LITIGATION FUNDING: DON’T GET LEFT BEHIND
(MASS TORT NEWS) It has now become a common practice for law firms, both plaintiff and defense to utilize outside financial resources to support not only litigation, but the overall legal practice in law firms and law departments across the United States. As is continuously stated, “he who writes the checks – gets the most attention” and this may have been a foregone conclusion prior to as recently as 2015. But now, the use of third-party funding is not only prevalent, it is an accepted business practice at some of the largest law firms and corporate law departments in the United States and more often than thought, the rest of the world.
Many on the defense side, primarily defense counsel at firms most affected by product liability litigation losses over the last 15 years, have repeatedly claimed that outside capital being provided to a law firm in ongoing litigation, may permit undue influence for benefit of profit only. This is not only far from the truth, it is a convenient red flag being used by someone who is either not familiar with third-party funding as a business practice or someone who is not up to date on current legal industry standards.
The Litigation Funding Forum event March 2020 New York City is a showcase for plaintiff’s and defense counsel as well as investment professionals, who are either active in the litigation funding process or have specific skills and credentials related to this now established area of law and law firm practice business operations. The combined dockets of these primary firms who are speaking and attending have, just in mass torts dockets worth far in excess of $10 billion out in the legal landscape. This does not encompass the intellectual property and commercial firms, and the general counsels who are clients of the lenders who easily have another few billion tied to the litigation focused financial groups.
Commercial firms utilize outside funding for numerous different practice areas in 2019-2020, including patent litigation where both sides of IP disputes seek outside capital, as well as being seen as a funding resource for complex commercial litigation, where legal costs can run into multi-millions of dollars per month in defending a lawsuit.
Corporate legal departments now see the viability of seeking third-party funding, “i.e. having a legal line of credit” to be used for defending and or pursuing litigation in a way that removes the bottom-line costs associated with litigation within a corporate accounting structure.
Although many of the larger firms across the country have been utilizing outside capital for years, actually closer to decades, the ability of smaller to midsize firms to access third-party capital at a rate that would not be considered loansharking or financial piracy is now seen as the disappearing urban myth and an emerging option for viable firms to secure capital for either growth, new practice area development, or other system expansion needs.
Among the featured speakers at the March 26, 2020 event is Rick Meadow of The Lanier Law Firm who’s recognized as one of the top lawyers in the country in pharmaceutical litigation and other complex mass torts. Rick offered the following on the now readily available access to litigation funding “Litigation funding gives many talented lawyers the opportunity to practice in an area that was once financially problematic or impossible.” The ability of law firms and the financial industry to provide financial access to the small to midsize firms into an often costly and lengthy practice area is reflective how the American legal/financial industries can adapt and provide viable options.
Providing a platform for the multitude of legal industry parties who can utilize a streamlined and effective capital resource is the emerging industry focus, however there is always the caveat of buyer beware, due to the numerous unscrupulous and loan sharks who will seek up to 25% high interest on the unaware or unsophisticated firms that require or are seeking capital. Providing a streamlined focus for midsize firms to utilize third-party funding for whatever purpose is now determined a “best practice” and now an accepted legal industry standard. As in other emerging industries, there is a rush to get in while things are viable and there is money to be made, considering billions of dollars is borrowed and paid back each year in litigation funding, there will be a reckoning at some point of having the high interest/loan sharks being unable to support this type of model.
Meeting with and speaking to the investment bankers, financial analysts and others at events such as litigation funding forum will enable both sophisticated as well as new market entry lawyers and their management to discuss and determine if this is a viable funding option for their firms.
The financial forecasts for 2020 and beyond will reflect an increase of 20 to 30% of litigation funding capital investment availability, whether these are from private banks, hedge funds, and/ or secured investment banks is the one question that directly relates to how best to secure funding yet keeping this thought in mind as to what’s best for “my firm and within my financial appetite regarding the repayment obligations.”
Within various emerging mass torts and the ability for some firms to become involved in these primarily pharmaceutical and medical device dockets, is where the question of increased financial viability comes to the table, due to the perception that these are closed access to firms not familiar with this practice area. Utilizing a smart business plan as in any other entry into an emerging practice area is an absolute requirement, speak to people at firms of different sizes and practice areas that you may be aware of using outside capital investment resources. This is no different than using a line of credit at your local long-term banker, than there is with a third-party lender, other than often the third-party lender has a much less restrictive lending requirements and or portfolio analysis needs than the average bank.
Nonrecourse lending is the absolute industry norm in 2020 and having the ability to secure $50-$100 million based on a docket that is still in litigation is the industry standard and the ability to access this type of capital depends on your firm’s management practices, choice of venue as well as types of dockets that you would choose to pursue.
Recent discussions took place with several name partners at prominent national mass tort law firms where litigation funding and the forecast for continued growth was discussed. Although everyone was positive in their comments as to business views and continued growth, the emerging concern is oversaturation by cash-rich groups and or hedge funds who are attempting to join the industry-wide growth, where they are charging the loan shark interest rates and are in for the short term benefits versus long-term growth and incorporation of financial services into the litigation practice area as a business norm.
In certain cases there are viable lending institutions who can secure and close on a $175 million loan within a six week period if the firm has a viable business plan, as well as a docket that would support this type of loan. Generally speaking the closing period, after all due diligence and docket review is done can take 60 days or more by itself, that’s why it’s critical to make sure the source of your capital is viable as well as willing to move at a pace that may strategically assist in guiding your efforts to enter potentially a new tort or bridge financial requirements when certain litigation has taken longer than initially expected to come to settlement or verdict.
As more corporate law departments see third-party funding as a viable alternative, the playing field is leveling and the acceptance of outside financial resources as a part of the day to day business operations in the legal industry will only improve and in the foreseeable future become known as an acceptable and regular business practice.
We will soon be releasing a strategic how to guide that outlines the key points you need to follow as a law firm or corporate law department when opening discussions or continuing discussions with the financial entity who you were requesting financial services from. This will include distinct questions to ask the lender as well as the questions to ask your firm management and others who are active in the day-to-day business matters of your practice. Often getting a large influx of cash to pursue emerging litigation campaigns results in money being either misguided or placed with vendors and other outside parties of which the firm has minimal control.
Stay tuned to Mass Tort News and The Litigation Funding Forum event (www.litigationfundingforum.com) March 26, 2020 in New York City for additional updates on how to locate, secure and invest your money from a third-party lending institution
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