Lake Whillans has released the findings from its annual litigation finance survey. The funder questioned 357 respondents ranging from solo practitioners to members of large law firms to in-house counsel, and aggregated their thoughts on the growing industry of third party funding.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Lake Whillans has released the findings from its annual litigation finance survey. The funder questioned 357 respondents ranging from solo practitioners to members of large law firms to in-house counsel, and aggregated their thoughts on the growing industry of third party funding.
According to the survey, the largest proportion of respondents (36%) were law firm partners or counsel, while the remaining 64% was split mostly evenly across solo practitioners, law firm associates and in-house counsel.
41% of respondents answered in the affirmative when asked if they had first-hand experience working with a litigation finance firm. When grouped by firm size, solo practitioners had the lowest level of experience (27%), yet 2-25 person law firms had the highest rate of experience (56%). 500+ person firms came in second at 50%. In-house counsel, as can be expected, reported the lowest level of engagement at only 25%.
When looking across industries, most industries sampled hovered around the 50/50 mark in terms of level of engagement. Yet the Energy industry was the only one to break the 50% mark, coming in at 53%. Finance/Banking came in at the bottom of the list, at 38%, yet that represents a 7% uptick since 2016.
Interestingly, when queried on who drives the decision to utilize funding, both outside law firms and in-house counsel tend to think they are the drivers. Outside law firms named themselves as drivers 1/3 of the time, and in-house counsel only 7% of the time. Yet in-house counsel felt the opposite; that they drove the decision-making 40% of the time, and outside lawyers drove it 10%. I guess everyone likes to take credit for a good decision?
The #1 motivation for seeking financing for in-house counsel is hedging the risk of litigation (43% of respondents), while the #1 motivation for law firms is lack of funds for legal fees (a full 48% gave this answer). Another top answer given was ‘to help fund operating expenses.’ Very few respondents cited ‘lower cost of capital’ as their reason for seeking funding.
The majority (35%) of funders were identified through referrals, while 25% were found via the media (you’re welcome!)
And to no one’s surprise, by far the most important consideration when choosing a litigation funder was ‘Economic terms.’ That was followed ‘Flexibility on deal structure’ and ‘Funder reputation.’ It is perhaps noteworthy that in-house counsel overweighted a funder’s ‘right to influence case strategy’ as a major consideration, relative to law firm respondents. That illustrates that there is more work to be done in convincing in-house counsel that funders are not seeking to control case strategy, and remain passive investors.
That said, we can all take solace in the fact that a whopping 81% of respondents said they would use litigation funding again, with only 19% saying they would not. And a full 75% said they would either strongly recommend or somewhat recommend litigation funding to others. Additionally, a full 80% of respondents predicted either rapid growth (46%) or gradual growth (34%) for the industry as a whole (count us in the ‘rapid growth’ category!)
All told, some very positive signs for the industry, with a handful of alarm bells (that in-house counsel is overly concerned about funder control over cases is worrying). It will be interesting to see how these numbers shape up during next year’s annual survey.
