Litigation funding (also called litigation finance) can play a real role in the civil justice system. It can help plaintiffs and law firms handle legal costs and cash-flow gaps while a case moves through the courts.

But if you’re investing in litigation finance—directly or through a fund—one thing is always true:

Your upside is tied to legal outcomes and clean collections. That means your risk isn’t just “Will the case win?” It’s also “Will the money actually get paid—and routed correctly—when it does?”

To make this practical, let’s use one of the most widely discussed cautionary examples in modern litigation finance: Tom Girardi and the collapse of Girardi Keese.

Litigation finance basics

Litigation finance is third-party capital deployed into legal matters in exchange for a financial return that depends on the case’s outcome.

There are a few common structures:

• Plaintiff funding / pre-settlement funding: A plaintiff receives money while the case is pending.
  Non-recourse means repayment typically comes only from the settlement or award—and if there’s no recovery, there’s usually no repayment obligation.
• Law firm funding: A law firm receives capital (often for operating expenses or case costs). Repayment may be tied to fee income, case proceeds, or a portfolio. Terms vary widely.
• Commercial litigation finance: Business disputes, arbitration, patent matters, class actions, and other complex cases, usually involving larger investments and longer timelines.

If you’re an investor, the key point is simple:

Non-recourse protects the claimant, not you. You can still lose capital if the case loses, stalls, gets appealed for years, settles for less than expected, or proceeds are misdirected or encumbered.

Case study: The Girardi collapse (what investors should learn)

Tom Girardi was once a famous plaintiffs’ lawyer associated with major litigation (including the PG&E case portrayed in Erin Brockovich). Over time, creditors and courts alleged that financing arrangements and settlement funds were mishandled.

In public reporting and official proceedings, a few themes appear again and again:

• Multiple financing arrangements at the same time
• Disputes over collateral and priority
• Settlement proceeds routed to accounts that did not promptly pay the intended recipients
• Years of litigation and enforcement activity after “successful” case outcomes

In the Lion Air Flight 610 matter (the 2018 Boeing 737 MAX crash that killed 189 people), settlement funds were wired to the firm’s client trust account and were supposed to be distributed to clients. Public filings and disciplinary summaries describe delays, partial payments, and allegations of misappropriation—followed by court proceedings and discipline actions involving firm leadership.

Separately, the attorney Girardi was later convicted in federal court for stealing settlement funds from clients and sentenced to prison.

Why this matters for investors: Even when a case “wins,” your return depends on clean priority, clean routing, and clean controls over proceeds.

Safety measures every litigation funding investor should insist on

There is no such thing as “zero-risk” for those investing in litigation finance. But you can reduce avoidable risk with disciplined structure and documentation.

1) Underwrite the case and the counterparties

Yes, you evaluate legal merits. But you also evaluate the people and systems handling money.

Ask about:

• Who controls settlementdisbursement?
• What trust-account controls exist (signatories, reconciliation, audit trail)?
• Has the law firm had disciplinary issues, sanctions, or repeated malpractice claims?
• What is the firm’s financial health (cash flow, debt load, partner departures)?

A strong case can still be a bad investment if collections are messy.

2) Get priority in writing (and verify it)

This is the heart of “double-pledge” risk.

Your documentation should address:

• What exactly is the collateral? (specific cases vs. portfolio vs. fee receivable rights)
• Representations and warranties that the collateral has not been pledged elsewhere
• A negative pledge covenant (no additional liens/assignments without consent)
• Notice obligations if another lender appears or a default occurs
• Intercreditor terms if multiple funders are knowingly involved

If priority matters, don’t assume. Confirm it.
That may include UCC searches/filings and counsel review, depending on the structure and jurisdiction.

3) Use an escrow / lockbox approach for proceeds

One of the cleanest risk controls is controlling the flow of money once it arrives.

Common safeguards include:

• Requiring settlement proceeds to be wired into an escrow or designated trust account
• Requiring dual authorization (joint signatures) for disbursements
• Using a written direction letter and attorney acknowledgment confirming the payment waterfall

This doesn’t eliminate risk—but it can prevent “we won, but we never got paid” scenarios.

4) Build a payment waterfall that is realistic and enforceable

A proper waterfall answers:

• Who gets paid first (and why)?
• What liens must be paid before anyone else (medical liens, government liens, prior assignments)?
• What happens if proceeds are less than expected?

Make sure the waterfall reflects real-world settlement distribution—not wishful math.

5) Require ongoing reporting (not “call us if something changes”)

Lawsuit funding risk increases when investors go dark.

Require periodic reporting on:

• Material case developments (motions, summary judgment, mediation, trial dates)
• Material risk changes (new defendants, insurance coverage disputes, sanctions)
• Settlement discussions (without interfering with legal strategy)
• Estimated time-to-resolution updates

You’re not trying to control litigation. You’re trying to avoid blind risk.

6) Diversify—because single-case risk is brutal

Even elite underwriters miss outcomes. Litigation is uncertain by nature.

If you’re allocating capital, consider:

• Diversifying across case types, venues, and stage of litigation
• Limiting exposure to any single case or single firm
• Avoiding “one big bet” structures unless you can truly absorb a total loss

7) Respect ethics rules and control boundaries

A compliance-safe structure avoids investor control over litigation decisions.

As a general principle:

• The funder/investor should not direct legal strategy
• The attorney’s duty remains to the client
• Privilege and confidentiality must be protected

If your structure pressures case control, you’re adding legal and reputational risk on top of financial risk.

