The first step in the litigation finance process typically involves a decision by a company, perhaps together with its counsel, that it makes sense to explore whether litigation finance is an attractive option. There are many reasons why a company may choose to do so. Consider, for example, a company that has been wronged but lacks the financial resources to hire its preferred lawyers to pursue the case. Or a company that has been engaged in litigation for a number of years and, due to changed circumstances or litigation fatigue, is no longer able or willing to endure the uncertainty and expense of litigation. Or a general counsel who may have a portfolio of affirmative claims, but is unable to garner the budget required to pursue these claims. Other companies may simply wish to hedge litigation risk by offloading some or all of the expense of litigation, or to use commercial claims to efficiently raise capital for corporate purposes. In each of these situations (and many more), a lawyer that is well versed in litigation finance can be a great resource to help a client choose the correct path forward.
What to Expect When Contacting a Commercial Litigation Finance Company
Each litigation financier may have a slightly different process; for illustrative purposes, we’ll discuss the Lake Whillans process, which is a good template for understanding how the process works generally.
Initial Discussions and Investment Proposal (typical duration 1 to 7 days)
In our experience, it is equally common for the claimholder’s counsel (at the claimholder’s behest) to reach out to initiate the dialogue as it is for the claimholder itself to do so. Generally, the first step in the process is to schedule an initial call to review the general parameters of the claim. Assuming the case fits within our target investment profile, we will typically request to review key documents and ask the claimholder’s counsel to provide a budget for the proposed investment. We routinely enter into non-disclosure agreements in connection with our discussions to ensure the confidentiality of information shared.
The purpose of the initial discussions is to quickly understand the claim, the amounts needed to prosecute the case to completion, and the likely damages. This information allows us to make a determination whether we are interested in moving forward and, if so, price the claim and provide the claimholder a term sheet that outlines the economic terms of the proposed investment and provides for a due diligence period in which the litigation financier may close on the transaction. Once acceptable terms have been reached, the term sheet is executed and the due diligence period begins.
Due Diligence Period (typical duration 30 to 45 days)
At the outset of the due diligence period, we provide a due diligence outline that highlights the areas of focus. This outline informs the claimholder and counsel of what needs be covered in the due diligence process, and serves as a checklist to see how we are progressing. To the extent that our discussions and review of materials reveal additional items for discussion, the outline is updated.
The purposes of the due diligence phase is to verify that the underlying facts and materials support the hypothesis concerning the claim. This determination is made at the earliest possible point in the process in order to avoid any unnecessary burden on the claimholder or counsel. Generally, we are able to complete due diligence within 30 to 45 days, with the length of the due diligence period ultimately being a function of the complexity and stage of the claim, as well as the responsiveness of the claimholder and counsel.
Investment Documentation (typical duration 5 to 10 days)
Once diligence is successfully completed, transaction documents are circulated to the claimholder and its counsel for review. Over the following days, the documents are finalized and the investment funds released.