to pursue their claims. However, large companies and top law firms are increasingly using funding to effectively deploy their resources and reduce risk. More and more, litigation funders like Bentham are working with companies that could afford to self-fund plaintiff-side cases, yet choose financing to help preserve their limited legal budgets and reap the accounting benefits of prosecuting claims using outside financing. Likewise, top-tier firms are opting to use portfolio funding to offer alternative fee arrangements with mitigated risk, pursue growth strategies and build new practices.
Various Forms of Litigation Funding Can Benefit Law Firms. Litigation funding proves highly beneficial to law firms whether they obtain it directly from a funder, using a group of contingency cases as collateral, or represent a client using it to pay the firm’s fees in a case.
Law firms using a portfolio of rigorously selected cases as collateral for financing from a funder enjoy the security of guaranteeing a portion of their revenues today, while spreading potential risk across the portfolio. They also reserve to their firms the potential for significant additional returns if the portfolio cases perform well.
Clients pursuing claims with litigation funding have the financial means to hire the best possible counsel and pay a portion of their fees over the lifetime of the case. This can create opportunities for firms to be hired by clients that would otherwise only be able to afford them on a full contingency basis. Clients backed by a funder also have the resources to litigate cases to their best possible outcome, which positions law firms to bring the full scope of their services to bear in a case, rather than see clients accept unjust settlement offers.
Litigation Funding Helps Law Firms Win More Work. When a management committee decides to adopt a more flexible approach to fee arrangements, it empowers the firms’ partners to expand relationships with existing clients and win work from new clients who seek a full-service firm that is amenable to risk-sharing. In addition to meeting client demands to litigate more cases on a contingency or hybrid-fee basis, a decision of this nature may also help firms retain partners whose practices are more conducive to alternative fee arrangements.
With the Right Client, Funding Can Be Used for Defense Cases. Some clients have multiple pieces of potentially lucrative plaintiff-side claims. A portfolio of such claims can be created by a funder, and if their potential value is high enough, they may generate excess financing. That excess can be used to fund things including legal fees in defense-side cases. For example, a client may have claims that are likely to yield $50 million in recoveries. But the cost of taking those claims to trial is $2.5 million. Because the potential recovery is so large, the funder might agree to provide $5 million in funding, secured by the $50 million anticipated recovery. Half of the funding could go to the plaintiff-side claims, and the client could use the other half to pay fees and costs in a defense-side matter.
Funding Improves Realization Rates Without Straining Relationships with Clients. Billing realization is a common concern for firm managers — which is why many of them spend the end of their fiscal years scrambling to get clients to pay their bills. Funders like Bentham provide a steady and reliable source for payments, reducing a firm’s year-end collections challenges. If anything, funders often prompt firms to make sure they’ve regularly turned in their bills for payment, improving their cash flow.
Bentham IMF provides financing to large and small firms that are pursuing meritorious claims likely to provide a substantial return on the company’s investment. Bentham’s funding is non-recourse and, as an ethical and reputable funder, Bentham does not interfere with the litigation or the attorney-client relationship, nor does it control settlement.
To learn more about the ways that litigation finance can help management committees create value for their firms and clients, contact us for a consultation.