Quick investor checklist

Before you commit capital, you should be able to answer “yes” to these:

• Do I understand the structure (plaintiff funding vs law firm funding vs commercial finance)?
• Do I know who controls proceeds and how they’ll be routed?
• Do I have written priority protections and a clear collateral definition?
• Have I verified there aren’t undisclosed liens/assignments (as appropriate)?
• Is there an escrow/lockbox or equivalent control?
• Do I receive ongoing reporting with defined triggers?
• Is my exposure diversified enough to survive losses?

Bottom line

Litigation finance can be a legitimate alternative asset class. But it’s not “set it and forget it.”

If you want to protect your capital, you need more than a strong case narrative. You need:

priority + proceeds control + monitoring + diversification.

If you’re seeking funding…

If you’re a plaintiff or attorney looking for litigation funding, focus on reputable, transparent terms. In many consumer legal funding arrangements, the funding is structured as non-recourse, meaning repayment is typically owed only from a settlement or award—no monthly payments, and no repayment obligation if there is no recovery (terms vary by product and jurisdiction).

Pre-settlement funding, for instance, is often sought by plaintiffs awaiting a legal settlement. It provides immediate financial relief without the typical constraints of traditional loans. On the other hand, traditional loans are more generalized financial instruments accessible to more people for certain purposes.

Ready to explore the difference between pre-settlement legal funding and traditional loans? Let’s dive in. Rest assured that by the end of this article, you’ll have the knowledge you need to choose the option that’s right for you.

How do traditional bank loans work?

A traditional bank loan provides you with money in return for the promise to repay the original amount plus interest over a specified period of time. You can use these loans are used for a variety of reasons. These include uses such as small business funding to specific personal needs like home improvements or large purchases.

If you are interested in getting a bank loan, the process starts with an application. You apply at a bank or online and provide necessary information such as the purpose of the loan and personal and financial history and other details. The bank then reviews your information, checks your creditworthiness, and determines the risk associated with lending you money.

If the bank decides that you’re capable of repaying the funds, it will approve the loan. Here is where the loan terms are established. Then bank will then issue you a promissory note that specifies the loan amount, interest rate, loan term (length of repayment period), and repayment schedule. The interest rate may be fixed (same throughout the term) or variable (changes based on market rates). Finally, you agree to repay the traditional loan in installments over a set period, often monthly.

For example, if you borrow $10,000 from a bank with an interest rate of 5% over 2 years, you would repay the bank in monthly installments of approximately $438. This includes a portion of the principal amount and the interest accrued. Over the course of 2 years, you will have repaid a total of approximately $10,512, including $512 in interest.

Take note that failure to repay the loan as agreed can result in penalties, such as late fees and damage to your credit score. In some cases, the bank may even seize collateral (if there is any) to recover the loan amount. Collateral is an asset that a borrower offers as a way for a lender to secure the loan.

How does pre-settlement legal funding work?

Pre-settlement funding, often referred to as a lawsuit loan or legal funding, is a non-recourse cash advance that plaintiffs can obtain from their pending legal cases. This type of loan is extremely helpful when you’re experiencing financial hardships while awaiting a settlement or trial verdict.

Here’s how legal funding typically works:

1. Application. The first step involves submitting a pre-settlement funding application with the lender of your choice. This application outlines the specifics of the legal case, including the type of case, the injuries or damages sustained, and the expected settlement amount.
2. Review and Evaluation: After the lawsuit lending company receives your application, the case review starts. This includes communication with your attorney to gain more insight into the strength and estimated value of the claim.
3. Approval and Agreement: If the funding company determines that your case has merit and a strong likelihood of winning over $50,000 in settlement money, it will extend you an offer. The offer will detail the amount of money you can get in advance and the ‘fee’ or ‘interest‘ to be collected if you recover for your damages.
4. Transfer of Funds: Once you accept the offer and sign the agreement, the pre-settlement funding company will transfer the funds. This can usually be done through a check or a direct deposit to your bank account.
5. Repayment: Repayment happens only after the case is resolved successfully. If your case is successful and you obtain your settlement money, your attorney is responsible for repaying the lender from the proceeds. Importantly, if you lose the case, you are not required to repay the funds and walk away from owing anything.

To illustrate, let’s consider an example: Suppose a person is injured in a car accident due to the negligence of another driver and has filed a lawsuit. While the accident lawsuit is pending, the victim is unable to work and is facing financial difficulties. He applies for pre-settlement funding and receives an advance of $20,000 to cover living expenses and past-due bills. If the case ends up in favor of the plaintiff, he pays agreed-upon borrowed amount from the settlement or award, plus the costs of the loan. If the lawsuit is unsuccessful, the person generally will not have to pay back the $20,000.

How pre-settlement legal funding and traditional loans compare.

As mentioned above, lawsuit funding and traditional banking are two different financial avenues that serve distinct purposes. Here are some key differences between the two:

1. Purpose. Traditional banks provide a range of financial services such as savings, checking accounts, mortgages, personal and business loans, credit cards, and investment services. On the other hand, pre-settlement legal funding is a specific kind of funding provided to plaintiffs to cover their expenses until a settlement is reached.
2. Application Process. Banks usually require a thorough process, including credit checks, collateral, and financial history. In contrast, legal funding companies base their funding decision on the merits of the case. If the company believes the case is strong and likely to win, it will provide the funding.
3. Repayment. In traditional banking, irrespective of the purpose of the loan, repayment becomes due as per the agreed schedule, regardless of the outcome. However, in pre-settlement legal funding, repayment is contingent on the success of the case. If you lose, you usually do not owe anything back..
4. Interest Rates. Traditional banks often offer lower interest rates as compared to legal funding. This is because legal funding companies take the risk of not being paid back if the case is lost, therefore, to compensate for this risk, the interest rates are often higher.

