For some reason, people hold misconceptions that litigation financing is a tool used by certain sized companies. What is interesting, is that small businesses may sometimes imagine it is a tool used by large corporations; and management boards on large companies assume that only smaller companies employ litigation finance.
That is kind of like assuming only certain sized companies use insurance. The reality is, companies of different sizes may benefit and choose to employ funding for business lawsuits.
Why a small business might finance a dispute.
Own a small business can be like sailing the ocean with a small boat. Bigger waves that would barely move a cargo ship will throw everything about in your vessel. Small businesses often chose litigation finance because it allows them to survive. Consider the following scenarios: A small business gets hit with a huge product liability lawsuit. A small business outlays immense amounts of capital; sometimes even leveraging borrowing to complete a job for client; only for that client to dispute or refuse payment. A single employment lawsuit that threatens $75,000 in damages and attorney fees could easily squash cashflow for long enough to go out of business.
A company that imagines litigation finance is only for the big guys is overlooking a very helpful tool to help them weather big storms. When the cost of defending or pursuing a sizable lawsuit is financed, it can allow the business to simultaneously continue normal operations. Partnering with a litigation firm can often be the maneuver that allows the company oxygen to continue existing and pursue or defend its legal rights.
Why a medium sized company might finance a dispute
Medium sized companies have a good rhythm going. They often are not in danger of going out of business, and one or two bad lawsuits might hurt, but it will not shut down the company. However, would management be negligent if it threw caution to the wind and allowed litigation to slow down company growth? If they took on 2 or 3 lawsuits that went bad, how many years would that set the company back? How would expansion and growth goals look if $300,000-$10,000,000 in legal costs were tied up for 3 years? It would certainly make the company less aggressive in its growth efforts.
However, by implementing litigation finance and allowing lawsuits to be initiated or defended without impacting operational capital; the company could gain the benefit of pursuing it’s legal rights without affecting strategic decisions in investments, operations, expansion or marketing.
Why a large corporation might finance a dispute.
Finally, large companies embrace litigation financing because it makes a lot of sense when you weigh the numbers. Large companies have a certain expectation of regular lawsuits. While having in-house counsel and a healthy legal budget certainly helps smooth the speed bumps, it can find a strategic advantage over competitors by designating some of its litigation ‘financeable’. In those cases, it would see trading future uncertain gains in litigation by guaranteed capital availability during the entire period of litigation.
If you take 2 identical competitors, and one pays out of pocket for its litigation; while the other uses litigation financing, you can see how the savvy competitor who has more capital for investment during on a rolling basis has a competitive edge over time.
Partnering with a great litigation finance firm makes sense regardless of the size of your company. We always encourage companies consider the numbers and consult with relevant professionals. We are confident in doing so, because in most situations, companies are far better off by becoming a client.