Over the last few years, law firms have been attempting to create additional revenue by raising their rates.[1]  At the same, many legal departments are facing decreases in their litigation budgets, with legal departments seeing up to 20% reduction in their budget.[2]  Additionally, the time to trial continues to lengthen as more cases are filed at a time of ever-growing judicial openings – increasing the workload on each judge.  As litigation takes longer than anticipated, it puts additional pressure on legal departments’ shrinking budgeted dollars.  This conflux of issues continues to keep general counsel up at night as it ensures significant challenges to hiring and retaining the preferred lawyers and firms. Litigation funding can help alleviate this pressure on legal departments and law firms.

Litigation funding is traditionally considered for cases that are pre-suit and the client is looking for a law firm to take the case on a fully contingent basis.  However, litigation funding can and is being used in much more creative ways by in-house and outside counsel.  Indeed, law firms should be thinking of how litigation funding can help ease the pressure their clients and potential clients are facing in the current economic environment.

For example, a common situation is where a client brings a new matter to the firm, asks for a budget for the matter and the budget far exceeds what the client can spend on the matter.  While law firms may address this budgetary gap by offering heavy rate discounts, those discounts put significant pressure on the lawyer and the firm as it lowers the realisation rate the firm can obtain for each hour billed and collected on the matter.  Instead of losing the matter or providing a massive discount, law firms should advise in-house counsel to look for litigation funding to help bridge this gap.  Litigation funding is a valuable solution in this scenario as it allows in-house counsel to hire the lawyers of their choice, providing peace of mind that they hired the best one for the specific matter.  Law firms benefits from being able to get or keep the work, and more importantly, without having to perform the work at significant discounts that have a direct impact on the their bottom line.

Additionally, litigation often takes much longer and is more expensive than in-house and outside counsel expected at the outset of the matter.  Most often, the client and firm get into very tense discussions related to how much discount the firm is willing to take to keep the matter.  In-house counsel is feeling the pressure to get the budget in line while at the same time trying to keep the best lawyers on the matter.  This pressure can put a significant strain on the relationship between the client and the firm and their lawyers.  Again, litigation funding can solve this problem for both parties.

Litigation funding benefits in-house counsel as they no longer need to allocate the limited budget dollars to the matter while maintaining their lawyers of choice.  Outside counsel benefits in retaining the matter without having to take a massive discount or cut down on work that may help put the case in the best position for successful resolution.

Law firms and in-house counsel should be looking to litigation funding to help both parties.  In-house counsel can retain the best counsel for the matter while not depleting their limited budget, including counsel that normally would have been regarded as too expensive.

Law firms can market to clients that would not normally be able to afford their rates.  In addition, the firms is able to keep matters that have become too expensive while not having to work at a massively discounted rate.

If you would like to discuss options in more detail, please contact Mitesh Modha.

[1] https://news.bloomberglaw.com/business-and-practice/rising-rates-are-law-firms-salve-as-layoffs-and-pay-cuts-surge

[2] https://www.law.com/corpcounsel/2022/06/14/in-house-spending-eclipses-outside-spending-in-new-legal-department-benchmarking-survey/