Conclusion

Evaluating the financial landscape during a lawsuit doesn’t have to be so hard. By understanding the key differences between pre-settlement funding and traditional loans, you’ve taken a significant step toward making a sound financial decision.

Recap of Key Insights:

• Pre-Settlement Legal Funding: Ideal for those awaiting legal settlements, offering flexibility without typical loan criteria.
• Traditional Loans: A broader financial tool, suitable for limited personal or business needs, with standardized terms and conditions.

Remember, the right financial choice can make a significant difference in your life while waiting to reach a lawsuit settlement. Whether it’s pre-settlement legal funding or a traditional loan, the choice is yours, and the decision is in your hands.

Are you interested in learning more about pre-settlement legal funding? Baker Street Funding provides lawsuit cash advances to help cover your important expenses while the legal process takes its journey to completion. Check out our legal funding application —and take control of your financial future today.

No. Litigation funding does not contribute to social inflation. Blaming litigation funding as a cause of social inflation and the rise of insurance costs is a false narrative driven by insurance companies. 

Litigation funding companies help plaintiffs obtain larger payouts from insurance companies. Litigation funders are actually giving those plaintiffs in need the time and resources needed in order to get fair value for their injuries and damages. 

Insurance companies paying fair value for settlements is a benefit to all insured parties and does not lead directly to a rise in the cost of insurance. 

There are multiple factors that contribute to the rise in insurance premiums, and litigation funding does not play a large part in that process.

Factors that contribute to the rise in insurance premiums.

Inflation is what raises the cost of goods and services, which in turn increases the cost of insurance premiums. 

The federal reserve raises rates which causes the price of goods such as milk, bread, and gasoline to go up along with those staple items service costs go up. 

As things get more expensive in the general economy, so do insurance premiums because they are based on bond rates. Insurance companies invest premiums into bonds to make money and as rates go up, the cost of those bonds goes down. 

Because the insurance company will show capital depreciation based on those reduced spot prices of the bonds they have to raise insurance premiums to make up the difference.

Insurance companies exist so that premiums make more than whatever they have to pay out in claims. Insurers are in business to make money, not to help people.

At Baker Street Funding, we aim to provide plaintiffs and their lawyers with enough bank to make sure that they, too, get a chance to fight for their cause.

 In this regard, litigation finance has tremendous benefits that other forms of finance don’t necessarily have. When it comes to the plaintiffs, for example, it is noted that litigation finance helps plaintiffs fund their cases in a manner that is more flexible when compared to other forms of finance, such as bank loans. 

As such, this means that all eligible plaintiff borrowers experiencing funding difficulties will be given a much-needed lifeline that enables them to weather out the storm when taking court action against defendants. Furthermore, commercial claimants will also be able to hire better attorneys using this money, thereby increasing their chances of success.

Since this type of financing is non-recourse, that means that claimants won’t have to pay back the advance until they win a settlement for their case.

 Law firms and attorneys also benefit from non-recourse funding agreements. In fact, litigation finance allows law firms to accept cases that they otherwise wouldn’t be able to get, given that the plaintiffs might not be able to afford the firm’s fees. 

Moreover, litigation finance also ascertains that clients will not run out of money during litigation proceedings, and the flexibility of litigation finance means that payment arrangements can be tailor-made according to the needs of different clients.

 But what exactly is litigation finance?

Litigation Finance or legal funding essentially is the practice where a third-party firm or company that is not associated directly with any party in a lawsuit provides money to one of the parties that are involved in the said litigation. 

The idea would be that when the lawsuit is won, the third party that finances the case will get a portion of the winnings as compensation for having financed the legal procedures that take place.

 One of the most common barriers to justice is the fact that plaintiffs fear that they do not have enough capital to cover legal costs. In this scenario, litigation finance makes sure that these concerns are put to rest once and for all. 

Over the past years, litigation finance has become very popular in the United States, and various parties that, include both small and big players have benefitted from it. With that being said, the United States is not the sole jurisdiction that makes use of litigation finance. On the contrary, various other countries, such as Germany and Australia, make use of litigation finance. 

Australia, in particular, was the match that lit the fire when it comes to litigation funding, with a High Court of Australia ruling in 2006 making it possible for litigation finance to be extended to single and class action lawsuits.

Litigation finance, in fact, can be split into two major categories: Consumer litigation finance and Commercial litigation finance. The former relates to single cases that usually relate to personal injury or similar matters, and therefore the amounts involved in such cases are usually much lower when compared to commercial litigation finance.

Commercial litigation finance, on the other hand, usually results in more lucrative returns, given that it is used for contract and commercial disputes, enforcement campaigns, and arbitration cases. As such, commercial litigation funding can either take place vis-à-vis a single case, where capital is provided to cover the costs of a single lawsuit or multiple cases. The former is known as “portfolio financing”, and it results in the financing of multiple cases of a company or law firm.

 What are litigation finance firms?

 Litigation Finance firms are companies that provide plaintiffs and/or their attorneys with the funding that they so desperately need to continue taking their cases forward. Naturally, it goes without saying that different firms have different areas of focus, with some opting to take care of lower-end cases and others opting to finance high-end ones. 

