As the litigation finance market has developed in the U.S., the number of firms offering financing has likewise grown. Indeed, in recognition of the growing field of players, Above the Law recently surveyed readers about their experiences with the most significant commercial litigation finance firms. But beyond word of mouth, how might one choose among litigation funders, particularly if they are offering ostensibly equivalent economic terms? Like choosing attorneys best suited to litigate a case, there are a number of considerations that will enable claimholders and their counsel to differentiate between their options.
- The Right Fit. For any litigation financing arrangement, the best results will be achieved when there is mutual trust, respect and a sense of partnership among the claimholder, its lawyers and the funder. You will want to size up your funders within the first few conversations to determine if they have a team you can happily envision working with over the potentially long haul of the litigation.
- Unique terms. While you may be offered broadly similar economic terms by different funders, each is likely to have certain terms that may be unique. For example, do their terms provide an opt-out clause that allows them to cease financing the litigation if the outlook of the case turns against the claimholder? Are there instruments embedded in the contract that adversely affect the claimholder’s economics if the claimholder rejects a settlement offer that the funder wants to accept? Ask about these issues up front to avoid unpleasant surprises down the road.
- Flexibility in Structuring. Think about what structure the funder is offering and whether that structure best suits the needs of the claimholder. For example, does the claimholder need capital for purposes beyond the costs of litigation? A funder’s willingness to understand and accommodate the needs of the company are important elements to consider when choosing a financier to work with.
- Subject Matter Expertise. Different funders tend to target different types of cases and industries, which leads to varying expertise among funders that can be valuable when paired with the right claimholder. Lake Whillans, for example, understands well the pharmaceutical, medical device, energy, software and other technology-heavy industries, and thus has the ability to add value when making investments in those fields.
- Speed. Oftentimes, claimholders need funds to finance litigation costs quickly. Bills may already be piling up by the time outreach is made to a litigation funder or significant costs may be incurred imminently (such as when a case moves from fact discovery to expert discovery). Talk to potential funders up front about their process and the time they expect it will take to get through diligence and investment documentation.
- Reliability. Finally, you will want to be assured that the money is going to be there when you need it. Litigation can take several years so you will want to be sure that the financier is able to make good on its commitments in the future. Ask what percentage of the budget will the funder hold in reserve?