What is Litigation Finance?

Litigation finance (also known as litigation funding) is the practice of providing financial resources to businesses, litigants, or law firms in exchange for a piece of the recovery or benefits of a lawsuit. Typically, litigation funders advance the costs and fees connected to a lawsuit. Sometimes funders will also finance operating expenses during the litigation. It is important to note that the funder does not take control of the litigation process. Litigation decisions, such as whether to settle or go to trial, remain in the hands of the litigant and their lawyer.

Litigation funding firms typically invest in specific types of lawsuits. As an example, Taurus Heights Group invests primarily in commercial claims such as breach of contract, business fraud, antitrust and arbitrations, as well as intellectual property claims such as theft of trade secret, trademarks, copyrights and patents. Funded litigations can be US-based or international or both.

A Quick Look at the Stages in the Litigation Process

No litigation is simple. Some disputes can border on the baroque in their complexity, encompassing multiple parties in multiple jurisdictions over large amounts of money. Often, these cases can require lengthy trials that involve complex legal issues. 

To better understand the need for litigation finance, it is necessary to know the steps and complexities involved in the actual litigation process. 

What are the stages in litigation?

There are eight general stages of civil litigation. A particular case can go through some or all of these stages. Importantly, a case can settle at any point in the process.

Stage 1: Investigation Prior to filing a lawsuit, litigants and their attorneys usually investigate and collect important information about the dispute. This might include talking to witnesses, collecting key documents, or even hiring an investigator. Sometimes the investigation process includes sending a demand letter to the defendant to see if there is a pathway to a quick resolution of the dispute.

Stage 2: Pleadings Pleadings are the initial lawsuit paperwork. The plaintiff’s first pleading will be in the form of a complaint filed in a court that details damages suffered along with other essential facts. The pleadings also include the defendants’ answer to the complaint.

Stage 3: Fact Discovery Discovery is all about fact-gathering. At this stage, both the plaintiff and defendant request and exchange information. Most of fact discovery involves exchanging documents and taking the depositions of fact witnesses. Discovery helps prevent surprises and allows each side to prepare equally. Unfortunately, fact discovery can be quite a lengthy and expensive process, especially given the large number of electronic documents and emails that companies routinely generate in the course of their business.

Stage 4: Expert Discovery Expert discovery is where the parties to the lawsuit each retain specialized experts to offer opinions about the litigation. While not all cases involve experts, they are quite common in complex, civil litigation. Experts frequently opine on technical issues, the amount of damages that are appropriate, or about nuances in the industry at issue.

Stage 5: Pre-Trial The pre-trial stage of litigation is the period after discovery where the parties address the remaining issues leading to the trial. This period usually involves motions for summary judgment or motions to challenge the appropriateness of experts. As the trial date approaches, this period can involve evidentiary issues and disputes over jury instructions. It is common during the pre-trial period for the parties to begin or reignite settlement discussions. Courts often put pressure on the parties to discuss settlement one last time before the cost of a lengthy trial begins.

This pre-trial stage can be arduous and expensive as the attorneys work through complex issues with a looming trial. Having funding allows your legal team to properly research and compile the evidence required for a robust case.

Stage 6: Trial Statistically, most lawsuits do not proceed to trial. But, if a case cannot be resolved during the pre-trial stage, it goes to a formal trial. Both sides present their case with witnesses and evidence. Depending on the claims, and the agreements between the parties, the trial can be a jury trial or a bench trial, where it is just before a judge. Depending on the complexity of the dispute, trials can last days, or weeks, or even months.

Stage 7: Verdict or Judgment At the end of a trial, after careful consideration of the evidence offered by both sides, the jury announces its verdict—or in the case of bench trial, the court announces its ruling. While there can be some post-trial briefing, this is in essence the final decision of the trial court.

Stage 8: Appeal A party that loses at the trial court level may appeal the jury verdict or the judge’s rulings during the case. The result of appeal may be that the verdict is upheld, reversed, or sent back to the trial court for reconsideration. The appeal process often takes between one to two years from the trial court verdict.

What are the benefits of litigation finance? 

Plaintiffs may feel pressure to give up even compelling and valuable lawsuits because they cannot afford them. That is where litigation finance comes into the picture. Litigation finance provides access to justice to those who would otherwise be barred by cost. It can help many plaintiffs who are burdened or discouraged by the resources, time, and energy necessary for a lawsuit by mitigating the cost, the length, and the risk of litigation.

Litigation is Expensive 

The price of justice through the legal system can be daunting.

A top-tier litigation partner can cost between $1000 and $1,700 per hour. Processing and reviewing electronic discovery can cost hundreds of thousands, if not millions, of dollars in large litigation. On top of that, there are deposition, expert, travel, and court costs.

Litigation funding can cover these costs and more.

Litigation is Lengthy 

Complex litigation typically lasts several years, with most falling somewhere between two and five years once appeals are considered. Some cases, such as multi-district litigation, even take longer.

The slow pace of litigation can drain a company’s financial flexibility and wear down the emotional resilience of its managers.

Litigation funders like Taurus Heights Group are structured to handle the slow pace of civil litigation, allowing companies to focus on what they do best.

Litigation is Risky 

No matter how good your case is, or how good your lawyers are, litigation is inherently risky. Judges and juries can make mistakes, jurors bring their own unknown viewpoints as they decide your case, and litigation outcomes are often all-or-nothing.

Litigation funders are designed to mitigate the uncertainty associated with any particular individual case by investing across a large number of diverse cases. Individual plaintiffs can limit their risk exposure by having a funder step in to cover the costs.

Litigation Finance Benefits Law Firms 

As more plaintiffs and litigants push to have their lawyers take risk in the case through contingency arrangements, lawyers are often put in a tough situation. The reality is that law firms can’t (and shouldn’t) have excessive risk on their balance sheets, but at the same time they do not want to lose the opportunity to take on good cases and good plaintiffs.

Litigation finance has come in to fill that gap. With alternative funding arrangements involving litigation funders, law firms can minimize some of the contingency risk they accept without being limited by the resources of their client.