Over the years we have gotten a lot of questions about how litigation financing works. From fees to timelines, here is a primer on the basics of litigation financing.
Q: How does the process work at RD Legal Funding?
A: The concept of litigation financing is straight forward. While most settled litigations pay within approximately 30 days, settlements involving complex litigations often take years before they are distributed. These post settlement payment delays arise in complex litigations because of intervening objections to a proposed settlement, appeals, complicated administration, and distribution processes. If these happen in a litigation with a tentative settlement in place, the distribution of the settlement might be delayed for years.
Instead of waiting for a given settlement to pay, lawyers can seek to advance their firm’s legal fees by working with RD Legal Funding (RD Legal). RD Legal pays the law firm it’s anticipated legal fees and then collects the legal fees from the settlement once it pays. In short, litigation financing helps lawyers and firms bridge the financial gap between the time when a settlement is first announced and when it is finally pays.
Q: Why is litigation financing a popular choice?
A: For many personal injury lawyers, maintaining a consistent cash flow while continuing to litigate their existing case inventory and wait for settlement payments is nearly impossible. Many of the larger settlements and therefore larger legal fees involve complex litigations that have many of the post settlement payment delays described above. The fees they earn when a case is won, or settled can take as long as 2-7 years to payout after a tentative settlement is first reached. From a planning perspective, it is also very difficult to estimate how long these post settlement payment delays will take in any given case.
Imagine budgeting for a business without a predictable monthly cashflow. Our post settlement litigation financing brings a measure of financial consistency to a firm or lawyer, by allowing them to tap into their future income. Using this tool, lawyers can cover their routine business and household expenses and grow their practice while waiting for their settlements and the resulting legal fees to pay. It also enables them to focus on what they do best, representing their clients.
Q: Is this like a loan, are there monthly payments?
A: No, there are no monthly interest payments. RD Legal Funding does not extend credit. Instead, the firm’s legal fees are assigned to RD Legal and when the settlement ultimately pays, the legal fees, or the amount purchased are paid over to RD Legal.
Q: Is there a deadline or timeline with these purchases? What happens if the distribution comes in earlier or later than anticipated?
A: RD Legal and the assigning law firm, or attorney are completely aligned. If the settlement pays sooner than expected, the law firm will receive a rebate, or bonus, which lowers the cost. If the settlement is paid later than expected, RD, more often than not, will take the risk of time, and the lawyer, or law firm will not be charged extra.
Q: How much does it cost?
A: Pricing varies based on the nature of the underlying parties to the settlement, the anticipated duration of the post settlement payment delay, and whether the cash has been escrowed. With that said, this is generally cheaper than pre settlement financing on a given case or taking a credit facility using your firm’s case inventory as collateral.
Q: How quickly do firms get their money when they sell a settlement?
A: Typically, our clients receive their funding within 1-2 weeks. That timeline can change based on how quickly the necessary information is provided.
Q: Are plaintiffs charged a fee if their lawyer uses litigation financing to get an advance on their fees?
A: No. The advance is only given for the legal fees a lawyer or firm will be paid.
Q: What makes RD Financing different from other firms in this space?
A: First is our team. We have decades of experience in this space and many of our team members have been those lawyers waiting for fee payments just to keep the lights on. Second, our approach varies in two important ways. First, we only provide financing for settled cases that require some form of court approval before they can be paid. Secondly, the size of the purchases we make is smaller than some of the big firms. Our focus is on providing financing solutions for the small to medium-sized settlements.