Litigation Finance: Three Trends for 2022
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Litigation Finance: Three Trends for 2022
More than two years into a global pandemic, litigation finance remains as important as ever for litigants and law firms seeking to position themselves for success. Below, Longford Capital discusses three trends that we believe will affect the future of the industry—disclosure requirements, economic uncertainty, and the innovative use of insurance products—as well as how partnering with an experienced funder can help make the best of these trends.
Required Disclosure: Threat or potential advantage?
When Chief Judge Colm F. Connolly of the U.S. District Court for the District of Delaware issued a standing order requiring disclosure relating to third party funding agreements, responses in the media veered towards the dramatic. As one commentator wrote, the order “deals a serious one-two blow to parties that might wish to keep any funding arrangements and their corporate control under wraps.”
At Longford, we believe that many of the published reactions to Judge Connolly’s standing order are misplaced. The order only requires disclosure of generic information about the funder. Protection for the specific financial terms of litigation finance deals—which a maturing body of case law deems not discoverable–remains in place. The disclosure requirement focuses on ensuring that the funder does not control litigation, and we predict that more courts will adopt similar disclosure requirements in the coming year.
With sophisticated funders such as Longford, control over the litigation is never at issue. The litigant always maintains control, so disclosing that we are backing a case poses no threat. On the other hand, disclosure may send a powerful message to both the judge and the opposing parties about the strength of the case. At Longford, we invest in a very small proportion of the cases we evaluate, and then only after a two-phased due diligence process that includes an in-depth internal review by our experienced attorney team and an external analysis by an independent attorney with subject-matter expertise. Only the most meritorious cases make it through this process.
While certain benefits may come along with disclosure requirements, a few best practices can mitigate the risk of lengthy disputes over whether certain documents are subject to discovery:
•Enter into a nondisclosure agreement (NDA) or confidentiality agreement before sharing any documents. Courts continue to protect work product shared pursuant to an NDA, so long as the information shared was prepared in anticipation of litigation. Every funder has its own NDA that can be customized for the attorney or client in a matter of minutes. This is a quick, easy and important step for ensuring work-product protection.
•Do not share attorney-client-privileged materials with a funder. Courts are unlikely to protect information disclosed to a funder that is protected solely by the attorney-client privilege. In any event, reputable funders do not need or want that information. Disclosure of privileged, non-work-product information therefore adds unnecessary risk.
• Know your protective order. When exploring funding for a pending case, understand the scope of any case-specific protective order that could preclude or limit disclosure of certain nonpublic information to anyone other than counsel and the parties.
Economic Uncertainty: Creating confidence from turmoil
So far, the economic hallmarks of 2022 have been volatility and uncertainty. With the potential for a recession looming, predicting how the economy will look in one, three, or five years is extremely difficult. However, with uncertainty comes openings for growth, and litigation finance can be a key to capitalizing on an otherwise difficult situation.
While law firms and litigants seek ways to mitigate risk and control costs, industry experts expect litigation and disputes to rise. “Litigation for many firms . . . will also be strong,” Gretta Rusanow, managing director and head of client advisory services at Citi Private Bank Law Firm Group, told American Lawyer earlier this year. “Some firms last year did see a rebound in their disputes practices as courts started to reopen. You might see those activity levels improve.”
Used properly, litigation finance can provide tailored capital solutions for litigants that can alleviate short-term cash flow issues, relieve fee fatigue, lessen financial pressures or budgetary constraints, provide growth capital, support core business operations, or simply hedge risk.
These solutions can take numerous forms, whether it’s funding attorney fees and expenses for a single case or a group of cases; providing an immediate cash infusion through a lump-sum payment in exchange for a portion of future recovery; catch-up payments to make a litigant or law firm whole mid-litigation; or even covering a litigant’s operating expenses while they pursue litigation.
Regardless of form, partnering with the right litigation funder can provide much-needed certainty that pursuit of a valuable claim will not leave a litigant in the red, regardless of the outcome of litigation.
Insurance + Litigation Finance: Common ground creates benefits
Many who use litigation finance value its ability to mitigate risk, and the same can be said for the insurance industry. Notably, insurers have begun to partner with sophisticated litigation funders to create new and innovative products that provide value to the funders’ clients.
At Longford, we have experience with helping clients identify their options when it comes to insurance, including how to hedge downside risk while locking in significant upside from uncertain litigation. Sophisticated litigation funders understand what insurance products are available in the marketplace and can leverage networks with experience creating bespoke policies for special situations. The in-depth diligence performed by funders such as Longford also provides insurance markets with comfort that can lower premium costs.
Litigants and law firms can derive great benefits from litigation funders who work with them to evaluate risks and benefits throughout the life of litigation and have the knowledge and experience to present innovative solutions—like emerging insurance vehicles—to address each unique situation.
Litigation Finance: Turning challenges into value
Challenges are unavoidable but partnering with the right litigation funder can turn what first appears to be a challenge into value for litigants and their attorneys.