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Litigation Funding May Be a Lifeline for Businesses and Law Firms Distressed by Coronavirus Shutdown

The following piece was contributed by Joshua Libling, Portfolio Counsel at Validity Finance, LLC.

Litigation finance has always billed itself as a way of helping meritorious claims regardless of the economic strength of the litigant. The coronavirus pandemic is now exerting enormous and growing stress on law firms and clients. If ever there was a moment for litigation finance to live up to its own hype, this is it. We think it can.

Keeping Plaintiff Cases Running at Reduced Cost.  Paying hourly fees to a law firm may be low on the priority list when weighed against retaining key employees or preserving cash for an economic re-start. But having the right priorities doesn’t change the fact that clients with pending claims deserve to see an appropriate return.  Funders can assist in at least two ways.

First, by converting hourly rate cases into hybrid contingency fee cases, clients can continue litigating claims without outlaying funds. Funders will pay law firms 50% or more of their hourly fees and potentially all costs, as needed, in return for about 20% of any recovery.  The law firm would also be entitled to a similar contingency, leaving clients with the bulk of the case proceeds. This can be good for both the client and the law firm. The client gets to reduce its expenditures. The law firm takes or continues a case that may have become a de facto contingency case anyway because of the client’s resources constraints, or may have disappeared altogether, and gets 50% of its billables paid now with participation in the upside later.

Second, economic pressures unrelated to the merits of the litigation can cause clients to accept unreasonably low settlement offers.  Sometimes settling is the right thing to do.  But settling for too little is no different than any other asset fire-sale. A funder can help by ensuring that the resources exist to continue the litigation, if that is the best course. Again, this should help all parties. The client doesn’t sell an asset on the cheap, and the law firm protects a meritorious ongoing case.

Monetizing New Plaintiff Cases.  This is a time when many clients need to be taking a hard look at their balance sheets and maximizing their assets. A meritorious claim is an asset, but it is an unproductive asset unless you litigate it. Funding can help monetize a company’s litigation assets. Even in the pre-litigation, investigation stage, funders can assist in identifying claims, independently confirming case merits, connecting clients without lawyers to a small group of suitable and efficient counsel to choose from, and making the necessary investments to effectively pursue the case. In fair funding transactions, clients will still retain the lion’s share of the upside. Because a funder’s capital is non-recourse to any other collateral, this kind of arrangement offers  upside opportunity without downside risk to a client, and a contingency recovery to the law firm. Clients can take a litigation asset they would otherwise get nothing from, turn it into something productive, and minimize risk while doing so.

Helping Defendants With Trouble Paying.  The lack of capital and decreased ability to tolerate outflows is not limited to the plaintiff side of the v. Law firms are seeing clients unable or unwilling to properly fund their defense, and clients are being faced with difficult trade offs between continuing to defend their legal rights and directing that capital to their core business needs. Funding can help these clients and law firms also. Defense-side cases can be turned into partial contingency matters through the negotiation of success fees or similar arrangements that define and monetize what victory means on the defense side. Funding can draw its return from that success fee and pay a portion of defense costs to the law firm in the interim, reducing the burden on the client (perhaps to nothing during the pendency of litigation) and providing the law firm with a reliable stream of paid work.

Bundling Plaintiff and Defense Cases to Reduce Fee Exposure.  Law firms and clients look forward to inflows of proceeds from strong plaintiff cases.  Clients must defend claims against them.  By bundling plaintiff and defense-side litigation together, funding provides capital for both affirmative claims and defensive needs. In effect, the client uses the value of the plaintiff-side litigations to reduce their costs on the defense side, thereby reducing outlays and smoothing their risk profile.  Most obviously, the risk of continuing fee exposure can be greatly mitigated. This can work at the law firm level as well as the client level.

Enhancing Law Firm Growth. Law firms will need to pitch to companies facing just the kind of liquidity or capital issues that funders can help solve. Law firms with pre-existing relationships and in-place portfolios with funders will have a competitive edge because they can offer contingency fee arrangements at the outset of the competitive process. Funding can thus speed up client matter acquisition. Funding is not limited to plaintiff-side litigations. A firm that has a stable of plaintiff-side contingency cases can use those litigations, and funding, to create bundled portfolios of mixed defense-plaintiff matters. Moreover, funding can provide a mechanism for investing in firm growth, allowing firms to share the risk of large portfolios of cases, or even to hire new partners to bring business to the firm.

Difficult times call for creative solutions and new ways of doing business. But being creative doesn’t have to mean doing something untested. In the United States, litigation funding has been providing increased liquidity and decreased risk to companies and firms for over a decade. In Australia and the United Kingdom, funding has been used effectively for even longer.

Litigation assets should not be squandered, nor sold for bargain basement prices, nor made to sit idle for months or years when clients urgently need capital. The time for funding to make a significant contribution to clients and firms is now.  If you have litigation assets and need to extract value from them, or need to reduce your litigation costs or risks, this is the moment to be creative.  Funding can help.

