Litigation Finance (Part II): Early Adopters Have the Most to Gain During an Economic Downturn

The full impact of the COVID-19 pandemic remains unseen, but without a doubt, litigation will increase from the pandemic’s reverberations throughout the economy. Countless lawsuits will involve customers and suppliers, tenants and landlords, employers and employees, and insurance policyholders and their providers.

Litigation finance, as mentioned here before, recognizes legal claims as assets and provides businesses an opportunity to spread out the economic risk of litigation. During strong economic times, litigation finance may enable a business to pursue a complex and expensive claim against a larger and financially well-endowed party. During an economic downturn, litigation finance provides the same benefit and also avoids cutting into operating expenses.

Over the last two years, a myriad of advisory opinions (e.g. Illinois, New York, California, American Bar Association), bills, and new legislation (Wisconsin and West Virginia) have paved the way forward for litigation finance across the country and meted out varying degrees of regulation and transparency. As litigation claims rise and regulatory developments continue, litigation finance shifts to becoming the new “normal.”

Historically, businesses have viewed litigation as a cost center to their operations, but perhaps businesses should revisit that assumption and begin to consider litigation, through litigation finance, as a profit center or cost-cutting opportunity. The early adopters to this shift will have the most to potentially gain.

Given that federal courts sitting in Ohio and state courts have put in place various types of scheduling orders, which effectively stall or change the traditional timeline for most cases, now presents a unique time for businesses to consult with their internal legal department and/or outside counsel (or find outside counsel) to identify and evaluate potential claims/and exposure worthy of financing. Once potential claims or exposure have been identified, your counsel can work with you to secure funding or take steps to mitigate your company’s exposure risk to litigation.

While litigation finance may not be appropriate in all cases, businesses should take a proactive approach to addressing their legal assets, which ultimately is a good business practice and may provide much-needed relief during this economic downturn.

This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.

Barnes & Thornburg LLP is a large, full-service law firm that seeks to take a more entrepreneurial and cost-effective approach both to client service and its own business.