The booming growth in litigation finance has ushered forth a new wave of capital available for claimants and lawyers at a critical time during the global pandemic, but litigation funding has not stepped forward without challenges from bar associations on the perennial question of lawyer independence and especially so in the context of litigation portfolio financing.
We are excited to share UniCourt’s Director of Content, Jeff Cox’s latest article that was published in Above the Law. In his article, “Litigation Finance, Lawyer Independence & Legal Tech,” Jeff discusses developments in the litigation finance industry and how (1) the legal profession is beginning to accept litigation funding as it grows and matures, (2) the legal ethics divisions outlined in the American Bar Association’s recent report, American Bar Association Best Practices for Third-Party Litigation Funding, and (3) how legal technology and bulk API access to court data will continue to support funders’ efforts as they scale their operations to meet investment demand.
Here below is an excerpt from the introduction of Jeff’s article:
Litigation finance is here to stay. State and local bar associations that don’t want their lawyers, business communities, and consumers to suffer from lack of capital during the continued fallout of the global pandemic should reconsider paternalistic prohibitions kneecapping the overwhelmingly positive impacts of litigation finance for improving law firm stability and profitability, reducing risk for businesses, and increasing access to justice for consumers who wouldn’t otherwise be able to afford litigation.
In this article, we’ll review the growth, maturity, and acceptance of litigation finance in the legal profession, highlights from the legal ethics “Best Practices” outlined in the American Bar Association’s August 2020 report on third-party litigation funding, and how the coinciding rise of legal technology and the availability of court data will continue to aid the expansion of litigation finance.
Growth, Maturity, & Acceptance
Within the broad definition of the third-party financing of a lawsuit or lawsuits in exchange for an interest in the potential future recovery or successful defense of a claim on a non-recourse basis, litigation finance spans a sprawling range of funding structures and activities.
In the commercial context, outside of consumer litigation, funders are coalescing behind portfolio financing as the industry matures, because it allows for financiers to spread their risk and invest in a set of claims either held by the same claimant or handled by a single law firm. As Lake Whillans noted earlier this year, portfolio financing, the “Neapolitan” flavor of litigation finance, is also beneficial for the claimant or law firm involved, as they “can generally obtain funding at a lower cost of capital” due to funders being “willing to accept a lower return because investing in a portfolio is less risky than investing in a single claim with a binary outcome.”
This move toward investing in aggregated claims as portfolios may also may be a direct outcome of the increased appetite to invest that continues to fuel the impressive growth of litigation finance. With the launch of Pravati Capital’s $200 million fund this month, its fifth fund since 2013, firms in the litigation funding space have raised more than $1 billion so far in 2020, and there are still signs for continued growth this year due to an uptick in demand caused by COVID-19.
Along with steady growth and maturity in the litigation finance industry, there is also an expanding acceptance bubbling within the legal profession. In the insightful report Above the Law published recently in conjunction with Lake Whillans, The 2020 Litigation Finance Survey Report, one of the key indicators of lawyer acceptance is that the attorneys who used litigation funding unequivocally love it.
With lawyer satisfaction at a whopping 99.36% for those who used funding and would use it again, combined with a marked uptick of a 30% year-over-year increase in the percentage of survey respondents reporting first hand experience with litigation finance, it’s only a matter of time before a broader swath of accepting lawyers outpace naysayers and push to remove the remaining legal ethics barriers preventing much needed access to capital in the legal profession.
You can read the full article here on Above the Law.