Archive for Legal Funding 101

04 Jun 2013
Legal Funding 101

Third Party Financing in Canada

canadian-flagCanadian individual plaintiffs involved in personal injury actions have been able to obtain loans from third party funders in Canada for at least the past 10 years. The primary and most common type of loan provided to such plaintiffs is used towards paying their basic daily living expenses. The benefit of this type of loan allows the plaintiff to pursue their litigation and obtain a fair value for their damages rather than accept a lower value.

Experienced third party funders such as BridgePoint are conscious of the fact that plaintiffs are at a vulnerable stage in their lives when they approach a third party funder for financing. Most plaintiffs have very limited financial resources to see their litigation through to its end. Third party funders can provide flexible and creative solutions to keep financing costs down, such as staging the loan over a period of time rather than providing a lump sum at the outset or providing a smaller loan than requested and assessing further requests as the litigation progresses.

Another type of loan to the plaintiffs is used to pay for medical and rehabilitation benefits that have been terminated or denied by insurers pending the resolution of litigation. This type of loan allows plaintiffs to recover more quickly from their injuries and resume some semblance of their pre-accident life.

Other types of third party financing available in Canada include:

  • Lines of credit to law firms primarily offering services under contingency fee arrangements to assist in financing disbursements for client files;
  • Financing for disbursements not only in personal injury claims but also in commercial litigation and class and mass tort actions; and
  • Cost indemnities in personal injury, class, and mass tort actions.

The first two of these types of funding allow the law firm to properly invest and pursue the litigation for the benefit of the plaintiff or class members.

The latter is a unique product to Canada as an unsuccessful litigant here can be ordered by the Court to pay some or all of the other side’s legal fees and disbursements. A concern that arises with respect to this type of product is whether or not discussions and agreements between the plaintiff and third party funders for this type of product are considered privileged. The caselaw is currently unsettled, especially in the class action field as some provincial Courts will recognize the agreement is privileged while others Courts do not.

Third party financing is still in its early stages in Canada. Ordinary financial institutions cannot meet this type of demand because the risks involved in litigation do not conform to a financial institution’s underwriting criteria for loans. Further, financial institutions do not provide cost indemnities. As a result, it is anticipated that the demand for such services will continue to rise in Canada.

This guest blog post was written by Grace Tsang of BridgePoint Financial Services Inc, a third-party litigation funding company based out of Toronto, Canada.

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22 May 2013
Legal Funding 101

Third-Party Funding: A Nascent Industry in France

FranceAmong a company’s assets, commercial claims may be very valuable assets, though illiquid. Today, many companies fail to receive compensation because of financial barriers: corporate claimants are obliged to finance their lawsuits out of corporate cash. In financing claims themselves by paying lawyers hourly fees to litigate a case, corporations must manage several layers of risk such as legal fees exceeding budgets, unfavorable judgments, and unforeseen events.

Furthermore, the economic crisis puts increased pressure on internal legal budgets, and corporations are becoming increasingly more cautious before initiating arbitral proceedings. Some are even likely to withdraw from the proceedings due to the costs.

Such environment has led to a situation where the decision to litigate is taken in consideration of other elements than the mere meritorious character of the legal claim. Considering that the right to receive compensation for an injured party was granted in Europe a fundamental value, it is effective access to justice which is at stake.

Litigation financing enables corporations to unlock the value of their commercial claims that are otherwise too expensive or risky to pursue. As a result of funding, the risk profile of pursuing litigation changes significantly and the short-term cash flow position is improved, thereby enabling a more strategic use of capital to create shareholder value. For a funded claimant, a funded case becomes a true valuable financial asset.

This explains why third-party funding (TPF) is growing and will continue to grow, even more so in Europe and in France where French lawyers are being forbidden from offering “no win no fee” arrangements.

TPF is well developed in many countries such as the United States, United Kingdom, Germany, and Australia. Until very recently and the launch of Alter Litigation in January 2013 it had received very little attention in France.

