Pursuing major lawsuits requires substantial upfront resources even for successful lawyers. So specialty lenders now provide attorney case funding helping law firms finance cases with reimbursable ongoing costs like expert witnesses or discovery motions.

What is Attorney Litigation Financing?

Litigation financing loans allow lawyers to access working capital leveraging the value of ongoing case award potential. Non-recourse cash helps cover steep filing, administration, and procedural expenses as cases progress toward settlement or award.

Rather than pulling limited working capital from the entire firm’s budget to float just a few key matters, specialty lending against specific case liens gives added budget flexibility managing expensive litigation. Dedicated case cost funding allows moving more substantial personal injury, malpractice, mass tort or commercial disputes forward concurrently through lengthy multi-year legal processes.

How Attorney Litigation Funding Works

Law firms secure financing against case liens in a four step process:

  1. Estimate maximum case value based on apparent merits and likely settlement range
  2. Submit request to lenders specifying lien amount desired based on projected case budgeting needs
  3. Get funding approval usually within 2 days and finalize required legal agreements
  4. Receive lump sum advance directly into the firm’s account to allocate toward defined case costs

Eventually the loan gets repaid only if that particular case reaches adjudication or settlement. The lender then takes an agreed lien percentage before the firm receives the remaining reward balance.

If the lawsuit gets dismissed without compensation, repayment obligation gets absolved entirely since funding equates an investment backing the inherent risks and delays from the judicial system. This transfers a portion of the procedural expense burdens off qualified attorneys allowing more resources focused directly on demanding litigation.

Types of Attorney Litigation Funders

Specialty companies financing law firms against liens on current cases include:

Bentham IMF – Provides both case expense and portfolio funding for aggregated matters
LexShares – Marketplace matching institutional investors with attorney liens
Omni Bridgeway – Backs commercial lawsuits and arbitration cases globably
Legalist – Uses data analytics to approve funding based on predicting case success probabilities

Benefits Law Firms Gain From Litigation Funding

  1. Avoid depleting working capital funding long uncertain cases
  2. Pursue bigger lawsuits with less upfront risk exposure
  3. Level caseloads so timing issues on one don’t impact others
  4. Hire top level experts, forensic analysts or external support
  5. Reduce stress about budgets sub-optimizing litigation quality

Cons Associated With Lawsuit Loans and Liens

  1. Paying back large multiples of original funding if cases succeed
  2. Getting only a percentage of settlement money after paying lien
  3. Potential conflicts around reducing settlement amounts to cut lien costs
  4. Keeping billing orderly to properly account for expenses related to lien
  5. Public perception about outsourcing case funding seeming inappropriate

What Case Funding Repayment Entails

When funding gets approved, law firms only pay it back if the case wins damages, whether through settlement or trial award. The funder takes an agreed percentage of the final disbursement to the lawyer. Their cut often falls in the 20-50% range based on perceived risk levels at origination.

If cases flop without compensation, repayment obligation disappears since the legal lender assumes risk trading potential returns for funding procedural costs.

Law firms only owe repayment contingent on winning cases. So while percentage cuts seem high, absolute funding amounts remain reasonably tied to chance of success.

For example, a firm might borrow $500,000 toward a major case projected to settle around $5 million based on apparent injuries and defendant.

The agreement gives the lender 30% of total attorney reward.

If the case succeeds as planned and settles for $5 million, the firm pays back $1.5 million from their fees. Significant costs got covered allowing enough running room pursuing high stakes lawsuits. If it failed, the $500,000 outlay simply gets written off.

When Case Funding Aligns Best With Law Firm Goals

Attorney lines of credit or general firm loans with fixed repayment schedules often prove cheaper than case liens if lawyers access funds conservatively for normal caseload operations.

But specialty litigation loans make the most sense handling high cost scenarios like:

  • Class action lawsuits
  • Mass torts consolidation across plaintiffs
  • Cases involving extensive medical expert testimony
  • Major commercial disputes with corporations
  • Accidents caused by dangerous products
  • Cases likely involving numerous appeals

The variable contingent repayment structure justifies itself most when balanced against legal matters simultaneously carrying both high stakes and elevated procedural costs over long unpredictable time horizons.

Alternatives to Explore Before Resorting to Case Funding

Other options providing operating liquidity or lawsuit cost relief include:

Payment Plans With Service Providers – Negotiate extended fee structures with experts needed to prove cases over time rather than lump sums upfront.

Firm Credit Lines – Set up revolving credit facilities based on law firm assets and payment histories allowing flexible access, then repay as cases settle.

Attorney Fee Structuring – Shift more earnings toward contingency and bonuses instead of salaries to align income with caseload timing realities.

Expense Avoidance – Carefully determine which experts or motions have necessary cost-benefit before spending not absolutely required.

Key Case Funding Assessment Questions for Law Firms

  • Does capital assistance fund likely decisive actions propelling complex cases to resolution based on precedents and liability realities?
  • Will funding case budgets augment quality allowing proper dedication countering aggressive defense tactics?
  • Do I manage repayment obligations on won cases to avoid disproportionate fee sharing unchecked by caps or reasonability guardrails?

The best course depends on honest analysis applied towardindividual case funding decisions rather than general policy opinions. Financing deserves serious consideration when infusion of external capital into meritorious matters clearly improves claimant outcomes. But reckless spending chasing speculative gains wastes resources all parties need responsibly maximizing access to fair justice.

With deliberate fiduciary balancing, attorneys can incorporate case funding strategically focused on catalyzing adequate compensation through jurisprudence growing more unaffordable each year for under-resourced clients.

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