ANALYSIS: Observers Say Litigation Finance Poised for Hard Times

Funders, lawyers, and watchers of the litigation finance industry are seeing various indications of a growing industry. While the coronavirus pandemic will undoubtedly change the legal profession and surrounding industries, there seems to be consensus that litigation finance is fairly well inoculated against the looming economic downturn.

This was the big takeaway from the Litigation Funding Forum, which was held March 26 as a virtual event. Eleven panels and presentations (two moderated by Bloomberg Law analysts) were stocked with industry experts sharing their views on the state of the industry.

Weathering the Storm

Certain expected consequences of the economic downturn, including a rise in litigation and economic insecurity, are actually a boon for the litigation finance industry. On the other hand, there are results of the pandemic that are complicating factors for the industry, such as delays in court proceedings. (See Bloomberg Law’s tracker of court orders and notices related to the virus here.)

Signs of strength in the industry include new avenues of growth. One of these is the more frequent entrance of hedge funds into the market as sources of funding. Another is the rise in funding for sub-million-dollar deals. At both ends, the funding side and the claim side, the market looks to be expanding.

Disclosure and Ethics Developments

The recent report out of a New York City Bar Association working group on litigation funding was also discussed several times during the course of the forum. Industry players are pleased with the report, which concludes that litigation finance agreements between lawyers and funders are beneficial to clients, and proposes amendments to the ethics rules to allow for such arrangements. The report also did not recommend any mandatory disclosure in court of commercial litigation finance agreements. This is a win for the industry, as it seeks to become part of the mainstream legal market.

From a more wide-scale perspective, the debate about further regulation, including possible mandatory disclosure requirements, in legislative bodies and courts continues across the country. The pull and push for disclosure and regulation of funding takes into account considerations of confidentiality, transparency, ethics, and fairness.

Broker Involvement

The role of brokers in the litigation finance market is another rising feature of the industry. Where there is a disconnect between funders and their clients, brokers can help educate clients about the intricacies of the funding process to alleviate client surprise. They can also benefit funders by presenting the risks of opportunities up front and being responsive throughout the deal process.

At the end of the day, the forum presented an optimistic take on an industry that looks to be growing and adapting to maintain its momentum in the changing climate.

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