By now, most lawyers have read something about litigation financing and how it can help bring resources to mitigate expenses and keep lawyers focused on cases. But how exactly does that work? How can your firm obtain financing on a case?

In traditional litigation financing, there are several steps from the initial application to the dispersal of funds and repayment. Generally, law firms present the case to finance companies, which evaluate the case against other opportunities and decide whether or not to provide financing. Most financing firms receive many requests and choose only those with the best chance of providing a return.

There are also new models such as Steno’s DelayPay, which does not require a lengthy application process, can be implemented immediately and requires no money up front. 

To learn the latest trends and where the industry is heading, download The Modern Guide to Litigation Financing for a full discussion of different types of financing, where innovation is taking place and what to expect in the year ahead. Meanwhile, for those who want to learn more about getting involved in the process, here’s an outline of what you can expect when you sek financing for a case.

Determining the Case

The average personal injury or employment case lasts about two years. Mass torts and malpractice claims can drag out even longer. For plaintiff’s attorneys that invest capital in such cases, litigation financing can bring much-needed flexibility. But not every case will qualify.

When considering cases for financing, examine the budget you have available, how your resources match up against your opponent’s, whether litigation finance companies typically invest in that type of claim, and the strength of your case on its merits.

Submitting the Case 

Select a reputable funding institution with a credible track record of investing in claims like yours. It’s preferable to work with a funder who has the capital and does not need to seek external investment.

Each litigation finance company will have unique criteria and almost all receive more applications than they can accept. Provide as much information as possible, including the stage of the litigation process; details about the legal teams on both sides; case materials, such as deposition transcripts and settlement offers; and anything else that might help the investor review. Don’t hide any negative facts in the case.

Signing a Non-Disclosure Agreement 

Litigation finance companies will require a non-disclosure agreement (NDA) before reviewing a case in detail. This step is essential. Opposing counsel can request disclosure of all communications with a litigation finance company in discovery. However, case presidents to date have found that these communications are not discoverable, and an NDA helps strengthen this protection.

Case Selection and the Diligence Process 

Once the funder decides to evaluate an application, they may require the attorney to enter into an exclusivity agreement to provide them the necessary time to assess the case.

Once this initial, non-binding agreement has been reached, the funder enters into their diligence process and evaluates the case using many factors. This might include the amount of investment, the potential recovery amount, the jurisdiction, other parties involved and—of course—the likelihood of winning. They typically engage subject matter experts, and the process can last one or two months, depending on the complexity of the claim.

The Litigation Finance Agreement

Once your application makes it through the diligence process, negotiating a funding agreement begins. Many litigation finance companies have limited transparency, so finding a reliable industry standard is challenging. In general, attorneys should ensure that the funder does not obtain control over litigation strategy; that the agreement clearly states whether repayment is “recourse” (paid back in any circumstance) or “non-recourse” (paid back if the case is resolved favorably); and that pricing is fair.

The American Bar Association adopted best practices for third-party litigation funding in 2020. The document said, in part: “Lawyers advising clients on litigation funding should be careful about arrangements that appear to give a majority interest in a lawsuit to the funder because this may give rise to an argument that the funder has assumed control of the lawsuit, a role that belongs to the client. ... control of key litigation decisions, including with respect to settlement, should remain with the client in all circumstances.”

Maintenance and Monitoring

Once the investment agreement is signed, the case is considered funded. Capital may be dispersed in a lump sum or installments. Litigation finance companies must ensure their investment is well maintained throughout the litigation process and attorneys should treat the company as a partner. Communicate and provide updates as the case develops.

How DelayPay is Different

Not all litigation financing involves big numbers and lengthy applications. Steno’s DelayPay allows firms to finance the cost of court reporting and other litigation services, which can be a drain on cash flow. 

There’s no lengthy application process, no money is required up front and no interest is charged. Instead, the cost of depositions and other services are deferred until the case is resolved, with no price fluctuation based on the size of the recovery. Payment can be on a recourse or non-recourse basis, depending on the state of jurisdiction. Hundreds of lawyers and firms are already taking advantage of DelayPay, with an average investment of less than $10,000 per case

“When I was running my firm, court reporting, depositions and similar services were a significant expense,” Ruga said. “We created DelayPay to offer plaintiff’s firms a competitive advantage, so they can have access to financing options that really help.”

Want to learn more about how funding works? Download The Modern Guide to Litigation Financing for a full discussion.