Commercial Litigation Funding: What is it and How to Get it

Litigation can be an expensive proposition. It used to be that a company with a great claim may not have had the ability to assert that claim because it lacked the ability to pay for the litigation it would take to enforce its rights. Commercial litigation funding has changed this.

Commercial litigation funding (also known as litigation finance) is the provision of capital to a plaintiff in exchange for a portion of any future settlement or judgment. Litigation funding is not a loan because it is non-recourse, meaning the plaintiff does not owe anything unless it recovers in the underlying lawsuit. It is this non-recourse aspect of litigation funding that causes some companies that have the means to fund their own litigation to turn to litigation funding as a means of managing the risk of litigation. There are myriad other reasons companies turn to litigation funding as well. It helps businesses avoid tying up capital that can be used as working capital during the pendency of the litigation. It reduces the risk of a company being forced to accept a low-ball settlement offer as a result of running out of money to fund a lawsuit. On a related note, it grants access to justice by permitting the proverbial Davids take on the proverbial Goliaths without fear of being spent out of the lawsuit. It also allows attorneys to take on cases that they wouldn’t otherwise be able to take for clients who have great claims but do not have the money to fund a protracted lawsuit.

Successfully obtaining funding for commercial litigation often comes down the plaintiff’s ability to convince the funder that funding the litigation will be profitable. Litigation funders are notoriously picky about the cases they are willing to fund and often the decision whether or not to fund a case comes down to the plaintiff’s ability to make a good presentation. This presentation must include an articulation of the potential amount and type of damages being sought, the likelihood of success on the merits of the claim, the collectability of a judgment or settlement, and the ability of the plaintiff itself to properly steer the litigation.

Practically speaking, damages are paramount to litigation funding. A commercial litigation funder is only likely to fund a plaintiff if it is likely that the plaintiff will recover damages at the end of the case. Generally speaking, there are three primary types of damages available: direct damages, indirect or consequential damages, and punitive or exemplary damages (i.e. non-compensatory damages). Direct damages are the easiest to prove and recover and thus, a plaintiff that can establish that its case involves high out-of-pocket damages will be more likely to obtain funding than a plaintiff seeking primarily indirect or punitive damages.

Another consideration when seeking commercial litigation funding is: how collectible is a judgment? Litigation funders will want to know: Is the defendant domestic or international? Is the litigation taking place in a country where a judgment would be recognized by U.S. courts? Is the company likely to declare bankruptcy to avoid having to pay a judgment or is the claim even of a nature that a company could bankrupt around a judgment? A plaintiff that is able to make a convincing case that any future judgment would be collectible greatly increases its chances of finding funding for the litigation.

A plaintiff needs to sell itself as well. The plaintiff controls the litigation, including the decision of whether to accept a settlement offer. Thus, the plaintiff must be able to demonstrate its ability to evaluate its claims rationally and realistically. Leave the passion for the attorneys making the arguments. A litigation funder will want to see that the business owners are levelheaded about the company’s claim and will be driven by pragmatic, business concerns and not emotion.

Finally, a plaintiff must not only sell itself but its counsel as well. The plaintiff must be able to demonstrate that its attorneys are knowledgeable and have the experience required to litigate the case efficiently and effectively to resolution. A plaintiff who is considering seeking litigation funding should seriously review the resume and past experience of any attorney it is considering retaining to ensure that the attorney not only can talk the talk but has walked the walk. Things a plaintiff should look at are the attorney’s past trial experience, the size of past settlements or judgments the attorney was able to achieve for his client, and the types of cases the attorney has handled in the past. Your case should not be the most complex the attorney has ever handled and you want to be sure that the attorney has handled similar types of cases in the past.

Super Lawyers named DuPage County breach of contract and business dispute trial attorney Peter Lubin a Super Lawyer and Illinois breach of contract and employment termination attorney Patrick Austermuehle a Rising Star in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience in litigating franchise and dealer termination, breach of contract, complex class action, copyright, partnership, and shareholder oppression suits, noncompete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes.  Our St. Charles and Batavia franchise and dealer termination lawyers, civil litigation lawyers, and copyright attorneys handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist Chicago, Geneva , and Oak Brook area businesses and business owners who are victims of fraud. You can contact us by calling at 630-333-0333.  You can also contact us online here.

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