Major corporations, universities, small businesses, and even ordinary citizens have all benefited from litigation finance. With that being said, when deciding which firm to approach for litigation finance, it is always important to read the fine print, ensuring that you get the best deal possible.

At Baker Street Funding, we aim to offer solutions for both law firms and attorneys at a 2% flat rate, while requests for personal injury clients referred to us by law firms are usually charged between 2.95% to 3.4%. Corporate disputes have different interests, still on the lower end.

As always, we intend to aid both attorneys and their clients in standing up for what is right, and that is the sole reason why our rates are more favorable than others.

In order to make use of our favorable rates, all you have to do is to request legal funding from us. Following this, we will review your application and conduct our due diligence while also discussing any queries that we might have with you over a call. Lastly, the final step is the approval of the funding application, after which the litigation finance contract is drafted and then sent to you for your signature and approval.

 Access to justice

 Baker Street Funding is solely driven by the belief that everyone should have equal access to justice. More often than not, accessing justice requires certain capital that most individuals simply don’t have. 

 Although, on paper, everyone has the same rights, an imbalance exists between ordinary people and wealthy litigants. For this reason, our founders set up Baker Street Funding to remedy this imbalance, thereby ensuring that everyone will have equal access to their rights. 

Baker Street Funding’s litigation finance is a great alternative to other forms of credit such as loans, especially given that this finance can be used to pay for a number of things, including legal expenses, court fees, attorney’s fees as well as expert witness fees. This makes it an excellent proposition for litigants aiming to finance their cases.

In simpler terms, if you’re looking for a firm whose sole mission is to give ordinary litigants a fighting chance, do not hesitate to contact us at Baker Street Funding. As always, we remain determined to help our clients reach their strategic long-term objectives, especially when justice is on their side.

If you want to know what questions to ask before engaging with a litigation funder, these can help you feel more confident and help you navigate the legal finance process more efficiently.

Is litigation funding available just to private parties?

No. This is a false impression. While it’s true that the initial purpose of commercial litigation financing was to aid individual plaintiffs with commercial lawsuit claims in the pursuit of strong cases, its reach has grown over recent years.

The foundation for funding litigation proceedings also applies to a single case or a portfolio of cases. 

When funding a single case, a litigation funder like Baker Street Funding provides money upfront to cover fees and expenses in exchange for a negotiated return depending on the case’s result. Clients with several litigation cases often include a defense case in a portfolio that consists of both plaintiff and defense actions. Baker Street Funding provides both portfolio and single-case funding.

The practice of litigation finance is also growing in popularity when it comes to business restructuring and bankruptcy. Funding is available to support the pursuit of defensible legal claims, such as avoidance proceedings or other disputes, by a debtor, a committee, or a trustee acting on behalf of a litigation or liquidation trust. It is also possible to get funding to support the debtor’s confirmation of a plan.

In any case, legal funding is no longer exclusively available to plaintiffs. We are developing novel applications and transaction structures available to law firms to anticipate more rapid market evolution.

What expenses are covered by litigation funding?

Litigation funding offers operating or working capital for companies by monetizing a part of a lawsuit claim. Anyone who obtains working capital can use the funds for any legitimate business purpose, including paying overhead costs, promoting a new product, entering new markets, or any other legit business use. 

In addition, litigation funding provides funds to be used to pay for some or all of the legal expenses and costs in a dispute. And, even though it is termed “litigation finance,” litigation funding also covers any case-related expenses, such as expert reports, court expenses, and more. 

This also applies to commercial litigation funding, which may be used with the same degree of flexibility.

 Is litigation funding morally right?

Many legal organizations, including the American Bar Association, have researched litigation finance, and with one exception, it is widely regarded as ethical. 

However, some common ethical issues with litigation funding revolve around protecting the privacy of sensitive case data. As long as a funder is willing to put in the effort to ensure a non-disclosure agreement, ethical problems may be safely handled through customized agreement structures. 

Never be afraid to question your funder on how they intend to guarantee ethical compliance in your local jurisdiction. A funder needs to be able to respond to any ethical queries you have satisfactorily. 

With Baker Street Funding, every connection we establish and every transaction we complete complies with all ethical norms in force in the relevant countries, thanks to our collaboration with the finest ethics experts in the sector. 

Which kind of litigation funder would be ideal for me?

Because a financial relationship might endure for many years, it’s crucial to know who you are doing a deal with. Plaintiffs and law firms must be aware of the solutions that lenders may offer and the most important factors to be considered when selecting them as a partner to succeed in a field as young as legal funding. 

At Baker Street Funding, we strive to provide our clients with innovation, quickness, competitive rates, and assurance. We have committed investment capital to finance lawsuits as soon as our funding agreement is signed. 

Investing in legal claims is the foundation of our whole company, reducing waiting time and increasing predictability. In addition, we are delighted to work with plaintiffs and counsel to tailor optimal conditions for the current investment. Interest rates for litigation funding for attorneys start at 2%, simple per month.

We strongly believe that for the litigation funding sector to remain successful, it must also be a matter of justice in addition to money and profits.

The takeaway

Access to justice is a priority for Baker Street Funding. Our ability to work with the majority of top law firms is a result of the combination of our legal knowledge, financial competence, commercial and technical know-how, and sizeable financial resource. Because the funding capital is based on the potential proceedings of legal disputes, it effectively serves as security for our investments. 

We speak with many businesses and legal firms about the workings of funding and the advantages it provides since we are one of New York’s and Florida’s leading litigation funders. 

Looking to engage with a litigation funder? Request funding today.

