Learning About Criminal Law Proceedings

Is Litigation Funding A Viable Option For Your Potential Lawsuit?

If you've been grievously wronged by a colleague or business associate, your first instinct may be to contact an attorney to discuss and evaluate your legal options. However, you may find a lawsuit to be a much costlier prospect than anticipated. When you're already reeling from the financial impact of a wrongful termination, stock devaluation, or other shady business decision, coming up with the funds to keep a litigator on retainer for the duration of your case could be out of the question. Can litigation funding help you achieve your goals without costing you thousands in up-front expenses? Read on to learn more about this process, as well as some situations in which litigation funding may be worthwhile. 

What is litigation funding?

In most states, attorneys can take on complex or potentially enormous cases on a contingency fee basis -- agreeing to file and litigate the case at no cost until a judgment is issued or a settlement reached, at which time the attorney or law firm will take a pre-determined percentage of the total award. However, sometimes even the largest law firms may not be able to front the litigation expenses of a case that could span years and require multiple expert witnesses, depositions, and other costs. This is where litigation funding enters the picture. 

Litigation funding involves the use of a third-party company to advance funds to the law firm based on the perceived value of a specific case. Should you prevail in court, the litigation funding firm will recoup its initial investment plus an additional amount, providing you with the remaining funds. This funding does carry a cost above and beyond the legal fees you'll pay to counsel, charging a loosely estimated interest rate equivalent to about 20 percent APR if your case lasts several years or more.

Although most litigation funding firms concentrate on personal injury cases, this funding is also available for many high-dollar commercial and employment-related lawsuits as well. Through this arrangement, the litigation funding firm will assume much of the risk of the case not settling (or judgment being entered in favor of the plaintiff), and may not require reimbursement from the client or the law firm if the case is unsuccessful. 

How can you get started with a litigation funding firm?

Although these firms employ attorneys to help evaluate the merits of cases to determine whether these cases are an acceptable risk, there are important reasons you'll want to seek litigation funding through the attorney you choose to handle your lawsuit rather than trying to contact the funding firm directly.

Because these funding firms often operate on a nationwide basis, they may not be as familiar with your state's laws and legal precedents as a local attorney will be. Even if your case is a federal one, each of the circuits can differ significantly in its interpretation of constitutional issues. A litigation funding firm that practices primarily on the West Coast may not be as up-to-speed on East Coast or Midwestern federal law as local counsel.

It can also be difficult for a litigation funding firm to determine exactly how costly your case will be -- or how much you may be able to recoup. Because attorney fees can vary widely from state to state, and because many states have caps on punitive damages resulting from tort claims, a local attorney has a much better base of knowledge from which to compute the value of a case. If your attorney determines that your case is a solid one, you'll want to request that he or she investigate the possibility of outside funding. Your attorney can then work directly with the funding firm to "sell" them on your case and help get the money flowing.

For more information on your specific situation, consider contacting a professional, like those at FactorLaw.