This blog describes the most significant means of fundraising written in a plain language

Financing in Litigation

Financing in Litigation

Today, we are speaking about where and how to find funding to protect your rights in court.

New type of investment

Financing in litigation is a new type of investment, in which an investor who is not related to a legal process covers the expenses of one of the parties, most often the plaintiff, for litigation in exchange for a percentage of the amount awarded. This type of financing has existed for about 20 years and is widely used in countries with a developed judicial system.

To date, there is no accurate data on the volume of this market, but if we take a look at two large US funds – Burford Capital and Gerchen Keller Capital, specializing in investing in litigation, they have already invested more than $2 billion since their creation in 2009 and 2013 years, respectively. In 2016, Burford Capital absorbed Gerchen Keller Capital, becoming the undisputed industry leader.

Recently, crowdfunding platforms began to appear on the market. With the help of so-called public funding, it is possible to raise funds to cover court expenses or to find one investor who will finance the litigation process. Online court funding platforms such as Funded Justice and Lex Shares are very popular in the USA.

What is judicial funding beneficial to plaintiffs and investors?

From a social impact point of view, judicial funding extends access to justice for those companies and citizens who cannot afford to cover legal costs themselves. For this reason, it is not uncommon for plaintiffs to simply refuse to go to court even though the law is on their side. In this case, attracting court investment is the solution. Investors, in turn, can receive income from 30% through judicial financing – this can be from 20–50% of the amount of claim (a winning case).

One of the most prominent cases of judicial funding is the lawsuit of rescuers against the authorities of the city of New York, who, after the terrorist attack of September 11, 2001, were forced to work without special remedies, as a result of which they acquired various diseases. Investor profits after winning business then amounted to $11 million.

Judicial funding is also popular among Fortune 500 companies. They “sell” their legal cases, preferring to use part of the company’s assets not to cover court costs, but for other business needs. In 2016, Buford Capital increased its net income by 65% – from $65 million to $108 million – due to investments in various suits, mainly corporate ones.

Private investors are also interested in such investments. For example, in 2016, Silicon Valley billionaire Peter Thiel, co-founder of PayPal, financed a lawsuit against a wrestler Hulk Hogan against online media Gawker. As a result, the plaintiff won $140 million, and the media portal was on the verge of bankruptcy.

What cases are available for investment?

More often, commercial litigation services are financed through court investment services with well-substantiated losses, which are legally evaluated by company specialists. They take into account the size and ratio of court costs and the amount of the claim, the solvency of the respondent and the timing of the dispute.

Some western firms specialize in financing certain types of cases. For example, the Mighty platform or the American firms Balance Point Divorce Funding, BBL Churchill specialize in cases on injury, and Novitas US – in investing in divorce proceedings.

Crowdfunding court financing platforms most often do not impose restrictions on the types of claims and amounts of penalties, like CrowdJustice, as they do not imply a return on investment.

Category: General Issues

Tags: funding issue, fundraising