Trends in Litigation Finance

As litigation costs continue to rise, and litigants and lawyers seek ways to fund meritorious cases that otherwise may not come to bear due to any number of financial reasons, litigation funding is helping to level the playing field. In 2016, litigation funding became mainstream, so we invited a panel of experts to discuss the trends in this burgeoning industry.

Our Moderator

Nicholas Gaffney (NG) is a veteran public relations practitioner in San Francisco and a member of the Law Practice Today Editorial Board.

Our Panel


James Batson (JB), investment manager and legal counsel in Bentham IMF’s New York office, is one of the most experienced professionals working in the U.S. litigation funding industry. In addition to two years with Bentham IMF, he formerly was chief operating officer and consultant for two commercial litigation finance companies. Jim helps companies and individuals obtain non-recourse financing for commercial lawsuits. He monitors a multi-million-dollar investment portfolio, managing the process from initial review through final resolution.
Alexis Blane (AB), global head, legal and partnerships for CrowdJustice, has extensive legal experience in the government and nonprofit sectors. She worked as a lawyer at the U.S. Department of State, focusing on law enforcement and intelligence law, and at the Clinton Foundation, where she oversaw governance and developed a first-of-its-kind social investment policy to govern partnerships between nonprofit and for-profit entities. Alexis holds a doctorate from Oxford, where she was a Rhodes Scholar, and a J.D. from NYU, and she clerked on the Fourth Circuit for Judge Allyson K. Duncan.
Christopher J. DeLise (CDL) is the founder and CEO of Delta Capital Partners, a litigation funding firm based in Chicago that has provided funding options for commercial litigation in the U.S. and abroad since 2011. Before forming Delta, he was an equity partner at K&L Gates LLP, where his practice focused on representing investment funds, financial institutions, Fortune 500 companies, and institutional and individual investors in matters ranging from fund formation and governance to compliance, and from cross-border M&A and strategic and financing transactions to all facets of starting, operating and selling technology companies. He previously led the Private Investment Funds practice group at Husch Blackwell LLP, and was an attorney in the Private Equity practice group of DLA Piper LLP.
Lee Drucker (LD) is the co-founder of Lake Whillans. Before founding Lake Whillans, Lee was a vice president at BlackRobe Capital Partners. Lee’s experience in litigation finance dates to 2007, when he worked at Burford Advisors. Lee has a J.D. from New York University School of Law, an M.B.A. from New York University Stern School of Business, and a B.S. in history and communication sciences from Northwestern University.
Eva Shang (ES) is the co-founder of Legalist, the first algorithmic litigation finance firm. A graduate of Silicon Valley startup accelerator Y Combinator and funded by several top VC firms, Legalist funds small business litigation.


NG: As with the development of any new industry, it can be difficult to gauge the size of the potential market. What do you see as the addressable market for litigation finance?

JB: There are two very different types of litigation finance providers: consumer funders (who service individuals with small personal injury claims) and commercial funders, like Bentham IMF, who provide financing to plaintiffs in high-stakes commercial litigations, and to law firms with contingency case portfolios. As awareness of commercial litigation funding grows, it will become a financing option that virtually all commercial litigants will consider. In-house counsel and CFOs will also increasingly employ it as a means for managing their legal budgets.

AB: CrowdJustice is engaged in a fairly unique space: crowdfunding for litigation. In our first 18 months in the UK, more than $2 million was raised for cases through the platform. We officially launched in the US on January 31, 2017, with a case that challenged the Trump administration’s executive order barring immigration from seven countries, and as we look at the US market we see the same factors present as in the UK: a widening gulf with regard to access to justice, a desire on the part of individuals to be involved in social change in a concrete way, and a disconnect between legal cases and their potential broader communities of support. The needs are significant, but we see a real opportunity for crowdfunding to significantly grow the market by providing typically under-equipped litigants a simple entry point through which to seek justice.

CDL: The size of the market depends on what types of transactions are considered litigation finance. We would estimate a market of at least $20 billion worth of demand from litigants in high-value commercial lawsuits and arbitrations; however, the market increases to at least $30 billion when considering large judgment enforcements and asset recoveries, claim portfolios, financings offered directly to law firms and other service providers, and other types of legal claims that would be handled primarily outside of court/arbitration.

LD: As noted above, the lower the cost of capital offered by a funder, the more attractive the option of litigation f5inance will be for a business. Currently, the litigation finance industry is in a price discovery period, and participants in the market are pricing their capital conservatively (or at least they should be). The industry will likely be in this period for the immediate future, but ultimately, the cost of capital should reach a point where virtually every business utilizes litigation finance. This is because litigation funders, unlike businesses that hold an individual claim, hold claim assets in a portfolio and so mitigate the idiosyncratic risk associated with any one potential loss. I wrote a white paper on this topic.