Arbitration: Costs are a Catalyst for the Shift

Even though major corporations continue to affirm the benefits of arbitration to resolve transnational disputes, they are increasingly focused on getting value from the arbitration process, which costs and delays have increased. Still, the cost involved in arbitration proceedings can be detrimental for those less inclined to afford it or for those who are no longer willing to take such a financial risk.

I see the development and success of arbitration in Europe and worldwide as a great avenue for the development of Alter Litigation.

However, even though TPF of international arbitration has been a growing phenomenon, receiving increasing attention from the international arbitration and litigation communities, it still remains relatively uncommon, as recent surveys show. Clients need to know about TPF and lawyers have a duty to tell.

Alter Litigation FundingThis guest blog post was written by Frederic Pelouze of Alter Litigation, a French third-party litigation finance company. They fund a wide spectrum of claims throughout France and Europe, including commercial disputes, cartel damage claims, and international arbitration.

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01 May 2013
Legal Funding 101

Record Breaking Growth in Australian Litigation Funding Space; WSJ Covers the “Payday Lawsuit Lending” Industry

litigation funding in Australia experiences record growthAustralia has been one of the most accepting markets for litigation funding since its inception. It was one of the first territories to embrace the industry, and for those involved, it has been quite lucrative. An article in Bloomberg Businessweek recently stated that litigation funders in Australia have reported record profits. Yet even with this tremendous growth, many in the third party financing space feel they are just scratching the surface.

On April 28th, The Wall Street Journal did a story about possible state legislation that may impact what the author referred to as the “payday lawsuit lending” industry. According to the story, there are several states looking to cap the rates certain companies charge when they provide funding to plaintiffs (commonly referred to as pre-settlement plaintiff financing). *

In reading the article, it seems that many of the legislators quoted do not understand the basics of lawsuit funding. Legal finance companies take on significant risks, as the funding they provide is generally non-recourse. This means that if the plaintiff’s lawsuit does not result in a favorable outcome, the plaintiff owes the funding company nothing. Furthermore, pre-settlement funding is not a loan as the article describes, but an advance against future proceeds of a lawsuit.

In the past, there has been legislation against legal funding. The practice was even temporarily banned in certain states, including Ohio and North Carolina. Currently, lawsuit lending is legal in all 50 states. The United States Chamber of Commerce has been pushing for legislation to again ban the practice or cap the rates funding companies are allowed to charge. Supporters of legal finance say this would severely harm the industry.

*DISCLAIMER: RD Legal exclusively focuses on post-settlement funding and does not support nor endorse the pre-settlement finance industry.

Written by Lulaine Compere

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20 Apr 2013
Legal Funding 101

The Government on Litigation Funding

capitol-washington-dcThe House of Representatives held a hearing before the Subcommittee on the Constitution during the 112th Congress in May of 2011. The hearing was titled Can We Sue Our Way to Prosperity? Litigation’s Effect on America’s Global Competitiveness. Those who testified are critics of the legal industry and the tort system. They argued that the bloated tort system is making plaintiffs trigger happy when it comes to filing lawsuits against corporations. This in turn is contributing to an American business environment that is less competitive than other countries.

The hearing was meant to gather testimony from these witnesses about how America can regain its footing as the top global country in which to conduct business. Of course the hearing ignores the realities of the economic situation worldwide and the legal situation of out of control torts. The worldwide recession of 2008 may have impacted America’s standing as a place to do business. Also, even with the “bloated tort system,” many surveys and polls have shown America to be the place companies want to start and operate.

As for the tort criticisms, this is another attempt to paint the problem worse than it really is. Yes, people have an easier time bringing cases, but there are movements in different states that have limited a plaintiff’s right to sue and have limited the damages to which plaintiffs are entitled. That is the world the people who testified at the hearing would have us live in. A world where a life changing injury like losing an arm or leg would only cost a company $50,000. No amount of money can ever replace a life altering event. But a higher, more reasonable settlement or verdict can give victims a chance to rebuild their lives while holding the offending party more accountable.

On a more recent note, the House of Representatives Subcommittee on the Constitution and Civil Justice held a hearing on March 13th, 2013 titled Examination of Litigation Abuses. The purpose of the hearing was to examine what some critics of the legal system have described as frivolous litigation and the effect it has on the system.

