In recent years, litigation financing is poised to become a more widespread practice in the legal market. As expected, litigation financing – in which a third party funds a lawsuit in exchange for a portion of the proceeds in the event of victory – appears to be increasingly accepted by major players in the legal market, including top law firms. ‘lawyers.
Additionally, the results of Bloomberg Law’s 2021 Litigation Funding Survey show that the litigation finance industry has emerged from the pandemic and economic downturn seemingly unscathed – and perhaps even strengthened: the majority of funders funds (56%) said their activity even increased amid last fall’s economic downturn. And a slightly higher percentage (59%) said they have more business now than before the recession started.
2022 will bring further growth and development to the litigation finance industry, including more public adoption of litigation finance by law firms, diversification of market players, and further exploration of legal and regulatory changes.
Growing acceptance by law firms
In the space of a few years, litigation financing has gone from a concept that many law firm attorneys had never heard of or viewed with skepticism, to a tool generally accepted, if not warmly embraced, in the industry. legal.
Results from Bloomberg Law’s 2021 Litigation Funding Survey Show 69% of Lawyers Interested in or Having Used Litigation Funding Are More Likely to Seek Funding Today Than They Were Five Ago years old, and 23% are more likely to look for it now than they were. just over a year ago.
Earlier this year, Willkie Farr & Gallagher became the first major law firm to publicly announce a major litigation finance agreement. As a sign of the legal industry’s acceptance of litigation financing as a mainstay of the legal landscape, Willkie and Longford Capital have entered into a pact to provide $ 50 million in litigation financing to clients of the law firm. Peer pressure, as well as the possible influence of disclosure rules on these decisions, may mean that 2022 will see more high-profile deals or relationships between law firms and funders.
Of course, in a social and political climate more sensitive than ever to DCI concerns, businesses and businesses will want to pay attention to their partners. So it won’t be surprising to see more litigation finance companies launching DCI initiatives or programs to do the right thing, and because it’s good for business.
More players, more games
As the litigation finance industry matures, the market sees players moving beyond traditional single-purpose litigation finance companies. Multi-strategy investors, many of whom have dedicated litigation finance offices, have jumped into action where the business has significant return potential. Insurance companies are also looking for a slice of potential profits in the area of litigation financing. For example, some insurers have started to offer judgment preservation insurance, which lenders can use to consolidate their investments in individual or portfolio businesses, thus ensuring investors reliable returns. While there is room for insurers and lenders for litigation, there is also the prospect of competition: law firms that take cases on an emergency basis could insure their cases. similarly, and potentially reduce the need for litigation funding.
2022 will continue to bring more types of investors and products to the litigation finance space. As types of investment diversify, the terms of agreements may become more competitive, which will encourage more claim holders and law firms to seize funding opportunities.
Legal and regulatory developments
When we first looked at litigation funding two years ago, we asked if mandatory disclosure is on the rise. Although the pace is slow, changes continue to occur on this front. The United States District Court for the District of New Jersey amended a local rule in July to require disclosure of third-party funding in any litigation. The court joins with the Northern District of California in enforcing this requirement through a local justice rule, although the latter only requires disclosure in class actions.
While a few states have enacted disclosure laws, state laws also remain the exception, not the rule. It is possible that in 2022, the interest of courts or legislatures in mandatory disclosure will accelerate; but at the current rate, this is by no means a given.
On the other hand, some states and bar associations are interested in relaxing the regulations regarding the ownership of law firms. Specifically, some are considering changing the rules that would allow ownership of the business by non-lawyers, a move that many believe would attract investment in businesses by litigation finance companies.
While Arizona made this rule change in 2020, Utah in 2021 extended its “regulatory sandbox” schedule from two years to seven years. This will allow new business models for legal services, including non-lawyer ownership, to try out in the state until at least 2027. Florida, New York and California are also exploring new possibilities to regulate law firm ownership models. The Washington Courts Practice of Law Board presented the state Supreme Court with a blueprint for a legal regulation sandbox to explore the idea as well. And the Chicago Bar Association formed a task force to present recommendations on the sustainable practice of law to the Illinois Supreme Court, including assessing whether rule 5.4, which prohibits ownership of companies by non-lawyers should be relaxed.
While donor investment in law firms is unlikely to happen by 2022, more states and bar associations will explore the idea of relaxing the rules that prohibit ownership of the law firm. firm by non-lawyers, sowing the seeds of direct investment by funders in the future.
Access additional insights from our Bloomberg Law 2022 series here, including articles covering trends in litigation, regulation and compliance, transactions and contracts, and the future of the legal industry.
Bloomberg Law subscribers can find related content on our Focus: Litigation financing page.
If you are reading this on the Bloomberg terminal, please run BLAW OUT