ES: Litigation finance is appropriate for any business and individual with a meritorious case who wishes to mitigate their risk. There’s a misconception that the only contenders for litigation finance are cash-strapped. However, litigation is risky. Even businesses that have the resources to self-fund their case can find litigation finance a useful way to mitigate downside risk and instead, devote the money to growing their company. Legalist in particular specializes in small businesses, who often only need a few hundred thousand to kick off their case. In our book, there’s no case too small!

NG: In what circumstances do you think it is appropriate for a business or individual to turn to litigation finance?

JB: In general, individuals and companies seek funding in one of three circumstances: (1) they lack sufficient resources to hire their preferred counsel (and their preferred counsel is unable to offer an acceptable alternative fee arrangement); (2) they would rather use their available capital for other purposes (i.e. for operating capital); and/or (3) they would like to monetize part of their litigation asset (i.e. they have a judgment that is on appeal).

AB: CrowdJustice exists to help bridge the access to justice gap. We are open to all cases that need the financial support or the awareness raising of crowdfunding—or both! We think it is appropriate for people to engage in crowdfunding through our platform when they have a viable legal case that has a public interest component or touches upon a community concern. A local environmental or zoning regulation or an employment discrimination claim can be just as much of a matter of public interest as an executive order.

We provide a platform for raising funds at all stages of a litigation: from the funds needed to initially file a case through to appealing a decision, and everything in between. Because our approach reaches outside of traditional donor bases, CrowdJustice benefits organizations large and small seeking to garner support for their work, and assists individuals in raising awareness and funding for their legal causes.

CDL: Litigation finance is appropriate for any individual or business that wants to pursue a meritorious legal claim for monetary damages, and either cannot afford the legal fees and other costs associated with major commercial litigation, or would simply prefer to shift the associated financial risk to a third party. Litigation finance makes sense even where a claimant has a 100% contingency fee billing arrangement in place with legal counsel, as the claimant will typically still be required to pay for court costs, third-party expert fees, investigation costs, etc. Most funders are willing to fund such costs, provided that an appropriate arrangement can be reached with the claimant and its counsel regarding payment priority and other related matters.

LD: Any business with a meritorious legal claim should consider litigation finance. The decision to use litigation finance should turn largely on a claimholder’s cost of capital vs. the cost of capital that will be charged by the funder.

To illustrate, if a litigation funder, such as Lake Whillans, were to offer to invest $2 million in a claim that was worth $20 million and was expected to last one year in exchange for 10.5% of the proceeds, then it would make sense for most businesses to use litigation finance in that instance. If the claim was successful, the funder would be entitled to $100,000 profit, the equivalent of a 5% return. Meanwhile, the business could use the $2M that it did not have to use for the litigation to grow the business (presumably by more than 5% in one year), and also enjoy the benefit of not bearing the risk of loss in the litigation.

Of course, a funder may demand a larger portion of the proceeds, in which case the business may have a more difficult decision. The crux of the matter, though, rests in the cost of capital that is being charged.

NG: How do you market your services to law firms and individuals who want to fund litigation?

JB: We devote significant time and energy toward educating lawyers, clients and judges about the salutary uses of funding. While there has undoubtedly been an increased awareness of litigation funding, a majority of lawyers and clients who would benefit from funding are either unaware of it altogether or misunderstand what it is and how it works. To address this knowledge gap, we give presentations at legal and business conferences and provide CLE programs to law firms, among other things. 

AB: When it comes to firms, we make sure they know that crowdfunding isn’t just for charities or pro bono work, though it certainly can be a powerful tool for both. But many valuable cases are being brought by firms—or could be brought by firms—that suffer for a lack of resources. In those cases, crowdfunding can be a great help, because it raises funds, draws together communities, and generates an extended discussion related to issues.

We often reach out to individuals who have a case through their legal counsel. This has the added benefit of ensuring that the lawyer is informed of and on board with the decision to crowdfund. Our model is premised on both the case owner (usually the client) and the lawyer supporting the decision to engage in a crowdfunding campaign.

CDL: Due to the high demand for litigation funding among individual claimants, corporations, law firms and other service providers, and comparatively low level of supply from funders, extensive marketing efforts are not essential to source funding opportunities. While press releases, paid-for press coverage, and other traditional public relations and media efforts are used extensively by other firms in this space, we find that the best opportunities come from organically building and maintaining mutually beneficial relationships with top-tier law firms and other service providers, as many relationships will lead to significant repeat business and third-party referrals. Delta’s goal is to be the funder of choice for the best firms, rather than simply one option of many.

NG: What types of disputes are best suited for litigation finance?

JB: At Bentham, we focus on high-dollar commercial disputes where the expected damages are likely to exceed $10 million (and often far greater amounts) and where the funding sought ranges from $1 million to $15 million, or more. These litigations may involve a wide variety of claims, such as breach of contract, antitrust, patent infringement, and theft of intellectual property, to name just a few. 

