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Commercial Finance

Fortune 500 Companies Using Litigation Financing?

August 21, 2014
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3min read

IIt’s easy to focus on the most inspiring uses of plaintiff financing — the David vs. Goliath,little-guy-defeats-multinational-corporationdesperation-tax-reducing cases that are only made possible through companies that get financing for plaintiffs.

However, the little guys aren’t the only individuals who need financing: more and more large companies — even Fortune 500 companies! — are realizing that getting financing can be a useful, if not vital, tool as they pursue litigation. Indeed, commercial litigation finance might just be the future of the plaintiff financing industry, if large companies realize that the economics and optics of such financing make sense for their business.

So, why would such a well financed company need financing during pending lawsuits? Corporations often live-or-die by their quarterly reports and profit-loss statements; they have to keep their investors happy in the short-term, so they can have time to move the needle in the long term. Unfortunately, the costs of litigation can seriously impact a company’s short-term bottom line, and since settlements can take so long to arrive, pursuing litigation often doesn’t seem worth it. There may not be room in the legal department’s “budget” for a long-term investment like a lawsuit, even if it might eventually bring big returns for the company.

Plaintiff financing can help solve this balancing act between keeping investors happy now and pursuing lengthy lawsuits that will make them happy in the future. When a company receives a cash advance on their lawsuit, they can cover their legal fees without negatively impacting their immediate bottom line. The amount they take home once they’ve settled will of course be less than if they didn’t receive financing, as they will have to pay the legal investor back their original investment, plus a rate of return. But if this financing is the difference between not pursuing litigation at all, it can be worth the diminished recovery. Plus, plaintiff financing is non-recourse: if the case loses, the company owes nothing to the investor.  So win or lose, there is never an expense taken related to the litigation without an offsetting gain.

While some companies are always going to focus more on short-term profits vs. long-term gain, getting financing can help them have it both ways.  At the end of the day, lawsuits are an asset of the company. And like any asset, they need to figure out the right way to finance it.

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