In the hearing, mentions of third-party litigation finance and lawsuit funding were made by critics who say the presence of such industries is fueling frivolous lawsuits. Those who testified include Elizabeth Milito of the National Federation of Independent Business, Theodore Frank of the Center for Class Action Fairness, Joanne Doroshow of the Center for Justice and Democracy at New York Law School, and John Beisner of the law firm Skadden, Arps, Slate, Meagher & Flom, LLP. The hearing gives the viewer the chance to see both sides engage and present their viewpoints to lawmakers about the legal system.  To watch a video webcast of the hearing, visit the Committee on the Judiciary website.


Written by Lulaine Compere.

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15 Apr 2013
Legal Funding 101

Third-Party Litigation Funding Articles: The Third Degree, Avoiding Bad Apples, and More

cyclone-of-franklinsThe Law Society Gazette published an article about the third-party funding industry in the United Kingdom entitled The Third Degree. The article, written by Rachel Rothwell, Editor of Litigation Funding Magazine, goes into detail about the environment of the industry since new reforms have passed in the UK that will directly impact how it operates. Third-party funding companies may be seeing a golden age, as recent reforms, coupled with less regulation, will likely increase the industry’s profitability. Expansion into different areas like personal injury and divorce are still not viewed as viable by industry observers. There are other points made in the article about possible consequences such reform and transition will mean for the industry.

An article in Commercial Dispute Resolution by Marius Nasta titled Avoiding Bad Apples discusses the benefits that third-party litigation finance companies offer. Nasta is Chief Executive of Redress Solutions, a UK-based litigation funding company. There are many critics of third-party funding who would much rather see the industry fail because its very nature is a threat to many businesses. The author makes the point that third-party litigation finance companies are very careful and diligent in how they fund cases. The use of a legal team to evaluate the claims and their determination is a major factor in their decision making. In addition, some technical aspects of the industry are addressed, including payments, premiums, and damages.

third-party litigation fundingAn article in The Global Legal Post addresses new rules in the United Kingdom which will impact how the third-party funding industry operates. Litigation funding is huge in the UK, Australia, and New Zealand, and is growing in the United States and parts of Europe. New rules, which were proposed from the Jackson Report of 2010, will be implemented through the Legal Aid Sentencing and Punishment of Offenders Act of 2012. Some of the reforms include changes to damages-based agreements, after-the-event insurance, and cost budgeting.

In addition, a blog post from the same publication discusses regulation of the third-party litigation funding market. The article mentions how third-party financing companies are banding together to institute policies of self-regulation. An organization called the Association of Litigation Funders has launched their own code of conduct with the approval of several U.K. law bodies. The reason for this is to ensure there are standards to protect the industry’s reputation and sanctity.

Financier Worldwide Magazine covered a thrilling question and answer discussion about third-party financing. The three participants were Mick Smith of Calunius Capital, LLP, Tom Custance of Fox Williams, LLP, and James Tyrell, Jr. of Patton Boggs. The conversation was very free-flowing and informative about the industry and where these three think the future of it lies. For those who are interested in these subjects, you will not be disappointed. Read the discussion in its entirety at FinancierWorldwide.com.

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15 Apr 2013
Legal Funding 101

Litigation Funding in the News

third-party litigation funding in the newsAs litigation funding continues to grow, many in the mainstream media are starting to cover the industry. These are just the latest examples of the increasing coverage the industry is receiving. There has been a constant and very active disinformation campaign against the industry to besmirch its reputation. Below are the latest stories of litigation funding in the news.

The National Law Journal reported the birth of a new litigation funding company, Gerchen Keller Capital LLC. According to the article, the Chicago-based company plans on financing both plaintiffs and defendants. This is a new occurrence because most legal funding companies fund only the plaintiffs. The Wall Street Journal also reported on this story.

The world-renowned magazine The Economist recently did a story about legal funding. The legal finance industry or what’s commonly known as the third-party funding industry is getting an increasing amount of press coverage. The profitability of certain companies, the emergence of new corporations, and the overview of what the industry is and where it may expand has been the subject of many stories. The Economist’s story focused on the definition of the industry.

