Litigation Finance is an interesting field. Although it has technically been around in a small form since the 19th century, it has not blossomed as an industry until the last decade or so. Even still, it is still not a common knowledge option for plaintiffs and defendants. In fact, many law offices are not aware of litigation financing, however, more and more Fortune 1000 companies are adopting the practice.
There are eight types of litigation finance that we have identified. Our blog will cover all eight of these as part of a series. Today we will focus on “Alternative Fee”. However, the other types of financing are Lines of Credit, Non-recourse advances, judgement de-risks, liability management, structured settlements, settlement monetization and fee acceleration.
We should mention we do not necessarily recommend or condone using litigation financing, and any use of such should be consulted with a qualified attorney. This blog is for informational purposes only.
What is Alternative Fee Litigation Financing?
Alternative Fee Litigation financing is simply the financing, lending or other funding of a law firm’s Alternative Fee arrangement. “Alternative Fee Arrangements” are simply any payment plan that a law firm arranges with a client that is not the standard ‘bill at an hourly rate.’
A great example is the contingency fee, in which (typically) a plaintiff attorney will agree to take on a case without charging the client, and will only collect fees from a settlement or judgement.
Another commonly used alternative fee is flat fees. This could be your neighborhood street corner law office advertising divorces or bankruptcies for $600, or it could be a negotiated flat fee of millions of dollars to defend hostile take-overs of billion dollar companies.
In this sense, ‘alternative fee’ financing isn’t too different than a line of credit. The most common use of this is a law firm taking financing for a contingency case, to help cover the many upfront costs of court filings, research, salaries, and other legal expenses.
Typically, defense work is not done on contingency, but certain types of predictable plaintiff work can be done on contingency. For example, a personal injury firm can safely assume the outcome of a case, and thus offer contingency. Most business litigation is far more complicated and expensive for everyone involved, thus contingency business litigation does not usually happen.