AB: At CrowdJustice, we think that crowdfunding is suitable for cases that are in the public interest—whether that is the interest of a local community in supporting one of its members or addressing environmental concerns, or much larger national communities addressing issues of constitutional importance. We are a neutral platform, and we welcome people from all across the ideological spectrum to bring cases on issues of interest to them, but the common denominator among those that succeed is that they tell a compelling story to galvanize others who want to see the litigation succeed.

CDL: Typical claims funded by commercial litigation funders include, among others, those arising out of commercial or corporate disputes, investment and financing transactions, intellectual property, antitrust, environmental matters, and judgment and arbitral award enforcements. These and other commercial claim types are well-suited for litigation finance, provided that the claimant is primarily seeking monetary damages rather than injunctions, performance of non-monetary aspects of a contract, or other forms of relief that are not easily shared with a funder or readily able to be monetized.

ES: The better question is what type of dispute is best suited for each litigation financier. Legalist in particular specializes in small business disputes, and our minimum investment size is only $25,000. One factor that many litigation financiers look for is litigation with a strong damages-to-investment ratio, which means that the amount at stake is significantly greater than the amount needed to litigate.

NG: What are the different types of litigation finance products and how are they used?

JB: At Bentham, we offer: (1) single-case funding (involving a wide range of risk-sharing models), (2) portfolio funding for law firms (against a basket of matters with a contingency component), and (3) working capital for plaintiffs (that they can use for purposes other than the litigation itself). Single-case funding is often used to enable lawyers and claimants to bridge different risk needs (such as where the client wants a full contingency but the lawyer’s firm only allows for a modest hourly discount). Law firms use portfolio funding to smooth cash flow or to enable them to take on more contingency cases. Plaintiffs use operating capital to pursue other immediate needs that cannot wait until their matter is finally concluded.

AB: Crowdfunding is a tool that allows individuals to raise money from a distributed network of people to fund a given cause. At CrowdJustice, we have optimized the crowdfunding model for litigation, by building in unique safeguards to provide both case owners and backers confidence in the process and by developing expertise in shaping crowdfunding campaigns around legal cases. Our platform is used by individuals and organizations—often, but not exclusively, tax-exempt organizations—who build a case page to tell their stories, then use traditional press alongside new social media strategies to reach potential backers. Litigation, because it has the potential to effect concrete change, is a powerful market for crowdfunding.

CDL: A large number of different products exist and vary from funder to funder, but the most common form of litigation financing is the provision of non-recourse funding for legal fees, costs and expenses associated with a legal proceeding in return for a share of the proceeds of such proceedings. Funders also purchase judgments, awards and claims directly from claimants, fund appeals and enforcement proceedings, and lend against claims in certain circumstances. A rapidly growing area that several funders, including Delta, are now focusing on involves the funding of portfolios of claims held by a law firm, a liquidation estate, a corporation, or other party. The structure of such portfolio fundings varies greatly by funder, so law firms and other portfolio holders should be sure to shop around for the product that best suits their needs.

NG: How can law firms use litigation finance to win more business and grow their practices?

JB: Litigation funding helps law firms win more business by, among other things, enabling them to offer prospective clients a wider variety of alternative fee options. For instance, companies that have suffered a wrong and have a good claim will nonetheless sometimes choose not to bring suit because they are unwilling or unable to increase their legal spend. With litigation financing, a law firm can offer its client the functional equivalent of a full contingency, thereby allowing the company to pursue its claims without substantially impacting its bottom line.

AB: For firms that might consider using crowdfunding, whether to assist in aspects of pro bono efforts or as part of a paid representation, the virality of the model is one of its most attractive aspects. Crowdfunding is social by its very nature, which means that a crowdfunding campaign reaches new audiences who have an interest in the underlying work. Those might be potential clients, partners, or just interested parties who support the work.

CDL: Litigation finance allows a law firm to offer its clients alternative or discounted fee structures that would otherwise not be acceptable to the firm from a risk standpoint. By being able to provide legal representation and also source the funding necessary for such representation, a law firm is able to be a full-solution provider for clients that have strong claims but lack the financing necessary to pursue major litigation. This ability is especially important for practitioners working with small businesses, individual investors, bankruptcy and liquidation estates, and other types of clients that commonly have claims against much larger, well-funded counterparties.

LD: Biglaw firms throughout the country have traditionally built high-end business litigation practices by cultivating relationships with the largest corporations and their general counsel, clients that generally were less financially constrained and thus more likely to accept the hourly rate billing structure over the long course of complex litigation. With the advent of litigation finance, and firms such as Lake Whillans, entrepreneurial litigators at large firms have a new path to building sustainable high-end litigation business. Rather than the more traditional focus on companies with relatively unconstrained litigation budgets and strong balance sheets, entrepreneurial litigators at large firms have begun to realize that litigation financing affords them the opportunity to build practices by targeting companies with financial constraints but meritorious claims, often against larger companies, requiring complex and expensive litigation.