Different types of investors are tapping into a quickly growing industry called “litigation finance,” which allows them to provide plaintiffs involved in legal claims with a cash infusion in return for a portion (if any) of the capital they took out, which is ultimately paid from the settlement proceeds or award when the case is won. 

How big is the litigation finance market?

Third-party litigation funding is generally not correlated to stock market returns, and many experts on Wall Street and beyond have highlighted this rapidly growing industry because of its high returns. Fundamentally, investors invest over $2 billion in lawsuits over 12 months. That said, the industry had an approximate value of $12.2 billion as of 2021, and according to the Litigation Funding Investment Market, it will reach the $25 billion mark by 2030.

Moreover, LexShares, a reputable legal finance company, said that back in 2009, just six litigation financiers were dedicated solely to legal finance. Today, there are well over 60. This further accentuates the rapid growth in the industry and the growing demand of plaintiffs and law firms for investment capital.

How does litigation funding work?

Most litigation funding companies have an experienced team of attorneys who have a swarth of experience representing plaintiffs in all types of litigation. These attorneys act as underwriters to review legal cases and choose which cases have the most merit to help value the claims as investments.

Once the underwriting team signs off on a litigation funding deal, funders will then have their investment professionals structure each deal individually based on numerous metrics.

What is litigation funding used for?

Generally, litigation finance capital is used for three main things:

• The first is to cover the plaintiff’s personal expenses, such as rent or mortgage payments and medical treatment. Typically, when a litigation funder invests in a personal injury case, the claimant cannot work and needs cash flow coming in until the case settles. 
•  The second most typical use of funds is working capital. Corporate plaintiffs in litigation matters such as breach of contract claims or patent litigation usually sue because they have suffered crippling business losses as a result of the defendant’s action. This puts them in a position where they will require some cash infusion if they want to continue operating their business. 
•  The third and most common thing that funds are used for is case-related expenses. Hiring experts to generate reports, give depositions, and investigate the defendant can be enormously expensive, and sometimes attorneys will reach out to litigation funders to help finance these expenses. In this situation, the funds are normally paid back from the law firm’s fees once all liens are taken out of the settlement or award.

Who can invest in litigation finance?

While investing in legal claims seems like a great idea, it is not for everyone. To invest in litigation finance as an individual, you must be an accredited investor, which means you have a net worth of $1,000,000, excluding your primary home or historical and expected income of over $200,000 (per individual) per year.

Litigation funding companies set these requirements because while the returns are high, investing in lawsuits carries a great amount of risk, including losing your entire investment in a case if it does not resolve favorably for the plaintiff.

The takeaway

Most litigation funders require investors to commit capital for a minimum amount of time. While this is standard for most private equity firms, having your money tied up and unavailable is not something every investor can stomach.

As mentioned above, there is a principal risk when investing in litigation finance and the risk of having your money tied up long-term.

Litigation finance investments carry a high amount of risk for investors. Most financial advisors recommend allocating no more than 10% of your portfolio’s value to alternative assets such as litigation funding.

Baker Street Funding is privately held and has invested over $50 million in cases. Interested in investing with Baker Street Funding? Contact us today.

In recent times, the litigation funding industry has caught acceleration in popularity amongst the masses. The global litigation funding market size was valued at $39 billion in 2019, with approximately $85 billion in assets. The only concrete reason for such a surge in public preference is the very nature of this type of financing. 

At its core, litigation funders provide capital to litigants—usually plaintiffs—in exchange for a fixed fee or a percentage of the funded amount (plus the capital they take out) that is awarded through judgment or settlement after the case is won. Generally speaking, litigation funding is an attractive alternative to conventional loans for people who are engaged in lawsuits and need a financial boost to meet routine expenses or high costs, and more and more people are turning up to benefit from legal finance during the pendency of their lawsuits.

Let’s dive further into how the litigation funding industry grew and where it is heading.

How did litigation funding start?

Litigation funding started in Australia and the UK and then reached the US financial market. Since its advent, the industry has seen a steady expansion in the 1990s, most probably owing to the increased reporting of asbestos-related injuries and other types of personal injuries.

Asbestos-related claims included disparate grievances from construction, industrial, mining, and other sources of exposure. According to a study conducted by the Rand Corp., industries and insurance companies have paid fortunes close to $70 million only related to injuries from asbestos exposure.

The great recession and the global growth

Since the beginning of this millennium and the onset of the great recession, the legal funding industry has gained increasing recognition. Not only do some jurisdictions require the registration of these financing companies, but with a potential recession on the rise, litigation finance companies in the US, the UK, and Australia are witnessing a tremendous surge in applications. 

Non-recourse funding in return for future settlement or compensation is more attractive to people engaged in litigation than conventional loans from banks and financial institutions because no payment is due until a case has been resolved. To fill in the demand-supply gap, hedge funds worldwide are dedicating window operations for legal financing. In recent decades, the industry has only been growing.

Regulation of the litigation funding industry is growing

With increasing players in the litigation funding market, it has been seen that the industry would mandatorily require statutory or private regulation in order to prevent exploitation. 

As such, steps were taken by national governments to strengthen this growing aspect of the legal funding industry. In the US, certain jurisdictions have introduced statutory regulations that direct and control the companies offering legal funding services. 

Even otherwise, the American Legal Finance Association (ALFA), which acts as the industrial union for this said industry, requires all its members across the country to abide strictly by a set of acceptable practices. These practices were made part of one of its core agreements with the 2014 New York AG Eliot Spitzer.

