By: Jim Batson, Investment Manager and Legal Counsel
In recent years, the legal industry has seen a dramatic uptick in demand for alternative fee arrangements (AFA’s). Corporate Counsel magazine observed in December 2016: “Now that legal departments have access to more technology and data than ever before, could 2017 be the year alternative fee arrangements [AFAs] may finally become the new standard? (see “Finally, Will 2017 Mean R.I.P. for the Billable Hour”).
With discounts and flat fees increasingly becoming an expected element of pitches to clients, firms face the challenge of proposing ever-more unique value-adds in order to win new business. Outside counsel who integrate litigation funding into their pitches demonstrate a true understanding of the risks and costs of litigation and a cost-effective plan for remedying the legal challenges their clients face. Litigation funding gives clients greater fiscal flexibility, while helping them - and their firms - protect their bottom lines. Proposing it as a means for financing a case helps lawyers show consideration for a client’s internal business operations and an interest in helping them succeed while also meeting budget expectations.
Most litigation ends up on a corporate balance sheet as a major expense and can be seen by a general counsel’s fellow C-suite executives as a potentially risky drag on EBITDA and earnings. Third-party funding can clear a path for in-house counsel to pursue litigation without negatively affecting the bottom line or corporate earnings. A funder’s involvement can reduce the company’s litigation outlay, and, because the funder is financing much of the expense, the company’s financial team can remove a significant portion of the litigation costs from the expense line on a profit-and-loss statement.
As an objective outsider, a funder also provides an additional level of scrutiny into a claim, giving the company greater confidence that its litigation effort is worth the risk. Funders closely analyze cases, and while they cannot ensure that a claim will be successful, they invest only in those cases that they strongly believe will succeed.
For outside counsel, litigation funding allows a firm to reduce its own costs and find a way to satisfy clients without deeper-than-usual rate discounts. A funder may also help firms that are uncomfortable providing a full contingency option create a hybrid proposal, which would allow the client to benefit from a contingency arrangement while also allowing the firm to take more measured risk.
To learn about the ways litigation funding can be used to help your firm provide alternative fee options, contact us for more information.