ES: One of the biggest constraining factors for law firms (especially small firms and solos) is the need for steady revenue. Often, meritorious cases stall for lack of funding, as lawyers choose instead to devote their time to cases that can pay on a monthly basis. Litigation finance allows lawyers to take on cases where clients seek contingency arrangements, while still providing the law firm consistent monthly revenue.

NG: What ethical issues should lawyers be aware of when approaching a funder?

JB: Lawyers exploring using litigation funding should be particularly careful to protect their client’s confidential material. Attorneys must avoid jeopardizing the attorney-client privilege and work product doctrine. They also need to be mindful not to violate applicable state laws regarding champerty or maintenance. For these reason, counsel should be careful to work only with established funders with a reputation for integrity and transparency.

AB: CrowdJustice is unique in being a crowdfunding platform for litigation. Our model is entirely contribution-based, and money raised through our site is transferred directly to a lawyer’s client trust account to be held for the client as the beneficial owner (or directly to a charity, if a charity is the case owner). Among the benefits of this model for practitioners is that backers of the case do not have any financial interest in the underlying litigation. There is no potential for crowdfunding to interfere in any way with the attorney-client relationship.

CDL: Coverage on ethical issues affecting the funding relationship typically focuses on the prohibitions on maintenance and champerty, the need to protect the attorney-client and attorney work product privileges, and other matters focused on protecting the client from any adverse affects from the introduction of a funder. One issue that is often ignored is the conflict that can be created where a lawyer manages the process of sourcing litigation funding for a client on the assumption that the lawyer will be used to litigate the underlying claims. These two distinct roles are not an issue where the client’s interest are given priority; however, a lawyer may be incentivized to structure the funding process so that the client is steered away from funders that prefer to use a different law firm for the lawsuit or that request attorney engagement terms that the lawyer dislikes. For this reason, it is very important that a lawyer be transparent with its client prior to and during the process of sourcing litigation financing, as well as with potential funders.

NG: What is likely to be the long-term impact of litigation finance on the legal system?

JB: Litigation finance has already begun to level the playing field for small and larger companies with meritorious claims. The practice will expand greatly over time, both for single cases and for law firm portfolios. Strong single cases will no longer be cheaply settled because the injured party cannot afford the cost of litigation or is unable to wait for a judgment. Larger law firms will have portfolios of shared risk in every major practice group. With time, far fewer defendants will employ a litigation strategy designed to “wear down” the other side. It simply won’t make sense to do so.

In addition, as clients increasingly demand alternatives to the hourly billing model for litigation, they will develop a preference for litigation finance over other alternative fee arrangements offered by law firms, largely due to the balance sheet benefits that funding provides for companies.

AB: Crowdfunding is a tool not just to raise funds but also to raise awareness and build communities. The long-term, sustained development of crowdfunding as a viable tool in a litigation context will result in more engaged groups and provide individuals with concrete ways to support causes about which they feel strongly. It will also strengthen firms, charities, and individual practitioners who use it, both by providing them increased resources to do meaningful work and by helping them broaden the base of support for their work.

CDL: The biggest impact will be a revolution in how law firms and other service providers finance their businesses. Large and midsize law firms currently tend to be very risk-averse in large part due to the partnership model, prohibitions on the sharing of legal fees with non-lawyers, and difficulties in borrowing against prospective contingency fees; however, professional funders are beginning to offer new products to law firms that did not exist previously, including debt and equity funding tied exclusively to profits generated by case portfolios, and receivables financing for payments that are contingent on the outcome of an appeal or enforcement. As the use of these products becomes more prevalent by law firms, firms will be able to offer a wider array of alternative billing arrangements to clients, take on larger shares of risk and reward in client engagements, and generally become more flexible in meeting the evolving needs of clients.

LD: Our hope at Lake Whillans is that litigation finance can be a tool to help the legal system more efficiently administer justice. We too often see large companies acting with impunity; breaching contracts, misappropriating trade secrets, etc. All without fear of reproach because their counterparty lacks the resources to mount a challenge in the legal system. Ultimately, litigation finance will allow all companies with meritorious claims to efficiently access the legal system and protect their interests.

ES: At its root, litigation finance creates access to justice. Especially focusing on small business disputes, we see our mission at Legalist as directly helping the little guy get access to the court system. Whether you’re a local ice cream manufacturer in Massachusetts or an antique shop in Santa Barbara, access to justice should not be constrained by capital. The growth of litigation finance delivers that.

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