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Case Developments Commercial

Sony and Apple Challenge Enforceability of Litigation Funding Models

By John Freund |

A pivotal UK court case could reshape the future of litigation finance agreements, as Sony and Apple reignite legal challenges to widely used third-party funding models in large-scale commercial disputes.

An article in Law360 reports that the two tech giants are questioning the validity of litigation funding arrangements tied to multibillion-pound cartel claims brought against them. Their core argument: that certain litigation funding agreements may run afoul of UK laws governing damages-based agreements (DBAs), which restrict the share of damages a representative may take as remuneration. A previous Court of Appeal decision in PACCAR Inc. v. Competition Appeal Tribunal held that some funding models might qualify as DBAs, rendering them unenforceable if they fail to comply with statutory rules.

This resurrected dispute centers on claims brought by class representatives against Apple and Sony over alleged anti-competitive behavior. The companies argue that if the funding arrangements breach DBA regulations, the entire claims may be invalidated. For the litigation funding industry, the outcome could severely curtail access to justice mechanisms in the UK—especially for collective actions in competition law, where third-party financing is often essential.

The UK’s Competition Appeal Tribunal previously stayed the proceedings pending clarity on the legal standing of such funding arrangements. With the dispute now heading back to court, all eyes will be on whether the judiciary draws a clear line around the enforceability of funder agreements under current law.

The decision could force funders to rework deal structures or risk losing enforceability altogether. As UK courts revisit the DBA implications for litigation finance, the sector faces heightened uncertainty over regulatory compliance, enforceability, and long-term viability in complex group litigation. Will this lead to a redefinition of permissible funding models—or to a call for legislative reform to protect access to collective redress?

Case Developments Commercial

Funder’s Interference in Texas Fee Dispute Rejected by Appeals Court

By Harry Moran |

A Texas appeals court has ruled that a litigation funder cannot block attorneys from pursuing a fee dispute following a remand order, reinforcing the limited standing of funders in fee-shifting battles. In a 2-1 decision, the First Court of Appeals found that the funder’s interest in the outcome, while financial, did not confer the legal authority necessary to participate in the dispute or enforce a side agreement aimed at halting the proceedings.

An article in Law360 details the underlying case, which stems from a contentious attorney fee battle following a remand to state court. The litigation funder, asserting contractual rights tied to a funding agreement, attempted to intervene and stop the fee litigation between plaintiffs' and defense counsel. But the appellate court sided with the trial court’s decision to proceed, emphasizing that only parties directly involved in the underlying legal work—and not third-party financiers—are entitled to challenge or control post-remand fee determinations. The majority opinion concluded that the funder’s contract could not supersede procedural law governing who may participate in such disputes.

In dissent, one justice argued that the funder’s financial interest merited consideration, suggesting that a more expansive view of standing could be warranted. But the majority held firm, stating that expanding standing would invite unwanted complexity and undermine judicial efficiency.

This decision sends a strong signal to funders operating in Texas: fee rights must be contractually precise and procedurally valid. As more funders build fee recovery provisions into their agreements, questions linger about how far those rights can extend—especially in jurisdictions hesitant to allow funders a seat at the litigation table.

Commercial Regulatory Issues

Oklahoma Moves to Restrict Foreign Litigation Funding, Cap Damages

By John Freund |

In a significant policy shift, Oklahoma has enacted legislation targeting foreign influence in its judicial system through third-party litigation funding. Signed into law by Governor Kevin Stitt, the two-pronged legislation not only prohibits foreign entities from funding lawsuits in the state but also imposes a $500,000 cap on non-economic damages in civil cases—excluding exceptions such as wrongful death. The new laws take effect November 1, 2025.

An article in The Journal Record notes that proponents of the legislation, including the Oklahoma Civil Justice Council and key Republican lawmakers, argue these measures are necessary to preserve the integrity of the state's courts and protect domestic businesses from what they view as undue interference. The foreign funding restriction applies to entities from countries identified as foreign adversaries by federal standards, including China and Russia.

Critics, however, contend that the laws may undermine access to justice, especially in complex or high-cost litigation where third-party funding can serve as a vital resource. The cap on non-economic damages, in particular, has drawn concern from trial lawyers who argue it may disproportionately impact vulnerable plaintiffs without sufficient financial means.

Oklahoma’s move aligns with a broader national trend of state-level scrutiny over third-party litigation funding. Lawmakers in several states have introduced or passed legislation to increase transparency, impose registration requirements, or limit funding sources.

For the legal funding industry, the Oklahoma law raises pressing questions about how funders will adapt to an increasingly fragmented regulatory landscape. It also underscores the growing political sensitivity around foreign capital in civil litigation—a trend that could prompt further regulatory action across other jurisdictions.