FAQ USA

As you will be well aware the United States is a federal system and as such the rules on litigation funding or legal financing vary state by state. That being said the trend withing the USA is one of acceptance and that an increasing number of State Supreme Courts within the US have found in favour of litigation funding. This view has been strengthened by cautious endorsements from certain influential bodies, including the American Bar Association.

Third-party litigation funding in the United States is still relatively nascent if you compare it with other jurisdictions like the United Kingdom. However, case law in the United States suggests growing acceptance by the courts.

New York Supreme Court Justice Shirley Kornreich stated that “making justice accessible to all regardless of wealth” was valuable along with the ability for those with meritorious claims to bring claims against “deep pocketed wrongdoers”. - Hamilton Capital VII LLC I v Khorrami LLP, No. 650791/2015, 2015 WL 4920281, at *5 (NY Sup Ct 17 August 2015).

Third party litigation finance is usually provided on a non-recourse basis and is therefore not subject to the usury or limits on interest rates. It is important to emphasise the risk funders take by investing large sums of money in litigation. That has meant historically the cost of non-recourse litigation finance has been high. The growing number of options in the market is forcing more competition and this improving rates. A excellent reason to use a broker is to ensure you receive the most competitive terms possible for you or your client.

Litigation financing is treated as a purchase or assignment of the anticipated proceeds of the lawsuit. Some case law on the subject:

New York City Bar Association’s Committee on Professional Ethics (NYCBA) Formal Opinion 2011-2; Lynx Strategies LLC v Ferreira 957 NYS2d 636 (NY Sup Ct 2010) (third-party investment for share of proceeds is not usury);

Read also: Echeverria v Estate of Lindner, 2005 NY Slip Op 50675(u), at *4-5 (NY Sup Ct 2005) (non-recourse agreement was a ‘loan’, not an investment, because recovery was certain under strict liability statute and interest rate was, therefore, usurious).

The United States has a confusing patchwork of state laws on third-party litigation funding. It is best to speak with one of our consultants regarding your specific case, the state or jurisdictions involved.

The ability of a funder to terminate a contract and the supply of funding will be dictated by the funding agreement. It is crucial to have an expert review and advise on the contents of the funding agreement. The terms of the contract are paramount in order to avoid any scenarios where the funder may be able to cease funding. There are common terms such as if the prospects of success fall below 60% as determined upon a review of the prospects by counsel. Other ground would be if the claimant has been fraudulent or materially breached the agreement in some way.

* All the information listed above is subject to change. Maven Global and it’s representatives cannot be held liable should the information above change or should the courts or any legal body take a different view on the above. The legal landscape surrounding funding transactions is constantly evolving. It is always best to speak with us directly for the latest information.

Funders are not required to be actively involved in the litigation and there are no scenarios that require their involvement. That being said funding firms are often comprised of incredibly bright legal and commercial minds. Their views and input on a case can be extremely valuable.

The range of funding options available to clients is broad and one of the main benefits of engaging a professional broker who understands the market.

A client can take complete funding or partial funding where the rest of the costs are covered by the client attorneys on a conditional fee basis. The client could explore a portfolio funding offer. In this scenario the funder would finance a number of cases and thus balance their risk through multiple cases. This is common with larger corporation who may have multiple cases ongoing. The client could if they wish agree to a more traditional recourse loan with a funder. The proceeds of the litigation can then be used as collateral for the debt.

Insurance is a growing market in the USA. In certain scenarios the clients attorneys may be able to run the case on a full or partial contingency. Instead of securing funding they could insure a percentage of their Work in Progress (WIP) fees.

The client may have secured a judgement in their favour but after a lengthy trial be unable to enforce. You also have the option of selling your judgement or simply assigning the judgement to a firm to act on a conditional fee basis.

Yes class actions or group actions as they are often referred can be funded by a third party. Some examples include:

Kaplan v SAC Capital Advisors LP, No. 12-CV-9350-VM-KNF, 2015 WL 5730101 (SDNY 10 September 2015) (a securities class action on behalf of shareholders seeking over US$680 million arising from an insider trading scandal).

In 2017, the United States District Court for the Northern District of California issued a standing order that requires the disclosure of a party funding a class action litigation (ND Cal Standing Order No. 19 (17 January 2017)).

As you will be aware adverse costs orders in the USA are rare and only applicable in a very narrow set of circumstances. Nonetheless it would be prudent to have this covered within the litigation funding agreement should such a scenario arise.

The answer is no. Additionally in the vast majority of cases the court is unlike to be aware of the existence of a third party who may be financing the case. Security should be based upon the amount of potential damages that would be incurred if a party were wrongfully prescribed to the action.

* All the information listed above is subject to change. Maven Global and it’s representatives cannot be held liable should the information above change or should the courts or any legal body take a different view on the above. The legal landscape surrounding funding transactions is constantly evolving. It is always best to speak with us directly for the latest information.