No, I’m not talking about politics. I’m talking about a different partisan divide: the division in the legal-services market between so-called “Plaintiffs’ Firms” and “Defense Firms” and how litigation finance can mitigate the division.
Plaintiff and defense oriented firms historically have had very different business models as it relates to risk taking. Defense-side firms – as most Big Law firms are characterized – have typically relied on a fee-based business model; clients pay hourly rates and the client bears the cost risk of the litigation (and retains all the upside if the litigation is successful). This model hasn’t always been able to meet the needs of plaintiffs who are unable or unwilling to bear all the costs and risks of litigation. This led to the establishment of firms that employ a risk-based business model, attracting as clients those plaintiffs with whom the firm could share the risk and reward of litigation through contingency fee arrangements. As litigation costs grew, and plaintiffs flocked by necessity or practicality to the firms that were able to share litigation risk, the divide between the plaintiff and defense firms deepened.
But does the legal world need to remain bipartisan? We think not.
Big Law is already under pressure to compete for clients by offering alternative fee arrangements. Billable-hour-modeled defense firms without an established risk-based practice (like many Big Law firms) may find it difficult to tolerate the new risks that alternative fee arrangements bring to the firm or individual partners. Enter the litigation funder, whose business model is to take risk on litigation. A funder like Lake Whillans can offer the client a transaction structure that is economically equivalent to or, in some cases, more advantageous than a contingency fee arrangement. We can also provide capital directly to the client company for other corporate purposes, providing immediate returns from a litigation finance transaction. The result is a win-win for the firm and client, allowing the “defense-oriented” firm to take the representation without compromising its fee-based business model or current risk-tolerance level and the client to share the cost risk of the litigation (or unload it entirely) with a third-party.
Lake Whillans can meet the needs of firms with all sorts of different business models, from the firm that prefers to maintain its fee-based model and have the funder pay all fees and expenses, to firms that are evolving towards a more risk-based model where it takes some risk but is also paid some portion of its fees by the funder, to pure risk-based firms that could benefit from a steadying capital source secured by a portfolio of its cases that can smooth cash flow.
While litigation finance unfortunately can’t solve the bipartisan political divide, it is an important tool that firms can use to evolve or maintain their business model while gaining new opportunities to work on the other side of the “v.” and increase competitiveness.