Ed. Note:: Litigation financing changes the areas of law and finance. To give our readers a better understanding of litigation funding, we have partnered with Lake Whillans to present an ongoing presentation series Details of how litigation funding works, its advantages and disadvantages, and its past, present and future.
Increasingly, litigation attorneys and in-house attorneys are becoming aware of the potential benefits of litigation funding. But by the time you go through the fundraising process, it can be difficult to know what to expect. Lake Whillans has many years of experience introducing claimants and legal counsel into the funding process and helping to determine whether litigation funding makes sense for their claim. In this article, we describe the most important steps in raising funds.
The template presented here is based on the Lake Whillans Process – other funders may work slightly differently, but the general characteristics are common to all reputable litigation funding providers. Remember, litigation funding is done in many cases Flavors. For example, some funding agreements are single-case, while others include a portfolio of cases filed by the same claimant or negotiated by the same lawyer. Some claimants seek funding before initiating litigation. others turn to funders in the middle of a case. The details of the funding process will vary depending on the structure of the proposed investment and Stage of litigation.
Initial assessment: does your case meet the basic criteria for funding? (Typical duration: 1 to 2 days)
As a first step, after receiving an email or phone call, we will determine whether the case meets our basic criteria. First, we determine whether the case (or portfolio) fits into the case categories we are funding. For example, Lake Whillans does not fund patent litigation, but we do fund international arbitration, two areas where donor preferences may differ. We also check how much capital is needed: our minimum investment is approximately $ 1 million. A case where the goal is $ 200,000 to $ 300,000 is unlikely to be investigated further.
Deep Dive Call / Term Sheet: Is Your Case An Attractive Candidate For Funding? (Typical duration: 3 to 7 days)
Once we determine that the opportunity meets our basic criteria, we will conclude a non-disclosure agreement and Establish a call (usually 60-90 minutes) (which we refer to as a “Deep Dive Call”) to learn more about the opportunity. Before calling wTypically, e reviews any relevant documents related to the claim or budget that the claimant has provided in relation to the proposed investment.
During the deep dive call, we try to understand four things: the underlying facts and rationale for liability, the theory and amount of damage, the collection / enforcement risks, and the size and structure of a potential investment.
Depending on the material that we have already received and reviewed, the discussion of the facts and the basis for liability can vary widely, ranging from a general discussion of the case presentation to more specific targeted questions. During the call we will try to understand the background of the relationship that led to the dispute, the events that led to the dispute and the main issues at stake, legal theories and the history of the litigation so far. The aim is to infer whether liability is likely (assuming everything is true).
The outcome of litigation is inherently uncertain, but some cases are more likely than others to be successful. Of course we try to fund strong claims. To do this, we assess factors such as the quality of the applicant’s legal assistance (are they experienced, professional, and prepared?) And the strength of the evidence (is there documentary evidence to support the claim?).
Regardless of the legal strength of a claim, it is not a viable financing candidate if the likely damage is too small. For a stand-alone investment, Lake Whillans will target claims for which a reasonable estimate of the likely damage is greater than US $15 million. Other funders may set a different threshold, but all have a lower limit. When Pricing When it comes to a deal, funders take care to structure it so that the claimant retains most of the litigation proceeds. This limitation, as well as the need to devote resources to subscribing to each claim, generally make cases of lesser value less attractive.
The proposed budget for litigation costs is also an important consideration. Do the estimates seem realistic? What is the relationship between the budget and the probable damage? A general rule of thumb is that funders should aim for a 10: 1 damage to investment ratio, although matters with a lower risk profile may be sufficient with a smaller ratio.
Finally, we seek initial consolation that the defendants have sufficient assets to carry out a judgment or arbitration award that can be enforced. For example, a matter involving a bankrupt defendant or a defendant who is expected to oppose enforcement and who is located in a jurisdiction where a judgment or arbitration award is unlikely to be upheld may be are not an attractive investment.
After the Deep Dive Call, we will assess the opportunity internally. If the case looks attractive, we would make an investment proposal This describes the economic terms of the proposed investment and provides for a due diligence review. As soon as acceptable conditions have been reached, the term sheet is executed and the due diligence process begins.
Due diligence (typical duration: 30 to 45 days)
The purpose of due diligence is to verify that the underlying facts and materials support the applicant’s case theory. At the beginning of the due diligence period, we provide an overview of the expected steps. As our review of the materials reveals additional discussion points, the outline will be updated. The process also includes calls to the applicant and / or his lawyer. We do not ask for written documents.
We want to make this process transparent by sharing areas we want to focus on, concerns we need to address, and general progress in completing the due diligence process.
We can usually complete the due diligence within 30 to 45 days. Factors that affect the length of the process include the complexity and stage of the application, the urgency of securing funding, and the responsiveness of the applicant and legal counsel.
Investment documentation (typical duration 5 to 10 days)
Once the review is successfully completed, we will forward the transaction documents to the claimant and attorney for review. In the following days the documents will be finalized and the investment funds released.
Once the case is funded, you can read what to expect Here.
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We hope this general description of what to expect when sourcing process resources is a helpful starting point. Each case has unique elements and we’d be happy to discuss how the process will work in your particular circumstances. The best way to determine if your business or firm could benefit from litigation funding is to: contact us.