Third-party litigation finance business model

Regions across the globe have seen an increase in cases involving third-party litigation funding. Even with the high risks for those who invest in litigation finance, accredited investors and hedge funds have realized that legal funding programs are profitable modes of lending, overall making a business model with lucrative returns while minimizing the risks.

Professional assessment from attorneys who can efficiently evaluate settlement cases is crucial in determining whether a funder will make a profit from lending in a specific case. For this very reason, many financial giants have opened window operations dedicated to catering to people involved in pending litigations. 

Litigation funders have also designed flexible funding plans for individuals seeking financial help to finance their personal and medical expenses as well. These formulated plans are also non-recourse and much more lenient than those offered by mainstream banks, attracting more and more plaintiffs.

Such a high-paying business model has resulted in more and more corporations offering legal funding programs for the masses. 

Currently, there are more than 60 legal funding companies in the US.

The aftermath of the pandemic

The reaction of the legal funding industry to the ongoing novel coronavirus COVID-19 pandemic is yet to be noticed. It is expected that the world may witness an increase in civil litigation and hence an increase in demand for litigation finance. 

Moreover, the current economic crisis and how it is being handled is also exposing most of the world population to crises and existential difficulties. For this very reason, even well-off individuals may be expected to reach out for lawsuit financing opportunities. 

Federal reports have highlighted the economic disparity in American society, revealing that 4 in 10 American adults find themselves unable to cover an expense of as low as $400 that comes unexpectedly to them. Speculations also predicted unemployment levels to rise as of 2023 to levels higher than the 2008 recession. Such a crisis is deemed to surge demand for short-term credit amongst Americans. For outward expenses, including legal costs, it is highly expected that people may make recourse to litigation financing options. 

The takeaway

From the early start of its conception and the expectancy of long-drawn aftermaths of the pandemic, in addition to the current inflation potentially heading to a recession, it is clear that the demand for litigation funding shall climb higher for years to come. Such an increase may be seen not only in the US but in other countries as well.

If you are interested in applying for legal funding, Baker Street Funding’s lawsuit loans for personal injury victims and litigation funding for attorneys and commercial claimants can help you get ahead. Upon approval, you can obtain financing for your necessary expenses, empowering you to focus on your legal battle and successfully recover damages. Apply today.

For the most part, litigation funding contracts are not discoverable. Generally, court systems see non-recourse funding agreements as outside the discovery purview. In fact, most judges seldom agree to the demands for third-party financing discovery. 

Here’s a closer look at legal funding, work product, and common interest doctrines, plus recent examples involving litigation finance discovery requests, which are frequently turned down due to lack of relevance.

What is a litigation funding agreement?

Litigation financing is a non-recourse financing agreement between a third-party firm, a plaintiff, or an attorney. Under these agreements, an investor will consent to pay all or part of the litigation costs or provide upfront capital to a plaintiff in exchange for a portion of a future settlement or award.

First, a plaintiff or an attorney applies for funding, and then they will receive a nondisclosure agreement before any communication about the dispute begins. The funder will carry out their due diligence to assess risk, strengths and weaknesses, the chance of victory, possible recovery, and litigation strategy before deciding whether to finance that case. They will also communicate with the lawyer in charge of the case throughout this process and examine public and private matters relating to the dispute.

Once the case gets approved for financing, the litigation funding document may reflect the opinions of counsel about the merits, viability, and strengths of various claims and defenses. It will also contain information on risk considerations, the anticipated rate of return, and the allocation of cash among investors. The details of the connection between the investor and the litigant are also set down in these agreements. 

While funders wait for a positive outcome of a dispute, plaintiffs can benefit from this kind of arrangement by receiving money right away without running up debt through loans or credit card issuances.

Unlike traditional banks, non-recourse funding agreements state that no payment is due until the case is successfully resolved and the compensation is paid to the attorney’s trust account.

Are litigation funding documents protected from discovery?

The need to disclose correspondence and documents about litigation funding agreements has risen because of the growing usage of litigation funding. Such requests are usually made by affluent litigants who want to drain a party’s resources by asking for a discovery unrelated to the case’s claims or defenses. 

In the simplest terms, most legal funding agreements are protected from discovery. More than half of the federal and state cases did not permit any financing discovery from the litigation to the defendant. In most cases, the discovery was rejected, at least partially.

Does the work product doctrine protect litigation funding materials?

The work-product doctrine limits the discovery of third-party litigation funding, which makes it the primary defense against disclosure. 

The work product is part of the attorney-client privilege, and it works by rejecting the exposure of documents created in anticipation of litigation by attorneys or those under their supervision during the representation of a client. 

The privilege doctrine protects funding materials following a nondisclosure agreement or confidentiality agreement with a litigation advance lender. These agreements establish and record the parties’ understandings of disclosure, reducing the likelihood of the defendant’s knowledge of the investment.

Does the common interest doctrine allow the discovery of third-party funding agreements?

The attorney-client privilege safeguards communication systems made in assurance between an attorney and a client to receive or deliver legal advice. Documents and communication provided to a third party are subject to the attorney-client privilege. However, smaller courts are becoming more inclined to conceal legal finance agreements from discovery under the common interest doctrine.

For example, in the Oil Trading Company case in Florida, the court concluded that a client’s disclosure of privileged case information to a third party would not waive the attorney-client privilege. Essentially, the litigation funding agreement contained a confidentiality provision, and secrecy was maintained in all their communications.

Some argue that the attorney-client relationship does not apply to litigation funders. However, a common enterprise” approach is being applied by many courts as an exemption to the privilege. 

