Beyond Single Cases: Litigation Funding for Law Firms
This week, Bentham Canada received its 200th request for litigation funding. The vast majority of our inquiries have been for single cases, but there is a growing interest in portfolio funding. Under this model, a law firm obtains funding to advance a basket of cases, all of which are being handled on a contingency (or partial contingency) basis. The key features of law firm portfolio funding are:
- Three or four independent cases: Ideally, the portfolio cases have different causes of action, often for different clients. For example, the basket could include a contract dispute, an oppression claim, a class action, and an intellectual property matter. The connection between them is that the same law firm is acting.
- Discretionary use of investment: The funder provides the law firm with capital to advance the cases, which can be used for hiring new staff, disbursements, associate salaries, partner draws, etc. The law firm has the discretion to allocate the funds as needed.
- Multiple Return: Rather than taking a percentage of the client’s recovery, the funder’s return is a multiple of the funds it has advanced. The multiple reflects the duration of the investment, and typically ranges from 2X-3X.
- Non-Recourse: The law firm repays the funder’s investment and its return from any of the cases that result in a recovery. If none of the cases in the portfolio is successful, the law firm pays the funder nothing.
- Adverse Costs Coverage: As part of the arrangement, any costs awards in the cases within the portfolio can be covered.
- Agreement with the law firm, not the client: A portfolio funding agreement is with the law firm, not the law firm’s client. From an accounting perspective, it’s neither debt nor equity – it’s a non-recourse investment in the success of the firm.
Bentham has funded over a dozen portfolios in the U.S. and in our experience, it appeals to three types of law firms:
- First, those looking to move away from the hourly fee model and take cases on a contingency basis, but who want to maintain cash flow and reduce the risk.
- Second, those with an existing contingency fee practice who want to generate extra cash flow, often to expand their practices.
- Third, lawyers looking to launch a new litigation boutique, as the funding enables them to offer creative fees and litigate the most interesting cases with the highest potential return, rather than being pushed into hourly fee work to meet cash flow needs.