Study Reveals Litigation Finance Industry Gaining Ground in the U.S.

Explore:  Litigation Funding

An increasing number of corporate leaders and financial executives think that third-party funding, also referred to as litigation finance, should be used to fund lawsuits and that need for such funding will likely grow in the future, according to a recent survey conducted by litigation funding powerhouse Burford Capital LLC. This Burford survey, which was originally conducted in October 2013 and the results of which were published in January 2014, asked private practice lawyers, in-house counsel, and financial executives about their thoughts when it comes to litigation financing, a topic that seems to both be gaining traction in the U.S. while being a source of anxiety for some.

Alternative litigation finance refers to the practice of having investors (i.e., third parties) financially back ongoing litigation in order to help certain plaintiffs and small law firms challenge defendants with limitless financial resources in civil court. The practice, which is fairly common both in the United Kingdom and Australia, has raised many questions in the U.S., as some have raised concerns that it may spur frivolous lawsuits, give lenders undue influence over litigation and/or violate historic prohibitions over related lending practices. However, in the past decade, industry leading lenders have risen to the challenge to both self-regulate and spread awareness of the role lenders wish to play – to provide a way for plaintiffs and their attorneys to level the playing field.

Seeking to gauge potential changes in previous discomforts associated with litigation funding, Burford funded a survey that evaluated the opinions and attitudes of more than 310 private practice lawyers, 74 in-house attorneys and 45 corporate financial professionals. Those surveyed were specifically asked about:

  • Their notions of litigation funding (if they had, in fact, heard of the practice)
  • Whether they or their colleagues have used such third-party funding for litigation
  • Whether they think that such funding practices will become more popularly used and accepted in the U.S. in the future.

Survey Results: What American Lawyers and Financial Professionals Think About Litigation Funding

Analysis of the survey results found that:

  • More than half of all survey respondents agreed that third-party funding should be explained to plaintiffs as a possible financing option at the beginning of a case.
  • More than 50 percent of all survey respondents expect the need for litigation funding to grow in the U.S. in the future.
  • While only about 7 percent of the survey respondents had themselves used third-party funding to finance previous cases, more than 25 percent knew of at least one colleague who had used litigation funding in the past. A number which grew 6 percent from 2012 to 2013.
  • Approximately 65 percent of respondents agreed that third-party financing “leveled the playing field” between litigants with vastly unequal financial resources.
  • 79 percent of private practice attorneys thought that litigation finance was a useful tool for even non-contingency firms to do cases they otherwise could not have.
  • Understanding of litigation finance fell a dramatic 12 percent from 2012 to 2013, showing that more private practice attorneys were becoming familiar with lenders.
  • The largest backlash to third-party funding seemed to come from in-house attorneys, with more than 60 percent of these respondents disagreeing with the statement that litigation funding would help good cases that would otherwise not be litigated be brought to court. Researchers surmised that one possible reason for such a strong disagreement with this statement among in-house lawyers was that these attorneys likely saw themselves as being on the receiving end of such cases, and thus their opinion may be biased.
  • Of the private practice attorneys surveyed, 1 in 5 noted that they had an active case that could benefit from litigation finance, and just about 7 out of 10 stated that they definitely had a past case that could have benefited from financing.

Christopher Bogart, the CEO of Burford has summarized the results of this survey as “reinforc[ing] the significant market need for litigation finance. The practice of litigation finance offers a solution to the increasing expense of litigation for clients and allows good cases to get to great firms – firms whose chosen business models don’t allow for a significant number of full contingency-fee cases.”Sources:

Burford Capital
Wall Street Journal: 1 & 2

Topics:  Litigation Funding

Published In: Professional Practice Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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