INSIGHTS INTO LITIGATION FINANCE

Litigation Finance and the ABA — A Mixed Bag of Best Practices (Part II)

Marla Decker

In Part I of this double post, we reviewed some of the key issues raised in the American Bar Association Best Practices for Third-Party Litigation Funding document released in August 2020. In this Part II, have excerpted parts of a Q&A that I did with Above the Law that compares the ABA’s recommendations and to current standards practiced by reputable funders.

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Litigation Finance and the ABA — A Mixed Bag of Best Practices (Part I)

Marla Decker

In August 2020, the American Bar Association released its Best Practices for Third-Party Litigation Funding. In this Part I of a two-part post, we highlight some of the key issues the ABA raises and suggest how counsel might best interpret the document. In the upcoming Part II, I will do a Q&A style article discussing the ABA’s recommendations and how they compare to current standard practices among reputable litigation funders.

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Litigation Finance Sounds Good — But What Role Will The Funder Play?

Marla Decker

Much of the discussion of litigation finance naturally focuses on the underwriting phase of the funding process. We’ve written previously about the variety of flavors of litigation finance deals and the fact that it’s never too early or too late to seek funding. We’ve also discussed the pricing that a claimholder should expect in negotiating a litigation funding agreement.

But what about when all the terms have been agreed and both claimholder and funder have signed the funding agreement? What role does the funder play? Who controls settlement? And what type of interaction should a claimholder expect to have with the funder on an ongoing basis? And how do the mechanics of funding work? How does the money flow both for covering litigation expenses and for dividing the proceeds from a successful claim? Lake Whillans has seen many litigation funding investments through to their conclusion, and although each case has unique elements, there are some standard practices.

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Litigation Finance – Quickly Evolving Beyond “Traditional” Uses

Marla Decker

In its early days (not so long ago), litigation finance entailed a straightforward proposition. A claimholder with a meritorious claim, but without the resources to litigate it, would seek funding from a litigation finance provider. The funder would conduct due diligence on the claim and negotiate investment terms. If the claim succeeded, the funder would recoup its principal, plus a return; if it failed, the claimholder would walk away with no liability. Funder and claimholder had no particular expectation of any longer-term partnership.

This type of one-off, single-case funding is still going strong today. But the field of litigation finance has expanded considerably, and funding now comes in a variety of flavors. A growing proportion of funding deals involve neither a single case nor a poorly-resourced claimholder. Today, entities seeking funding are often more concerned with managing risk than with acquiring sufficient resources to litigate.

This article will explore three growth areas in the current funding landscape: (1) deals involving funding for larger corporations, (2) law firm portfolio funding, and (3) acquisition of claims by litigation funders. Lake Whillans has extensive experience investing in each of these structures.

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Litigation Funding in Bankruptcy and Distressed Situations

Garrett Ordower

Bankruptcy filings have dropped precipitously in the last decade (from more than 60,000 in 2009 to 22,000 last year) — but that trend has reversed as companies deal with the devastating consequences of the pandemic. Law firms are reportedly scrambling to hire bankruptcy attorneys to help with the flood of expected filings. Litigation finance may be a creative and viable option for restructuring attorneys and advisors to consider throughout the bankruptcy process especially as traditional sources of financing by outside lenders, creditors and law firms are constrained by the current environment.

Litigation finance can preserve or increase estate resources for creditors and enable additional recoveries. But its use is not limited to a debtor or potential debtor. Financing can be useful for creditors in intercreditor disputes or other matters and especially useful for a litigation or liquidation trust seeking to prosecute ongoing claims. Here are some examples where litigation finance may be an attractive option (although creative restructuring professionals may find it useful in a host of other circumstances):

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Litigation Finance: Pricing

Marla Decker

By now you’ve likely heard about litigation finance and some of the advantages it can offer to claimholders (in a nutshell, the flexibility to pursue a claim without having to pay attorneys’ fees or other costs from the company’s balance sheet, as well as the ability to monetize all or a portion of a claim). “Sounds great,” you might be thinking, “but how much is this going to cost me?”

This article will review the basic pricing structures that litigation funders typically employ and the reasons why a claimholder may prefer one approach over another. At Lake Whillans, we have transacted using each of these pricing structures, and approach each transaction flexibly with the mindset of utilizing whatever structure works best for the claimholder. Further, we provide pricing early in the process; you can generally expect to have terms from us within 5-10 days of reaching out to discuss your matter.

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It’s Never Too Early or Too Late to Seek Litigation Finance

Marla Decker

In light of the rapidly shifting economy, many law firms and their clients are facing greater challenges in financing meritorious litigation. Litigants are taking stock of their cases and the path forward, mindful of increased pressure to reduce and conserve budgets. Law firms are assessing potentially heightened collection risks. In this uncertain environment, litigation funders like Lake Whillans stand ready to serve as a resource to both claimholders and law firms.

If you lead a corporation that holds monetizable litigation claims, the potential advantages of litigation finance as a risk-reduction mechanism merit careful attention. Similarly, if you lead a law firm that is bringing claims on a contingent fee basis, you may wish to explore the benefits of receiving upfront, non-recourse funding collateralized by a portfolio of the firm’s contingent fee cases.

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Litigation Finance 2020: ‘Flavors’ Of Litigation Finance

Marla Decker

The growth of litigation finance (also known as litigation funding or third-party funding) has been a hot topic in recent years, but even if you’ve heard of the general concept, you may be less familiar with the range of litigation finance options. Much like other forms of finance, there are different structures that can meet the needs of a particular claimholder, matter, and/or firm. This article will review the basic features of a litigation finance investment and describe some of the different structures or “flavors” of litigation finance. Lake Whillans has and will transact in any of the “flavors” described below.

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Litigation Finance 2020: Why Do Corporate Legal Departments Turn To Litigation Funding?

Marla Decker

In our first article in this series, we explained what litigation financing is and the various structures or “flavors” that are typical in the market. But why are companies using it? Is it only cash-strapped companies that look to litigation funding? While filling the budget gap is certainly one benefit, there are multiple reasons why litigation finance is gaining in popularity with corporate general counsels’ offices

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Litigation Funding? Hardly Relevant (To Claims and Defenses That Is).

Marla Decker

A magistrate judge in New Jersey overseeing an MDL related to an allegedly contaminated pharmaceutical drug recently denied the defendants’ request for discovery into the plaintiffs’ potential litigation funding arrangements. While the denial of litigation funding discovery is not unique, the decision–which holds that the sought-after information was not relevant to the claims or defenses–is significant in that it leaves no doubt that, without more, requests for fishing expeditions into litigation funding arrangements fail when examined. And that the trend in the case law is in agreement.

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The best way for companies and their counsel to determine if litigation finance is an attractive option is to discuss it with us.