Litigation finance has proved a game-changing innovation for claimants lacking the resources or appetite to pursue meritorious commercial litigation claims. In many cases, its availability has leveled the playing field in cases where claimants could have been rapidly defeated by defensive tactics typically utilized to bleed plaintiffs dry and force settlements for pennies on the dollar.
While Bentham IMF appreciates the role it can play in giving plaintiffs the resources they need to have a fighting chance in cases where the strength of their claims merit pursuit, we must exercise caution when making investments.
As such, when reviewing a legal matter (or group of legal matters in the case of portfolio funding) to determine whether it is suitable for investment, Bentham assesses several determinative factors, including the following:
(1) the type of case;
(2) the strength of the case;
(3) whether the case is time-barred;
(4) the jurisdiction in which the case will be heard;
(5) the strength of the documentary evidence supporting the case;
(6) the legal or factual risks;
(7) the range of potential damages;
(8) a realistic view of the settlement prospects;
(9) whether counsel is on a contingency fee arrangement (full or partial);
(10) the likely length of time to resolution;
(11) the amount of capital required to successfully prosecute the case; and
(12) the defendant’s ability to satisfy a judgment.
Bentham pays all outside counsel fees incurred in the process of assessing its investments. In exchange for that benefit, we request the opportunity for a minimum of three to four weeks to have exclusive rights to invest in the case (the exact time frame is set forth in an otherwise non-binding term sheet and is somewhat dependent on the nature and complexity of the legal matter(s) at issue).
Clients are often delighted to learn that our diligence is conducted at no cost to them. However, they are sometimes surprised to learn that it is so far-reaching and takes as long as it does. Of course, litigation is inherently complex and risky, and the non-recourse nature of the investment means that Bentham must gather and review a large amount of information (note that the above list has twelve factors, and isn’t even comprehensive!) about matters that are often still shifting from day-to-day even as they are being analyzed.
While some of the important factors listed above are outside of their control—the defendant’s ability to satisfy a judgment, for example—there are some things that a potential client can to do help the diligence process move forward in a quick and productive manner:
1) Have case documents organized on hand: The earlier a potential client can share documentary evidence about a matter, the better. Sometimes simply sharing documents via email works well, but in more complicated matters, setting up an online data room through a service such as DropBox can be a more efficient way to share a large amount of data.
2) Have an idea of potential damages and a settlement amount in mind: Bentham bases its investment decisions on its determination of how much a case is worth. Often, this can be tricky for non-lawyers to determine, but potential clients should at least have an initial range in mind, as well as a preliminary idea of what size offer they would accept to settle the matter. Bentham recognizes that these numbers are subject to change over the course of a litigation, but even a rough back-of-the-envelope idea of value early in the diligence process can be helpful.
3) Talk to counsel: Potential clients sometimes see this as a chicken-or-egg problem. How can one hire counsel without first obtaining funding? The reality is that law firms might consider, or even perform a preliminary review on a case before entering into any formal fee arrangement, and that review will likely address many of the same factors listed above. Having at least preliminary answers to questions about certain case details—e.g., whether the case is time-barred, the amount of capital needed to prosecute it, etc.—can help move the diligence process along. Bentham recognizes that finding counsel can be a daunting process for those who aren’t litigation veterans. As former litigators ourselves, we have helped potential clients identify suitable counsel to help maximize the chances of success in their matters.
4) Communicate, communicate, communicate: Strong lines of communication between Bentham, the potential client, and the lawyers are key for a smooth diligence process. Often, Bentham’s review of a matter will result in new rounds of questions or requests for documents, and timely responses from potential clients and their lawyers can help ensure that the process doesn’t bog down. The reverse is true, too: potential clients and their counsel may have questions about diligence, financing terms, or other parts of the process that they should feel free to bring to Bentham’s attention. A core tenant of Bentham’s business is that the litigation finance model works best when all parties’ interests are aligned, and that starts from the very beginning of Bentham’s engagement.
Regardless of the diligence outcome, we have heard from clients that it has been helpful in identifying and strengthening potential weak points in their cases. The bottom line is that, while diligence can be a lengthy process, it is not a black hole: potential clients, their lawyers, and Bentham should all view the process as a chance to answer pertinent questions to make sure that all parties are on the same page as quickly as possible.
With these tips in mind, if you would like financing for a case, please contact us for a consultation.