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12 Feb 2013
Legal Funding 101

Post-Settlement Funding: A More Transparent Version of Legal Finance

post-settlement fundingLegal funding is a new field that is growing every year. It is already a force in places like the United Kingdom, New Zealand, and Australia and is becoming increasingly popular in the United States. The industry generates a lot of money and there is a significant presence of hedge funds. Critics of litigation funding say because of these very reasons, the industry’s model is predatory.

Critics like the various chambers of commerce and the Institute for Legal Reform say the profits legal funding companies generate leave the plaintiffs with little money. They paint the companies as opportunistic investors looking to make a massive profit on their small investment or a Johnny-come-lately who saw an opportunity and decided to take it. They also claim that legal funding companies can potentially interfere with the judicial process.

The main criticism of legal funding companies boils down to this: unscrupulous companies are willing to finance litigation for profit no matter what it takes. Of course there are shady players in any industry, especially in the ranks of the various chambers of commerce. Many of their members are in court or in the news for releasing harmful products or doing harmful actions to people.  Legal funding has its fair share of unethical bad actors, but for the most part, the terms and conditions of doing business with a legal funding company are upfront.

Critics rarely call for the complete abolishment of an industry. With legal funding however, critics believe that the entire industry must be done away with because its effect is so harmful to regular people as well as companies. Of course these are exaggerations of what the industry is really about. Many attorneys, plaintiffs, and companies who use legal funding are doing so because they are experiencing cash flow problems and need money to continue doing business. Or corporations involved in litigation may have too much invested in a lawsuit and use the money as a hedge against future disasters.

Post-settlement funding (Fee Acceleration) is a little different than what is considered to be “traditional legal funding.” Legal funding usually involves a company advancing funds before the outcome of the case is determined. This is known as pre-settlement financing, as an advance is being made prior to a settlement or judgment. Because the outcome is unknown, this can be a risky investment for a legal finance company. Therefore, the rates on pre-settlement advances are usually quite high.

In a post-settlement situation, the attorneys and plaintiffs know exactly what they will receive, or there is a binding high-low agreement in place. In either case, there is less speculation with post-settlement funding. Therefore, a post-settlement advance can be obtained at a much more reasonable rate. The critics of legal funding forget that there are many variations. That being said, post-settlement funding may be the most transparent kind of legal financing.

Written by Lulaine Compere.

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01 Feb 2013
Legal Funding 101

Minority-Owned Law Firms Should Consider Law Firm Funding

legal funding for minority law firmsStatistics show minority-owned businesses have a harder time accessing capital than white-owned businesses. That problem seems to spread across all business sectors like finance, manufacturing, technology, and law. Many people forget until they get the bill that law firms and lawyers are in business. They have all the worries and problems other business owners have, like making payroll, paying insurance, taxes, and finding new business.

Law firms are not immune from traditional business problems. One of the biggest issues they have to deal with is access to capital. There have been numerous studies and reports about why it’s harder for minority businesses to get money for their operations, yet the problem persists. According to the Minority Business Development Agency, many minority businesses depend on short-term debt or revolving lines of credit to keep their operations running.

The manner in which a retail shop or financial business will repay a bank loan is pretty straightforward. Therefore, it is easier for such businesses to obtain traditional financing. In general, law firms have a harder time acquiring capital because their assets (contingent fee portfolio of cases) are difficult to measure and price.

Law firms need lines of credit to keep their operations running smoothly. In addition, reaching a settlement doesn’t necessarily equate to getting paid. Oftentimes, there is a lengthy delay between time of settlement and payout of the legal fee. This is especially true with class action lawsuits, MDL’s, and personal injury cases where Medicare is involved. This is where post-settlement funding is a viable solution, as it converts legal fees associated with settled cases into immediate working capital.

The traditional financial avenues such as banks and credit unions are not going to change their standards for minority-owned law firms to get a bigger slice of capital. Minority-owned practices will have to find new sources of money in order to expand and maintain their operations. Legal funding, also known as law firm funding, is a new way for law firms to get the kind of capital they need. Legal funding companies are for the most part run by former lawyers or people knowledgeable about the legal industry. Therefore, they understand the true value of your contingent fee portfolio and can advance you significantly more than a traditional financial institution could.

