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Litigation Funding: Business Protection in Uncertain Times

Date: 04.13.20

By Joel S. Neckers, Partner

This article from Wheeler Trigg O'Donnell LLP is intended to provide general information. It is not legal advice and does not create an attorney-client relationship between the reader and Wheeler Trigg O'Donnell. No legal or business decision should be based solely on the content of this article.

“You never get anything unless you ask for it.” That was one of the first lessons an early mentor taught me as a litigator.

The lesson resonates loudly today as business clients navigate the uncertain waters of the coronavirus pandemic. Uncertainly may lead some business owners and in-house counsel to hesitate or to unnecessarily limit their options in the face of business disputes, even when they have meritorious claims.

We don’t know how the world will look after the coronavirus pandemic. But we can bet there will be countless new legal disputes that will require creative thinking to solve and pay for. Enter litigation funding sources.

What is Litigation Funding?
Litigation funders are investors. They front the money for an initiative in exchange for a share of the possible recovery. Instead of an enterprise, service, or product, the investment is a legal action.

This is an evolution of the common practice of taking cases on a contingency fee. Instead of lawyers assuming the risk, however, the third-party litigation funder accepts that risk.

The practice has perhaps historically been viewed pejoratively by some. Yet for established and emerging clients alike, who today face significant threats from coronavirus-related business disputes—and simultaneously experience greater budget restrictions due to economic uncertainty—that should no longer be the case. And law firms that may once have viewed third-party funding as unnecessary may today find the prospect appealing, given the challenges facing law firms during the pandemic.

When Might Litigation Funding Help?
Consider a few real-world examples that have arisen since the coronavirus struck.

  • Your business or joint venture partner—who previously agreed to invest millions of dollars with you on a project—refuses to pay for prior or future expenses, leaving you in the lurch.
  • A commercial real estate investor tells me that several large tenants recently said they will not pay their rent until the country “opens up” again and thereafter they would only pay 50% of their contractual obligation through the end of the year.
  • Elsewhere, Chef Thomas Keller and his world-renowned restaurant, The French Laundry, sued insurers for business losses associated with the COVID-19 pandemic.
  • And many companies have already invoked force majeure clauses (or had such clauses invoked against them) claiming millions of dollars in damages related to the COVID-19 pandemic.

Many of these situations were unimaginable six weeks ago. Today they are all too real, and they will surely be part of the new reality going forward. For the businesses on the receiving end of these disputes, litigation funding may offer a way to protect business priorities while helping to manage budget limitations.

“Now What?”
When the acute phase of this pandemic ends, the world will look different. Many companies may face further crises involving force majeure clauses in contracts. Business interruption insurance may or may not cover the losses. Competitors may exploit the crisis in ways that harm your company economically or otherwise. And the money may not be readily available to ask judges and juries to protect your rights.

As a business owner or in-house lawyer, your natural question may be, “Now what?”

If you have meritorious claims, litigation funders may be willing to invest in your case to help achieve the result you are looking for, using the counsel you choose. The economics of such a relationship need to line up on all sides (meaning that the size of the case and the potential reward must be sufficient to make the exercise worth everyone’s time and effort). But when those stars align, your meritorious claim has the potential to be a win-win for everyone involved.

In a time when nothing seems certain, my mentor’s lesson does: You won’t get anything unless you ask for it. As a business owner or in-house lawyer charged with protecting your company’s interests, it is similarly certain that you can never win the arguments you don’t make.

So if your company has sidelined meritorious claims because of strained finances or perceived risk, consider litigation funding to help you assert your rights and protect your assets.

For more information, contact WTO partner Joel Neckers.

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