We will continue our litigation financing with an exploration of non-recourse litigation funding.
This tool is the largest in the industry of litigation financing. The concept has been around for quite some time, and was written about in the European Medieval times as Champerty. It essentially comes down to a third party ‘backing’ one of the two opposing parties in a suit. Motivations are wide. In some cases it helps a party who would not otherwise be able to participate in a legal dispute have the resources to do so. In other cases, it is for profit or investment.
What Does Non Recourse Financing Mean?
Non Recourse means that the lender (also known as ‘financier’) will not have any options to recover their money if the party they financed does not receive a financial award/judgment. When a legal financier backs a plaintiff, they do so with the knowledge that if the plaintiff losses the case, they will not make back their money.
In a way, this is similar to when an attorney takes a case on contingency. The attorney understands that the time and energy, in addition to salary, research, processing and court costs sunk into the case will not be recovered should they lose the case.
Often, a plaintiff may not be able to find an attorney that works on contingency for their particular case. They have to pay the attorney in cash. Thus, if the plaintiff is okay with the prospect of sharing large percentages of the potential award, in exchange for upfront funding, non-recourse litigation financing is a low risk way of ensuring one has the resources to continue the suit.
What is in it for the financiers?
While we aren’t the world’s foremost experts in litigation financing, we assume that most financiers don’t just ‘bet’ on cases like it was a roulette table. Likely, there are modeling algorithms used, similar to what insurance companies use. These modeling processes can take a case, and assess it’s likelihood of award based on case history of similar cases. That is why cases on obscure topics, or on matters of law that have not been tried yet, are not as likely to receive funding.
One can even find litigation financiers that have ‘niched down’. That means that their primary focus is only investing in cases around a certain topic, as they have invested significant resources in understanding and evaluating cases of a certain topic.
Is Non Recourse Funding Right For Me?
One should absolutely consult with an attorney specifically on litigation financing. Certainly, when a specific offer is on the table for a plaintiff (or would-be plaintiff,) looking at the specific terms is crucial to make sure that the plaintiff completely understands and is amenable to the deal.