In this economic climate, minority law firms should know that their access to capital is only going to get tougher. Many experts say it will be a long time before economies bounce back, which means lending standards are going to be even tougher. It is important to understand that there are alternative capital sources to consider. Justice waits for no man and having law firm funding can mean a win-win for the plaintiff’s attorney and their client.

Written by Lulaine Compere.

Sources:

http://www.forbes.com/sites/kauffman/2012/07/30/minority-owned-businesses-come-up-short-in-access-to-capital-its-time-to-change-the-equation-for-mbes/

http://www.memphisdailynews.com/editorial/ArticleEmail.aspx?id=28797

http://www.legalfunding.com/solutions/fee_acceleration.cfm

http://www.legalfunding.com/solutions/lineofcredit.cfm

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08 Jan 2013
Legal Funding 101

Litigation Funding is a Business

litigation funding is a businessThe usual scenario of a person seeking legal funding would involve them calling a litigation funding company, either seeking money to help them fight a case or to obtain a post-settlement advance. The company would use its own evaluation tools to determine if it’s a good investment. There are a variety of ways companies do these evaluations, but a determination can be made where the person seeking the funding is denied.

There are numerous benefits of legal funding. It is a free-market solution to a problem that plagues most legal systems globally. The problem is the lack of access to justice by regular people, who need the system to deliver on its promise. Litigation funding is going to continue to grow in size and in practice for regular people who need it and attorneys who face similar financial problems.

However, even with all the social benefits the industry provides, litigation funding is still a business, and it is important for people to understand the criteria for getting funding prior to signing on the dotted line. The industry is still very new and it can be quite confusing for anybody who might be planning to use the services of a legal funding company. The Centre for Socio-Legal Studies in the University of Oxford and The University of Lincoln published a report about litigation funding. The report, titled Litigation Funding: Status and Issues, gives a comprehensive view of the litigation funding industry. One of the sections in the report explains why claims get denied.

  1. Liability evidence is irremediably too weak, too dependent on oral evidence, or requires a factually-rich and complex forensic inquiry.
  2. The claim is made up of too many small claims.
  3. The likely cost is too large.
  4. The defendant is unlikely to be able to meet any judgment.

Litigation funding can provide a helping hand to people, but it is also a business. For a business to work and continue to grow, they must adhere to certain rules and standards. The critics of litigation funding would like to see the industry become a pariah and vilified. Organizations like the Chamber of Commerce would like to see litigation funding become persona non grata in the finance and legal communities because it benefits their members, which are huge corporations.

Written by Lulaine Compere

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19 Dec 2012
Legal Funding 101

News in the Litigation Funding Space

litigation funding sectorTheLawyer.com published a very detailed story on the changing issues the legal world is going to have to face. The story, which polled attorneys across the United Kingdom, asked them questions on issues like litigation funding, contingency fees, the billing of clients, and reducing overall costs. The story even got the lawyers’ opinion on the future of technology and how it might affect the courtroom and certain procedures in court.

Secondly, the University of New South Wales’ Centre for Law, Markets & Regulation, which is based in Australia, published an article on litigation funding which stated that litigation funding companies do not need an Australian Financial Services License (AFSL) to operate. The exception was granted in part because of the judicial decision International Litigation Partners Pte Ltd v. Chameleon Mining NL. The case made headlines in Australia because it exempted litigation funding companies from getting the AFSL, which other sectors that offer financial products are required to obtain. This exception allows anyone to fund litigation in Australia.

Finally, The Financial Times reported a story about a new investor jumping into the litigation funding sector in the United Kingdom. Jon Moulton is one of the best known private equity investors to have invested in Manolete Partners, a litigation funding company. The litigation finance arena has been growing steadily for over a decade, and it’s starting to breakthrough that it’s a worthwhile investment. The United Kingdom, the United States, and Australia are some of the biggest markets for the sector. Investors are flocking to this field because of its potential return on investment.

Written by Lulaine Compere

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