Most courts are starting to determine that sharing attorney-client privileged materials with a litigation funder does not constitute a waiver of the privilege because the participation of the funder depends on the evaluation of the case’s merits. 

Nowadays, the attorney-client privilege is no longer being waived for material exchanged with the lawsuit funder. 

Litigation funding discovery gone wrong 

The Gbarabe v. Chevron case

In the Chevron class action lawsuit, the court approved the defense’s request, an oil company, to order the disclosure of the legal finance arrangements to assess the plaintiff’s counsel competence. 

Unfortunately, the court rejected the plaintiff’s attorneys’ claim that they had a legal responsibility to protect the contents of the agreement and the funder’s identity since the attorney did not use the work-product doctrine.

With this discovery, the defendant learned who oversees the case inside and outside the courtroom. Although the defendant defeated the class certification, litigation funding discovery played no role in this defeat.

Pelvic Mesh case

Another discovery was granted to the Hernia Mesh defendants, who found out that plaintiffs who did not need surgery ended up getting surgery to increase the value of their claims. In this case, a legal financier persuaded pelvic mesh litigants to undergo unnecessary surgery to boost the value of their lawsuits. In January 2021, the funder was indicted.

The defense’s unsubstantial excuse for this discovery is to determine whether agreements for third-party funding lead to conflicts of interest for judges, counsel, and parties.

On the other hand, defendants state that they cannot properly assess a case’s value and litigation strategy without knowing the existence of a funding agreement. In other words, since a defendant’s tactic is to delay settlements, their knowledge of legal funding agreements would allow them to prey on a plaintiff’s financial situation by knowing exactly how long or short they would need to set back litigation.

Is litigation funding ethical?

Litigation funding has grown in popularity over the decade as a resource for lawyers and their clients who lack the funds to defend themselves effectively on legitimate claims against corporate giants. 

People are coming to understand that litigation funding is ethical since it levels the playing field by allowing plaintiffs, attorneys, or both to fight legitimate lawsuits they otherwise wouldn’t be able to pursue. Additionally, this type of financing does not affect the lawyer’s obligations to their client as long as they act in the client’s best interest.

In recent times, more lawyers and litigants have been reaching out to litigation funders with hopes of mitigating the financial risks associated with legal claims facing extremely wealthy defendants. 

Defendants argue that the plaintiff has no justification for settling for less than that sum offered if the funder has a right to the first dollar recovered. Certainly, legal finance can help plaintiffs hold off for a fair settlement instead of taking an undervalued offer from well-capitalized defendants who take advantage of them. However, the impact of funding on the plaintiff’s litigation to settle is not a factor because the funder does not influence the case. 

For a plaintiff or an attorney who lacks the financial means to move forward with a case, lawsuit finance can help bridge this gap, making it an ethical option to pursue as long as the company is legitimate.

Last thoughts

Many courts concur that attorney work product and common interest doctrine provided to a litigation funder is shielded and off-limits from discovery when determining whether such documents or communications are discoverable.

Whether plaintiffs should be obliged to disclose funding arrangements to defendants will continue to be a hot topic on the federal and state levels. 

Considering the points discussed above, keeping the agreement under the veil is more beneficial and a win-win situation for the law firm and the plaintiff. Why? Because non-recourse finance gives plaintiffs, law firms, and businesses access to the money they need without worrying about paying back the money if the case is unsuccessful. Rates differ from lender to lender and case. Thankfully, with Baker Street Funding, you will get lower rates than other funding firms and terms that work for you.

Learn more about our funding options today.

In simple terms, litigation funding or litigation finance involves a third party covering part or all of the legal costs associated with a court case or several cases for an attorney or a plaintiff. It also involves providing capital to claimants for urgent needs such as the generation of revenue. In return, the litigation funding firm gets a cut from the proceeds of the lawsuit, meaning that both clients and the funder get to benefit from this mutual arrangement.

The litigation funding process is quite straightforward. All one has to do is apply with a legal funding firm, and after your application is reviewed and all the necessary due diligence is conducted, the funder will decide whether to finance your claim or not. Litigation funding, however, does not come without any sort of attachment. Strictly speaking, it is an investment, and therefore non-disclosure agreements are the rule, not the exception. 

Moreover, not all cases get financed. A thorough case analysis is usually conducted by the financier, in fact, with the intention being to make sure that the case fits the funder’s financing criteria. The due diligence process also usually takes up considerable time, with funders usually obtaining second opinions as regards whether a case should be funded or not and whether a favorable outcome is expected in relation to the said case. A firm’s investment committee usually takes the final decision when it comes to funding, and if an affirmative answer is forthcoming, both parties may then move on to sign what is known as a litigation finance agreement.

What are the benefits of litigation funding?

First things first, litigation finance enables everyone the possibility to stand a chance. Unfortunately, justice comes with its own costs, and not everyone has the bank to cover these costs. There are those who opine that litigation finance is unethical, but throughout the world, litigation funding is widely accepted to be within ethical bounds. Proof of this is the fact that an increasing number of countries are opting to introduce legislation that regulates it. Over the years, third-party funding has become more popular, and demand has continued to grow from strength to strength.

Perhaps one of the reasons resulting in growing demand is the fact that the alternatives to litigation funding are loans that charge considerable interest rates. If a loan is taken up, however, it doesn’t matter whether you win or lose. Debts will have to be repaid, no questions asked. However, in litigation finance, one is usually only obliged to pay the funding firm a cut of the proceeds if they have been successful. 

