If you’ve spoken to a litigator in the last year, chances are they’re either using litigation funding or thinking about it.

As recruiters, our job is to understand our candidates’ practices well enough to properly position them in a lateral move. Litigation funding is one area that comes up more and more, and yet isn’t always fully understood.

With that in mind, I sat down with Bill Vigen – Investment Manager and Legal Counsel at Omni Bridgeway, former partner in the Washington, DC office of Venable LLP, and my brother-in-law – to walk through how litigation funding works and why recruiters should be paying closer attention.

Louis Alpert: Bill – thanks for doing this. Let’s start simple: What is litigation funding and what purpose does it serve?

Bill Vigen: At its core, litigation funding is just another way for a claimant or lawyer to defray the risk and expense of litigation by having the litigation funder cover attorneys’ fees and other costs. In return, a litigation funder shares in the upside if the case resolves favorably.

It really sits as a hybrid, you could say “third option,” between traditional hourly billing and full contingency. There are a lot of different structures within that – you can have single-case funding, which is what most people think of when they hear litigation funding, or arrangements directly with a law firm backed by a portfolio of cases. You also see things like judgment monetization, where a party has already won but hasn’t been paid yet.

Lou: Who are the typical players involved in one of these arrangements? Let’s assume a single-plaintiff case for simplicity.

Bill: Generally, the core players are the same as any other plaintiff team: the claimant, the attorney, and the attorney’s law firm.

What funding adds is not a controlling party but an investor who evaluates the case, underwrites the risk, and ultimately provides capital. And increasingly, you also see brokers, who help connect plaintiffs with funders, similar to how investment banks represent companies raising funds from venture capitalists.

Lou: You mentioned the funder doesn’t control the litigation. Is that actually true in practice?

Bill: Yes. That’s something we’re very clear about. Our agreements explicitly state that the claimant and its counsel maintain full control over litigation strategy and decision-making. We’re not stepping into the attorney-client relationship. We’re investors.

That said, we do bring perspective. We review thousands of cases a year, so we have a strong sense of what tends to work and what doesn’t. Our advice is never given at the expense of confidentiality, and no one has to listen to us, but at a high level it can be helpful.

Lou: So how does this actually work economically?

Bill: Let’s take the easiest example of funding a single case. For a claimant, it feels like any other contingency arrangement, i.e., it does not pay anything upfront, and the claimant does not owe the funder anything back unless there are litigation proceeds.

For the funder, the law firm, and attorney, it’s a bit more technical. The funder typically covers a portion of the standard “rack” billing rate and litigation costs like experts. The funder’s spend is capped, typically by major case phases. If there are litigation proceeds, then we do bespoke structures to define how those will be distributed. Although there is no “standard” deal these days, we typically recoup our investment plus some return, then split remaining proceeds between the claimant, law firm, and funder. We aim for the claimant to receive at least half of the proceeds in reasonably foreseeable outcomes. It’s their claim, after all, but it also aligns incentives appropriately.

Lou: Does the claimant get less as a result of the funder’s participation?

Bill: No, at least relative to everyone’s risk-adjusted expectations. If full contingency or paying by the hour is available and a better deal, then you would expect the claimant to choose either of those routes. One of the best parts about this job is turning a litigation career into a corporate career: we are only doing deals where it is in everyone’s best interest to do so. We’re also up front about how the economics work, what we view as likely scenarios, and how any litigation proceeds would be distributed in those scenarios.

Lou: It feels like there used to be more skepticism around litigation funding. Now I’m hearing about it constantly from candidates. Is that changing?

Bill: It definitely is. I think a lot of attorneys don’t realize how frequently claimants and law firms consider funding these days.

We see funded cases across nearly every AmLaw ranked firm, plus litigation boutiques. And it’s easy to see why. At most firms, litigators struggle to increase their rates as quickly as partners in the corporate practice. Contingency work provides the potential for litigators to make more than their standard hourly rate, and funding ensures the firm is limiting its downside risk.

You’re even seeing firms that historically only did defense work start to explore contingency cases as litigation funding creates more compelling economics.

Lou: Alright, bringing this back to recruiters – why should we actually care about this?

Bill: As claimants and firms are considering funding more and more, it’s becoming incredibly important for both the lateraling partner and their recruiter to understand the business development opportunities that funding presents.

In a business plan, they can show how funding can unlock opportunities. Like representing a startup company that was defrauded or enforcing one of their vital patents. That is a company that may not be able to pay your firm’s rates now, but could become a very loyal, long-term client. Funding can also be used to increase the work for existing blue chip corporate clients. Pitch them (and the firm) on affirmative litigation, not just defense work – that type of work could even result in the legal department transforming from what is traditionally a cost-center into a profit generator.

I would really encourage partners to be business-minded and try to figure out how funding bakes into BD. Ask yourself: Am I leaving money on the table? Firms are always asking that question and are increasingly supportive of funding as an answer.

Lou: That’s interesting because most recruiters probably just see funding as an asterisk in an LPQ.

Bill: We see attorneys we’ve funded move firms all the time. The same rules apply as any lateral move: the move has to be in the client’s best interest, and the client gets to decide whether or not to follow. If those boxes are checked, we rarely see an issue that can’t be worked out.

Of course, candidates should be transparent about how much of their portable book involves litigation funding, who they’re working with, and how it impacts their rates, hours, and collections schedule. But they should also go a step further and explain how funding is a business development tool.

Of course, candidates should be transparent about how much of their portable book involves litigation funding, who they’re working with, and how it impacts their rates, hours, and collections schedule.

Lou: That’s a great point. I’ll add one thing from my side: firms are definitely paying attention to litigation funding.

We’re seeing the most interest in candidates who have either already secured funding or have strong relationships with one to two reputable funders. At the very least, anyone interested in a move should understand litigation funding – firms want to see that partners are constantly thinking about new avenues for generating work.

At the same time, it means we as recruiters need to dig in a bit more. We should really understand the economics, how the arrangements are structured, and how it impacts portability. We also need to make sure any firm we introduce someone to will be supportive of funding arrangements. Lots to read up about – thanks, Bill!

Questions? Want to learn more about litigation funding and how it might affect lateral moves? Contact louis@alpertassociates.com, as I will be further exploring this topic in the next issue of the NALSC newsletter.