Here at the Law Office of Vincent Miletti, Esq. and the home of the #UnusuallyMotivated movement, we take pride as a resilient and dependable legal services firm, providing such services in both a traditional and online, web-based environment. With mastered specialization in areas such as Employment and Labor Law, Intellectual Property (IP) (trademark, copyright, patent), Entertainment Law, and e-Commerce (Supply Chain, Distribution, Fulfillment, Standard Legal & Regulatory), we provide a range of legal services including, but not limited to traditional legal representation (litigation, mediation, arbitration, opinion letters and advisory), non-litigated business legal representation and legal counsel, and unique, online legal services such as smart forms, mobile training, legal marketing and development.

Still, we, here at Miletti Law®, feel obligated to enlighten, educate, and create awareness, free of charge, about how these issues and many others affect our unusually motivated® readers and/or their businesses. Accordingly, to achieve this goal, we have committed ourselves to creating authoritative, trustworthy & distinctive content, which looks to not only educate, but also deliver in a manner that only Miletti Law® can. Usually, this content is featured as videos posted on our YouTube Channel https://www.youtube.com/channel/UCtvUryqkkMAJLwrLu2BBt6w and blogs that are published on our website WWW.MILETTILAW.COM. With that, the ball is in your court and you have an effortless obligation to subscribe to the channel and sign up for the Newsletter on the website, which encompasses the best way to ensure that you stay in the loop and feel the positive impact of the knowledge bombs that we drop here!

In line with our commitment to keeping you informed and educated, this blog introduces you to our video titled “The Rule Of 6 In Litigation Financing (The 6-6-6).” Per the title, this blog aims to enlighten you about the basis of litigation financing. Over time, the popularity of litigation financing has grown by the day, primarily due to the growing costs of litigation and budgets. While our own Miletti Law® generally runs far cheaper than some of the larger firms, most other firms charge significant amounts.  I have been in the industry now for about 15 years and have seen thousands of budgets. I have seen defense side budgets ranging from $300,000 to $700,000, but plaintiff-side budgets are no different. Any plaintiff-side budget could easily run into the hundreds of thousands of dollars, ripe with vendor fees and costs, third party administrator costs, and other costs that can really get out of control quick. In light of this matter, this blog utilizes 3 “Rules of 6” that act as a guide into understanding the ABCs of litigation financing. Also— for those of you would get it, yes the 6-6-6 reference was intentional.

First Rule – Why Seek Litigation Funding?

Generally, litigation funding involves a situation where a third party, probably a financier, investor, financing company, or venture capital, offers to provide finances and, consequently, cover litigation expenses. However, such third parties always factor in the possible outcome of litigation before providing the finances. Accordingly, the following are the six reasons why you would want to seek litigation funding:

  1. Non-recourse– this means that, in most cases, claimants have nothing to worry about even if a lawsuit fails to move forward.
  2. Risk reduction– litigation funding helps plaintiffs reduce risks in situations where the stakes of losing their own money are high.
  3. Best for strong brands / principled advocacy – This is very convenient for principal brands or plaintiffs who are more concerned with protecting their brands instead of recouping any of their money back.
  4. Reality check – litigation funding also serves as a reality check for plaintiffs, especially when a lawsuit is not worth the amount it seems to be.
  5. Focus more on litigation & less on funding – since funding is provided by the financier or venture capital, the defense or plaintiff’s side can pay more attention to the lawsuit instead of looking for funds.
  6. High upside– generally, with returns as high as four to seven times the initial investment, the financier or venture capital has a higher chance of reaping big.

A primary concern regards who controls the pace of litigation. Generally speaking, any reputable financier, venture capital, or funding company would want to remain neutral & passive and have an independent attorney working on its claims. Thus, in order to align with the interests of the claimant, it would be advisable to let an independent attorney control the funding.

Second Rule – When is the Case Desirable to Litigation Funding?

This is a very sensitive rule when it comes to litigation funding. Funny enough, only about 3% – 4% of litigations qualify for funding. As the second rule of 6, a financier, venture capital, or funding company would want to consider the following set of factors to decide whether a case is desirable for funding:

  1. Merit– if the claimant is found to be legitimate and the lawsuit has a high likelihood of success, then a funder may find the case desirable.
  2. Claimant motivation– a funder may be discouraged or demotivated by an irrational, vindictive jerk of a claimant.
  3. Claimant attorney– claimants with reputable, influential attorneys known to win cases have a higher likelihood of getting a funder for their litigation.
  4. Proper budget – while budgeting in litigations is critical, the claimant side ought to have a reasonable budget on hand. However, most funders will manage to provide funds for reasonably higher budgets.
  5. Damages – a funder may also factor in the level of damages. This means that the more the damages are, the more desirable the case will be for funding to a funder.
  6. Easy of recovery– a funder may find a case undesirable for funding if, based on the principle of judgment proof, the defendant is likely to go bankrupt and has no assets.

Third Rule – How Does the Contractual Relationship Work?

  1. Definitions– this part regards the terms and particulars of relationships. While the litigation, claimant, defendant, & funding company should be specified and described adequately, the definitions must indicate where the litigation is recourse or non-recourse.
  2. How it is funded – most funders, especially capital ventures, have lots of capital at disposal and would be willing to fund any desirable case.
  3. Representations & warranties – the reps & warranties that a claimant requires to comprise a crucial part of the contractual relationship in litigation funding.
  4. Termination of the relationship – factors that affect and determine the termination of the contractual relationships should also be considered, especially when parties are unable to resolve disputes that arise or when one party fails to comply with directives of the independent attorney.
  5. How proceeds would be distributed – this concerns the formula and the amount of proceeds to be distributed between or among the prevailing parties. For instance, the funder should probably be prioritized when distributing the proceeds.
  6. Covenants – all parties involved should agree to goodwill for as long as they are involved in the contractual relationship. For instance, they should promise to use their best efforts to resolve issues or disputes that arise and faithfully engage in the arbitration process.

In a nutshell, although only about 3% – 4% of cases qualify for funding, litigation funding is a promising area of investment. There are substantial and highly viable lawsuits requiring funding day in day out, and thus, funders should probably be willing to take more risks.

Please, feel free to view our video at https://www.youtube.com/watch?v=WHClI9PRaFw.

In the meantime, stay tuned for more guidance and counsel and always be #UnusuallyMotivated. In the interim, if there are any questions or comments, please let us know at the Contact Us page!

Always rising above the bar,

Isaac T.,

Legal Writer & Author.