Litigation Finance Industry Matures and Expands Across the US and in Law Schools

In 2023, Ralph Sutton, CEO, and founder of Validity Finance examines the development of the litigation finance industry, including its recognition as a reputable field and expansion into new regions and law school curriculums. He emphasizes that insurance brokers will play a crucial role in minimizing risk for investors and increasing profits. Despite any potential economic instability, the growth of commercial litigation finance is expected to continue as companies of all sizes struggle with the high cost of the legal system and turn to litigation finance professionals to share that cost in business-to-business disputes.
 
Litigation Finance Industry Development and Expansion
 
In the past year, the court system returned to its usual operations, with a few new players entering the litigation finance market. However, investors reportedly decreased their investments in untested teams. There were no major controversies among established commercial funding groups and no new regulations were imposed by the federal committee on the rules of civil procedure. Despite the ongoing criticism from the US Chamber of Commerce that litigation finance causes unnecessary lawsuits, national security issues, or harms to the legal system, the industry has continued to develop and expand, proving itself as a valuable tool for ensuring access to justice.
 
Expansion to New Cities and Insurance Growth
 
New Cities Will Discover Funding
 
The use of litigation finance is expected to expand to more legal markets as more lawyers and clients become familiar with its advantages. Major funders have already established a presence in several major cities including New York, Chicago, Los Angeles, San Francisco, Boston, Washington, D.C., Miami, Houston, Dallas, Phoenix, and Minneapolis. This expansion is expected to continue to smaller cities, such as Denver, Palo Alto, Seattle, and Salt Lake City. As awareness and understanding of litigation finance increases, so will the demand for its use in funding legal cases. While these cases may not be as large as those seen in major cities like New York, they will still be noteworthy in their own right.
 
Insurance Growth
 
Insurance companies have been increasingly involved in litigation funding in the past year, with insurance brokers working to educate carriers about the market and potential opportunities. In 2023, more brokers are expected to enter the market. This past year, holders of large judgments have also sought and obtained insurance coverage for appeals and were able to borrow large sums against A-rated policies. Funders with established track records have also raised capital with insurance coverage, reducing risk for investors and increasing potential returns for fund managers. This trend is likely to continue, with the development of new specialized insurance products. In addition, funders may also invest in portfolio coverage for strategic purposes, such as repaying investors.
 
Education and Practice in Litigation Finance
 
Litigation finance, like liability insurance in the 19th century, offers a new way to share risk and has faced similar initial concerns of moral decline. However, like other legal advancements, the industry is starting to recognize the importance of educating current and future legal professionals about the purpose and potential impact of funding. The field of litigation finance raises a wide range of interesting legal and practical issues, and it's important to evaluate the legal merits in various contexts. However, transactional law and its intricacies also play a significant role in funding dynamics, from contract negotiations to security agreements, and tax concerns.
 
The laws and regulations that govern the practice of law, which can sometimes hinder clients from using litigation funding, are a central focus in each deal. These include issues such as privilege, waivers, client confidentiality, fee sharing, and many other aspects of the law of lawyering. This serves as a reminder that litigation funding is not an unregulated industry.

Several law schools have included funding in their courses for over a decade, but it's increasingly being taught as a standalone discipline and a way to ensure access to justice. For example, retired US District Judge Vaughn Walker introduced the first in-depth course on funding at UC College of Law in San Francisco, and a similar course is being offered at the University of Pennsylvania's law school, taught by a professional from a leading funder. Additionally, clinical programs to assist underrepresented plaintiffs will likely use funding tools and specifically allocated capital to teach students about funding, with the hope of recouping the cost of the clinics and potentially the entire clinical program.

Law Firm Partnering

As the competition among funders to provide funding for the most promising cases intensifies, we can expect to see more law firms forming long-term partnerships with funders based on trust. These partnerships will allow law firms to better serve their clients by not only providing favorable portfolio structures, but also by offering additional services such as mock trials, moot courts, and strategic advice to help clients efficiently resolve their cases. These partnerships and portfolios will also permit newly funded matters to be added to existing matters, enabling cross-collateralization of investments and increasing the firm's ability to acquire new business. Commercial funding is increasingly being seen as a way to provide access to justice and clients and firms are recognizing the positive impact it has in leveling the playing field in the legal system. Even large corporations are exploring funding as a way to share risk and are becoming more open to the idea that affirmative litigation can be viewed as an asset, not just a liability.
 
REFERENCE:
Litigation Finance Matures, Expands Across US and in Schools
https://news.bloomberglaw.com/us-law-week/litigation-finance-matures-expands-across-us-and-in-schools