Moreover, because every case is seen on its own merits, agreements are not set in stone, and therefore, an element of flexibility also exists. This naturally means that third-party financing may be used for several things, including the fees and costs that are associated with particular cases. Within itself, litigation funding also enables parties to withstand “low-ballers” who try to settle with disingenuous offers. Better yet, funding enables weaker parties and companies to hire legal teams that would usually be out of their budget and open up new revenue streams through legal actions.

Lastly, clients remain in control of the case they’re pursuing, meaning that it is they and only they responsible for whichever strategy they decide to pursue. For this reason, it is widely seen as preferable to other options. In other words, although certain conditions always apply in litigation funding, it is reasonable to state that there are only loose strings attached.

Litigation funding offers new opportunities

Without the fear of being buried in the costs that litigation brings, litigation financing can help you pursue strong claims. For law firms, it can help you leverage your future case fees and pay for litigation-related costs on new clients.

Certainly, you could get started with financing today by applying with Baker Street Funding so that you lay the groundwork for your financial plans sooner rather than later. Then you could be in a better position.

The legal industry has seen an increase in investments and finance in recent years. 

Most people find discussing investing and financing in law firms challenging. The issue of law firm finance and capital investment is particularly confusing for investors, lawyers, and legal professionals.

Investment in law firm funding is an important aspect to understand and discuss. For investors, it remains a lucrative option.

A growing number of law firms are seeking for financing solutions to aid in business development and expansion, as well as to enable them to respond more rapidly to client needs. 

Let’s take a look at why law firm funding investment is critical to a firm’s performance, how it delivers a high return on investment, and moves the firm closer to financial competency.

Benefits of investing in law firm funding

Law firm funding has seen significant growth over the last decade. As a result, people searching for new ways to invest are rapidly turning to law firm funding. 

Compared to standard investment choices, law firm funding has the potential for higher rates and a quicker, more specified time to liquidity.

Funding for legal cases is a highly appealing investment possibility for wealthy individuals looking for significant returns and a relatively short time to put resources.

The benefits of investing in a law firm or attorney funding include the following:

Options, self-assurance, and timing are all important factors to consider. Investors face many of the same issues when considering to invest in alternative investment choices that law firms do. Investors evaluate interest rates, banking laws, legislation, and data analytics while selecting how to increase their money. However, for investors, the ultimate line is the same: what is the risk against the return. The payoff for law firm funding can be lucrative indeed.

Versatility

When selecting investments, an investor’s requirement for flexibility must be taken into account. 

Many investors are realizing that alternative investment choices such as law firm funding give the flexibility they desire. The magnitude of the investment is flexible with law firm finance. Investors might opt to invest a little amount or a large amount.

Impact investment is also gaining popularity among investors. An investment in law firm finance might support a certain area of law, a specific sort of client, or both. 

While large and commercial litigation has dominated law firm funding in recent decades, today’s investment opportunities are placed on a wide range of practice areas, including but not limited to commercial litigation finance, DIP financing for Chapter 11 bankruptcies, arbitration financing, law firm litigation for personal injury claims, processes, and growth expenses, patent litigation expenses, SEC and shareholder litigation, and civil rights claims for wrongful imprisonments.

In addition, compared to other forms of capital investment, law firm financing has a faster time to liquidity. 

With a life of a few months to a few years, which corresponds to the terms of the loans, investors benefit from the possibility of a large return while also knowing that they won’t have to wait for returns on an open day.

Investing with confidence

Because the outcome of the lawsuits companies fund is not linked to economic market changes, the very financing in law firms provides a non-correlated investment option. 

As a result, investors frequently employ them to protect themselves against market swings. 

When it comes to risk, the only thing associated with it is the result of the case pledged to the non-recourse financing agreement. This means, that if the case is lost, the investor loses the investment.

While no legal case is ever assured, each claim is accepted only after a skilled group of attorney underwriters has thoroughly examined the merits and possibilities of winning the dispute. 

Why invest in law firm funding?

It’s all about the timing

The timing is always right at the moment an investor decides to invest in law firm funding. Because of the following, investors are in a great position to make the most of their money:

1. Beating recession: With the threat of a recession approaching, investors want options that are not dependent on capital markets or swings. Thus, a great option is law firm finance.
2. Fewer banking facilities: As a result of changes in banking laws, banks are less inclined to provide traditional lending for legal battles. The time is ideal for investors to step in and cover this financial gap.
3. Legal reform: Frivolous cases don’t get very far thanks to legal reform efforts. As a result, legal funding investors may feel more confident in the viability of the litigation entrusted to the fund.
4. Consumer litigation: Consumer litigation is arsing in the U.S., which means there are more investment opportunities in this area.

Conclusion

Some investors may be able to earn a portion of a legal settlement without ever being involved in a lawsuit. 

It stems from investing in law firm financing, which is giving money to litigants or attorneys to help them fund their claims in exchange for a share of any awarded damages if the case is won.

If the experts are correct, the market is ready for expansion: This unknown segment to many of the financial world may appeal as investors seek returns that are uncorrelated to the markets. 

Furthermore, when the coronavirus-related economic repercussions lead to more litigation — which is usual in downturns — and increased need for private finance is. on the rise, the demand from plaintiffs or attorneys seeking funding is also increasing.

If you believe the time is perfect for you to explore the opportunity of investing in law firm funding, contact Baker Street Funding right away to discuss your choices. 

We can assist you in determining which alternative investment choice appeals to you the most. For more information on law firm financing investment opportunities, fill out our online contact form or give us a call at (888) 711-3599.