Litigation funders place a high premium on the strength of counsel when deciding whether to fund a deal. Barry Kamar, vice president and legal counsel at Westfleet Advisors, lists five qualities that make an attorney bankable.
Securing a litigation funding deal is challenging. Funders consider myriad factors before investing in a litigation—the substantive merits of the case, the potential recovery, and the time to recovery, among others. Less obvious, but equally as important as those factors, is the plaintiff’s lawyer.
When weighing the risks of investing in litigation, funders place a high premium on the strength of counsel. It is no different than the premium that a venture capitalist places on the strength of a management team when deciding whether to invest in a start-up company.
To borrow a phrase from the venture industry, “the jockey is at least as important as the horse.”
Of course, litigation funders look for qualities that all lawyers should have—a strong adherence to ethical and honest behavior, substantive legal talent, and the ability to effectively manage the client relationship. But what other qualities do litigation funders consider in a “jockey”? What makes a lawyer bankable?
When considering whether to invest in a case, funders will review the lawyer’s track record to confirm expertise in the subject matter of the case. This is particularly important in cases that require technical skills, such as IP litigation or international arbitration.
If the lawyer is expanding into a new practice area and does not have a track record in the subject field, it may still be possible to secure funding if the lawyer has an exemplary record in other practice areas. Substantial, notable litigation victories—in any practice area—signal that counsel is a competent litigator, capable of withstanding the pressures and adversities associated with contentious legal battles.
Good litigators are accustomed to advocating forcefully for their clients. In the context of securing a litigation funding deal, that can sometimes cause a lawyer to over-emphasize the strengths of a case and to unduly minimize the weaknesses. But to make a sound investment decision, funders rely upon the lawyer to help them understand both the strengths and weaknesses of the case.
Accordingly, a lawyer’s objectivity and candor about both are significant assets. By flagging all of the material issues of a case and giving them each due consideration, the lawyer, far from diminishing the chances of funding, inspires the funder’s confidence.
A litigation funder typically expects to share in the financial risks of a case along with the lawyer and client. Bankable lawyers understand that they will need to have some financial skin in the game. By agreeing to take a case on at least a partial-contingency basis, the lawyer signals to the funder that she believes in the merits of the case.
Conversely, an unwillingness to share in the financial risks of a lawsuit indicates to the funder that the lawyer may have doubts about the strength of the claims. Thus, the lawyer should not expect the funder to front all of the legal fees, but rather, a portion of those fees.
In addition to sharing in the financial risks of a litigation, funders expect a lawyer to have carefully considered the finances of the case and to effectively manage both the budget and the litigation team.
To be sure, the financial management of a contingency-fee case is different from the management of a case that is litigated on an hourly-fee basis. For this reason, defense-oriented lawyers (who typically are accustomed to hourly-fee arrangements) sometimes struggle to ensure that a contingency case is litigated efficiently within the allocated budget.
All law firms should have internal processes in place for reviewing contingency cases, not only to assure that the budget and staffing of a matter have been thoughtfully considered, but that the expected damages also are realistic. By carefully considering the financial parameters of the case early in the process, the lawyer has a higher probability of successfully securing litigation funding.
The litigation funding deal process can be complex, time-consuming, and historically, opaque. Miscommunications and misunderstandings about the parties’ expectations often delay funding or scuttle a deal outright. It is no coincidence that lawyers who have prior experience with securing litigation funding (i.e., who have previously run the gauntlet of the funding deal process) typically fare better than lawyers who do not have experience.
For the uninitiated lawyer, independent advisors can step in as facilitators to help navigate the deal process and present the litigation opportunity in a way that is attractive to funders.
Article originally published by Bloomberg Law.
Barry Kamar is Vice President and Legal Counsel at Westfleet Advisors. A former federal prosecutor and investment banker, he draws on his experience in courtroom trials and corporate finance to help clients assess and navigate litigation finance opportunities.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.