Case Study: How Appeals Funding Can Help Parties Monetize Judgments

November 20, 2019

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By Connor Williams

Lengthy lawsuits and drawn out appeals can heighten emotional stress, financial costs, and litigation risks for lawyers and plaintiffs. Appeal Funding can help reduce these burdens, allowing parties to stay the course to reach an appropriate merits-based, rather than cost-driven, resolution.

Background

The following case study explores a hypothetical scenario in which a fictitious, small start-up company (“Sun Blocks LLC”) has developed a new, more efficient solar panel that it intends to market to homeowners as replacements for older panels or for traditional energy forms. Sun Blocks is a small company formed by engineers; it has little commercial or marketing experience. So, when a slightly larger fictitious competitor (“Panel Gap Inc.”) reached out about a possible joint venture or merger, Sun Blocks signed a mutual NDA and took the meeting, where it explained confidential details about its proprietary technology to Panel Gap representatives.

No joint venture or merger resulted, but six months later, Sun Blocks discovered that Panel Gap was marketing a new product that appeared similar to Sun Blocks’ own product. After purchasing one and examining it, Sun Blocks filed suit in state court against Panel Gap for theft of trade secrets, breach of contract, and other related claims.

Trial and Appeal

After months of briefing and a two-week trial, a jury returned a verdict in Sun Blocks’ favor with $12 million in economic damages, and another $12 million in punitive damages. While the victory validated Sun Blocks, it came with substantial costs: Sun Blocks retained its trial counsel on an hourly fee basis, and the pending litigation distracted the company from its core goal of growing the business.  

Further, following post-trial motions, Panel Gap filed a notice of appeal. Sun Blocks is confident of their ability to prevail on appeal, but it is also wary of the various risks and costs posed by continued litigation:

  • Timing Risk: The initial appeal would likely take between 10-12 months to resolve – at which point the losing party could appeal again to the highest court in the state for another 10-12-month process.

  • Legal Risk: Although Sun Blocks has a jury verdict, strong legal arguments, and favorable standards of review in its favor, the appeal is not without risks. Specifically, Panel Gap’s appeal contains a legal issue of first impression in the state that would essentially be a possibility for either party. If the appeals court rules as anticipated, it would not reach the issue, but an unexpected outcome on another issue could trigger a waterfall effect on the ruling – and make it much more likely that the state’s highest court would take an interest and grant further review.

  • Collectibility Risk: At the outset of the trial, Panel Gap was a market leader. In the ensuing months, though, its business has levelled off, and of course it now also faces a $24 million judgment. Panel Gaps is a privately held company, so there is no solid data on its financial health. It filed a $12 million bond on appeal because it did not need to cover punitive damages with the bond amount.

Litigation Funding Opportunity

Sun Blocks approached Bentham IMF seeking to monetize part of its $24 million judgment. Its goal is to free up capital without waiting for the conclusion of the appeals process so it can shift more of its focus to business growth – particularly at a time when it senses weakness from Panel Gap – and to hire counsel that specializes in appeals for this next phase of litigation.

Bentham is able to provide Sun Blocks with $3 million in capital, representing 25% of the judgment award, excluding punitive damages. Like all of Bentham’s investments, the capital is non-recourse: if Sun Blocks is unsuccessful on appeal or if the large verdict pushes Panel Gap into bankruptcy making full collection difficult or impossible, it will owe nothing and will be free to use the $3 million as it always intended.  

Conclusion

At Bentham, we provide funding that allows lawyers and clients to monetize a portion of their judgments while appeals are pending. This provides immediate access to a portion of the judgment while mitigating the risk and stress of seeing it reversed or reduced.

To learn more about litigation financing and how your company can benefit from using it to unlock the value of appeals funding, contact us for a consultation. Or, visit our Litigation Finance Education Center where we offer CLE seminars to law firms and companies and to find our recent client podcasts, blog posts and videos.