January 21, 2014 Articles

Alternative Funding of Litigation

By spreading the costs of litigation and sharing the risks, this arrangement offers many benefits to cash-strapped firms.

By Victoria Lazear

Litigation is becoming an increasing part of a firm's costs. Increasingly, litigation has become more sophisticated, which has increased the required quality of expert testimony and, with it, the work and the expense required to provide such testimony. Similarly, other costs have escalated, necessitating a way to manage the financing of litigation. These increases in costs exacerbate the dilemma for a party facing an opponent with more money to spend on litigation. But even firms that can finance their litigation costs seek alternative financing to even out the payment of litigation costs and to share the risks. Many critics of alternative funding of litigation recognize that such funding can promote fairness and equalize access to the justice system.

Although not the primary cost of litigation, an important component of a firm's litigation cost is the cost of expert witnesses. A party can find that cash constraints severely limit its ability to obtain the requisite expert witness analysis, a particularly vexing problem when the opponent is not as cash constrained. The lack of funding can limit the amount of effort that can be expended on analyzing the party's position or force using a less than ideal expert. The more cash-constrained party may be faced with the option of settling early to limit its cash outlays or fighting the litigation knowing that the testimony of its expert witness is not as compelling as it could be.

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