The Key Benefits of Litigation Financing

When a strong and deserving legal claim is financed through litigation funding and goes on to achieve a successful outcome in recovery or settlement, it’s truly not an understatement to say that everyone involved wins big.

The plaintiff walks away with the large majority of what they were awarded by the courts, with the added bonus of having successfully avoided tying up their financial resources throughout the case’s likely lengthy duration. The litigation financiers get to rake in the extremely attractive returns — per Steven Friel’s The Law and Business of Litigation Finance, they’re often pocketing between three and five times more than their initial investments. On top of that, they also get to flex their good samaritan muscles by giving their claimant fair access to justice. Lawyers get to enjoy having an extra win under their belt, and potentially were able to take on the case due to financing, if lack of funds to pursue it was a pressing issue. Really. Everybody wins.

When a strong and deserving legal claim is financed through litigation funding and goes on to achieve a successful outcome in recovery or settlement, it’s truly not an understatement to say that everyone involved wins big.

The plaintiff walks away with the large majority of what they were awarded by the courts, with the added bonus of having successfully avoided tying up their financial resources throughout the case’s likely lengthy duration. The litigation financiers get to rake in the extremely attractive returns — per Steven Friel’s The Law and Business of Litigation Finance, they’re often pocketing between three and five times more than their initial investments. On top of that, they also get to flex their good samaritan muscles by giving their claimant fair access to justice. Lawyers get to enjoy having an extra win under their belt, and potentially were able to take on the case due to financing, if lack of funds to pursue it was a pressing issue. Really. Everybody wins.

Increases Access to Justice

There are a multitude of different reasons why a potential claimant might shy away from pursuing a worthy dispute. Most of these reasons revolve around financial hesitation. The biggest, and perhaps most obvious reason, is that they simply can’t afford to push their case through. Lawsuits are expensive and slow-moving. For many, the price tag for a resolution is an uncrossable hurdle. Others might be able to afford their legal costs, but are generally risk-aversive and don’t want to end up accruing the associated debt should the outcome not be in their favor. In another camp, there are the tentative litigants who might be willing to take a gamble but don’t want to deal with having their money locked up for quite possibly multiple years without the guarantee of getting it back.

Litigation funding remedies all of these issues. It provides capital to those that don’t have it so that they can seek justice. It takes the stress off of the table for those vacillating due to risk, or those that need the flexibility of having full access to their finances — so that if they want to start a business, get a degree, or buy a home while in a legal dispute, the piling costs aren’t holding them back. You may be asking yourself, how does litigation funding remove the financial pressure? Simple. When claimants enter into a litigation finance contract, they are typically non-recourse. This means that if the case doesn’t reach settlement or recovery isn’t granted, then the client isn’t obligated to repay the investor. This is a huge sigh of relief to any plaintiff if money is causing legal action reluctance. As previously touched on, plaintiffs still retain the bulk of the profit when they sell a portion of their case if it ends favorably for them. If it doesn’t, they are no worse off from where they started.

Levels the Playing Field

There’s certainly some irony in the fact that litigation financing is a rather new (or revived) industry due to fears surrounding it catalyzing court system imbalance, as it is currently proving itself to be a powerful equalizer.

The idea that this form of financing can be abused stems from medieval England when feudal lords and high society members would fund claims made against their political and personal enemies for sport. This ended up creating and prolonging petty cases, and/or penalizing the sincere claimants caught in the crossfire. Fortunately, our 21st-century court systems are much less corruptible and exploitative. In a modern context, litigation financing is bringing focus back to a case’s merit, instead of putting it on who can write the biggest paycheck.

When access to legal representation is separate from socioeconomic status, court decisions naturally become more impartial. This is a huge shift away from traditional scenarios in which it wasn’t unlikely in commercial settings for new businesses to get squashed by big, established conglomerates due to lack of capital. In this regard, litigation financing is incredibly exciting and humanizing market working for the people, rather than against them.

Builds Bargaining Power

As it can easily be gleaned by this point, legal representation costs money, and the courts are fairer places when both sides have the amount of it they need to fully make their case. When there’s disparity, injustice has the potential to rear its ugly head.

When a claim is appropriately funded, the claimant is opened up to a wealth of opportunity they wouldn’t necessarily have otherwise — like bargaining power. If a dispute makes it to settlement, a plaintiff unconcerned by finances is going to act differently than an exhausted plaintiff coming from a position of desperation. Litigation financing acts as a form of leverage for the former, giving them leeway to not default to the first offer made, particularly when it isn’t an impartial one. Through having access to capital, claimants are empowered to realize the full scope of what a successful case conclusion means to them.

Case Study

One of the most famous examples of litigation financing comes from the 2016 lawsuit Hulk Hogan v. Gawker. Hogan, born Terry Bolleau, sued Gawker for invasion of privacy after the media company posted a sex tape featuring Hogan and his friend’s wife.

Hogan, unable to carry the burden of his accumulating legal fees in the four-year-long battle, was eventually financed by Peter Thiel, PayPal co-founder and first outsider investor of Facebook. This was seen as controversial, as Thiel had a well-known bone to pick with Gawker after they outed him as gay. Though Thiel’s personal opinions on the company should’ve been seen as irrelevant, as suggesting that it would make the legal battle less fair somehow would be to suggest that the court itself is unprincipled or inept — as all his funding had the power to do was to keep the case going until it reached a court decision.

In the end, a jury awarded hogan a 140 million USD judgment. Gawker stated publicly that they would appeal, but ultimately chose to settle with Hogan for a cool 31 million instead. Gawker was heavily impacted financially by paying out the settlement and filed for bankruptcy that summer. They sold the company to Univision a couple of months later for 135 million USD.

Through Thiel’s backing, Hogan was able to bring his case to a conclusion and claim a settlement rather than automatically having to pull out when he was financially drained, only to drown in previously-accrued legal debt. Without litigation financing, this case would’ve taken a much different, darker direction. Thankfully, Hogan was able to well-deservedly make it to the end and reap the associated rewards.

How Liti Capital Makes a Difference

At Liti Capital, our first-of-its-kind, blockchain-backed equity token serves as a means to get more funding to more deserving plaintiffs, and to generate impressive returns for our investors while we’re at it. As LITI tokens represent shares in our company, consider investing in us to help us make the court systems that much fairer. Click here to learn more.

Liti Capital SA is a fintech private equity company on the blockchain, providing a complete solution of strategy, case management and litigation financing.