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Litigation Funding: Is It Right for Your Case?

In today's legal marketplace, cases are often settled early and for too little, simply because the litigation plaintiff has run out of money to sustain any quality of life while the litigation is pending. This is the reason that litigation funding has emerged in the litigation marketplace.

Litigation funding services have been put in place to provide relief to people who are involved in pending litigation and through no fault of their own need financial assistance, but do not qualify for traditional loan products. However, legal funding can be, and often is, expensive. How do you know if this is right for your case?

Over the years, lawsuit funding companies have provided thousands of litigants with loans to pay important obligations while their pending lawsuit progresses through the lengthy legal process, sometimes through trial and multiple appeals. For someone whose physical, emotional and financial life has been devastated by a serious accident, lawsuit funding is a means of support and can serve the function of saving a litigant's house, car, or other valuable asset. Here are some real-life case studies where litigation funding was used.

Case Study 1: How Litigation Funding Helped a Michigan Woman

A Detroit, Michigan mother was seriously injured in an auto-truck collision when a truck driver fell asleep at the wheel and suddenly veered into the lane she was driving with her children in the car. She suffered very serious and disabling injuries, one of her children was killed, and she suffered very serious emotional problems due to the extent of the accident. She was a physically and emotionally unable to work, and unable to otherwise support herself and her case.

Her bills and expenses began to accrue and her house payments were several months behind. The bank threatened foreclosure. The insurance company offered her $500,000 to settle her case. Her lawyer referred to a litigation funding company and advised her not to accept the settlement offer.

The litigation funding company carefully reviewed the case and recommended a series of advances. The first, $30,000, to pay her past due mortgage bills and other important obligations. She was now virtually debt free; but that was only a portion of the problem. Physical and emotional issues continued to disable her from working.

The litigation funding company worked with her to create a monthly draw equal to her monthly expenses. Less than a year later, the case resolved for $2.1 million; the lawsuit funding advance was paid, with profit, and the attorney fee earned by the attorney who referred her was increased by 400 percent. The client's share was also increased by 400 percent less the fee paid to the litigation funding company.

Case Study 2: How an Indiana Couple Stayed Financially Afloat During Their Case

An Indiana woman suffered a head injury in an auto accident that was so severe her husband had to quit his job to take care of her. Because of the lack of income coming in, the couple was losing their house.

The insurance company offered them $250,000 to settle the case. The attorney felt the case was worth close to $1 million; although the lawsuit was making its way through the system, it still had several months to go.

A litigation funding company reviewed the case and immediately paid the past due mortgage payments. The client was asking for litigation funding in the amount of $100,000 that would take them to the end of the year, but through consulting with the litigation funding company, this strategy was not recommended because if the case settled before the end of the year, the clients would be paying higher fees than necessary.

Instead, the lawsuit finance company advanced mortgage and living expenses funding two more times, totaling $30,000. The case resolved, 6 months later, for $950,000. Aside from saving them profit on an additional $70,000 in lawsuit funding, the client received a 400 percent increase in case proceeds.

Case Study 3: A Strategic Use of Litigation Funding

A Midland Michigan man hydroplaned on a defective Michigan highway, crossed the center line and collided head-on with an RV going the opposite direction. The man's wife and infant baby were in the car with him and were killed. The driver and passengers in the RV were injured, but nothing serious.

The man was uninsured and the driver and passengers of the RV were suing him for damages. He retained a very prominent Michigan attorney and together they sued the local county road commission seeking seven figure damages.

The attorney wanted the "RV litigation" to disappear so he contacted a litigation funding company and wanted them to fund a settlement in the RV lawsuit, if he could negotiate a reasonable resolution. After evaluating the road commission lawsuit and determining it was viable, the litigation funding company agreed to provide lawsuit financing in whatever reasonable amount would settle the RV lawsuit.

After some negotiation, a $20,000 settlement was reached between the RV plaintiffs and the man's attorney. The litigation company provided a cash advance for the $20,000; releases were signed, and the case was, quietly, settled. With that lawsuit gone and the possibility that his efforts would benefit the RV plaintiffs rather than his client eliminated, the attorney proceeded to aggressively pursue the road commission.

Three months later, he negotiated a $1.4 million settlement. The attorney received about $450,000, and the client, whose proceeds would have gone to pay the RV plaintiffs had the attorney not settled their case earlier, received close to $1 million.

Litigation Financing: Important Considerations

In all of the case studies outlined above, litigation funding helped a plaintiff get a higher payout. However, this is not always the case and it is up to the attorney to use litigation funding strategically.

In order for litigation funding to be used effectively, the attorney must determine if a case is an appropriate fit for these services. And, not all cases will qualify for funding. Funding is collateralized only by the pending litigation; there is no credit check or credit "hit." If the litigation fails, the litigation funding company loses its capital investment, so it is important to find a litigation company that believes in your case.

It's also important to keep in mind that there are choices available when you are looking for a litigation funding company. Make sure you do not do business with lawsuit financing companies that will not commit to adjusting rates to facilitate an appropriate settlement, if the final case circumstances dictate a compromised settlement.

Remember that a traditional loan product, unlike the legal funding industry standard non-recourse cash advance, must be paid back, with interest, regardless of case outcome. Monthly payments must be made, and, in many cases, such obligations will increase a plaintiff's financial distress. Further, if the already unfortunate plaintiff experiences the additional misfortune of losing the case, he/she must still repay the loan, often causing total financial collapse. With a litigation funding cash advance/loan, there are no credit issues and no credit bureau reporting; if the case is successful the lawsuit advance is repaid, with profit; if the case fails, the lawsuit advance was "free" money.

Although litigation funding companies fund cases, they have absolutely no control of the outcome and should not become involved in the cases at all. Case strategy, settlement posture, and final result are all in the exclusive purview of attorneys and clients. There are many lawsuit financial companies to choose from; if one of them seeks to assert control over the litigation in question, that is an unethical practice and, probably, a breach of the contract. Further, an ethical lawsuit funding company will not seek profit at a level that prevents fair settlement. The ethical lawsuit funding company will provide an appropriate compromise, when necessary, to facilitate a fair settlement to all.

The goal of the ethical legal funding company is to enhance case revenue for all parties. Make sure you ask questions before signing any contract with a lawsuit funding company.


Mark Bello is the owner and founder of Lawsuit Financial Corporation. Mr. Bello has decades of experience as a trial lawyer and numerous years as an underwriter and situational analyst in the litigation funding industry.

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