Friday Funding Series: Why the Demand for Litigation Funding Has Increased
The fourth segment in our 6-part Lawline Friday Funding video series takes a closer look at some of the reasons that contributed to the increased demand for litigation funding. From a rise in requests for alternative fee arrangements to requests for a more equitable alignment of interests within the attorney-client relationship, law firms are finding that litigation finance is the answer to these client demands.
(text adapted from video)
Jim Batson: Why do people need litigation funding? Why is it becoming more and more common that people are asking for it and that law firms are looking at it and corporate clients are looking at?
First and foremost, I think there's a great pressure on law firms to offer alternatives to the billable hour and/or offer discounts. You know, I think it really all boils down to a comfort level and an alignment of interests. There's always this suspicion when a law firm is working on 100% hourly rates, there's a suspicion that they're charging more than they need to be charging. There's arguably an incentive for the law firm to charge as much as possible. On the margins, it behooves the law firm to do more work rather than less. That can really come into play when we're talking about a settlement decision.
If the law firm, 100% genuinely with no improper motive whatsoever, recommends that a client reject a settlement and go to trial, the client at least maybe if there's a board deciding whether to follow that advice has to wonder, to some degree, "Well, is the law firm motivated at least in part by the fact that they'll be billing and receiving a million dollars more in fees if the case goes to trial and then settles." That issue exists, and as a result of that a lot of clients have said, "Hey, we want a different kind of arrangement," to law firms. Law firms have started to provide those. They'll say, "All right, we'll give you a discounted rate in exchange for an uptick," or "Maybe we'll give you fixed rates, a fixed amount each month." All sorts of options are starting to become more common. But it's harder and harder for the law firms to meet those requests without litigation funding.