If you own a small business, you know that every penny counts -- and spending a significant proportion of your monthly or annual profits on legal representation may not be in your budget. However, situations may sometimes arise in which spending a little money can save you much more down the road, especially when it comes to issues like trademark or copyright infringement or bringing a lawsuit against a state entity. For businesses that don't have the cash reserves to keep a full legal team on staff, what are your alternatives? Read on to learn more about how litigation funding works, as well as some of the factors you'll want to consider when investigating this option for your own business.
How do litigation funding arrangements work?
In some types of legal cases, attorneys are permitted to extend a contingent fee arrangement in lieu of an hourly billing rate. This contingency arrangement provides that the attorney or firm will extend services at no cost until the case is settled or a judgment is received; the attorney will then collect a flat percentage of the total judgment amount. This type of arrangement ensures that only meritorious claims are brought to court (as attorneys won't spend their time litigating a case that has little opportunity of a positive outcome) while allowing litigants to bring a claim without needing to have tens (or hundreds) of thousands of dollars in cash up front.
However, not all legal actions are subject to contingency fee arrangements, and there are some situations in which your only choice may be to pay an attorney a retainer and a regular hourly fee until the conclusion of your case. If you find yourself in this situation, litigation funding can be an option. This operates much like a contingency fee arrangement, but it utilizes a third-party lender to provide the funds rather than requiring the attorneys to work on spec. If your case is unsuccessful, you usually won't be required to repay the funds that have been advanced on your behalf; if your case is successful, you'll be able to repay these legal fees with your own judgment.
This lender will work closely with a team of attorneys who can evaluate the merits of your case so that the funding company can be assured it has a high chance of collecting on this cash advance. However, unlike a contingency fee arrangement, in which the attorneys are capped by whatever percentage of your eventual judgment or settlement you've agreed to beforehand, there are no restrictions on the amount of fees that can be incurred in a litigation funding arrangement -- so you could potentially receive a smaller percentage of your total judgment than your legal counsel, or in some cases, very little at all.
What should you consider when deciding whether to seek outside funding for a prospective lawsuit?
When deciding whether it's worth it for your business to pursue litigation funding, there are a few factors you'll want to take into account.
One is the relative strength of your case. Although it will be evaluated by a number of different attorneys (including those you've hired to represent you and those employed by the litigation funding company), you may want to have yet another attorney give your case a quick review and provide you with an estimate of what your claim could be worth. For example, if you're pursuing a trademark infringement action against a larger company with much deeper pockets, you may be able to expend more than anticipated in legal fees; however, pursuing the same trademark infringement against a company much smaller than your own can minimize your odds of a high recovery amount.
Another factor to consider is the duration of this case. Stretching out a litigation funding arrangement for several years or more can add cost and hassle to the process, while resolving a case quickly can make litigation funding a great option.
For more information about litigation or case cash funding, talk with a lender in your area.
Share6 March 2017
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