Why You Should Discuss Litigation Financing With Clients

Your clients may not be aware of litigation finance, but you should be. And you should also be aware that handling litigation finance can be like trying to catch a falling knife. And if that's the case, then you're going to need to know how and why you should talk to your clients about possibly getting a third party to pay for their litigation fees and the pitfalls that come with the game.

Like anything else, it's usually better to set out the parameters at the very beginning rather than to wait for awkwardness later on.

What Is Litigation Finance?

Litigation financing is the controversial practice of having a third party pay for the litigation costs of suit in return for a percentage of the winnings, if any. It's pretty much that easy. But it's also controversial. Many people liken this practice to investing or gambling.

Regardless of how you feel about it personally, you should probably make your client aware that this option exists, but you should also always advise caution.

Drawbacks

The drawbacks are numerous and you've already thought of them. When third parties "invest" (because that's really what it is, right?) in a suit, there's the danger that that party will have a detrimental influence on the strategy of the case. The third party could almost have the power of a shareholder.

There are other ethical issues, too. Investors like to know about their potential investments before they throw money at them. So where does that leave the attorney? In the sticky position of potentially having to twist ethical rules by breaking confidences in order to get the money to push the case forward. How's that for being such between a rock and a hard place?

Doing This Sooner Rather Than Later

Ain't it always the case? You need money to make money, but no one wants to see their parade get rained on.

Telling your client about the pitfalls of litigation finance will not make you any friends and it might even lose you a client. But imagine the nightmare scenario thought up by Sam Harden, Esq. at Lawyerist: your client is going to use crowdfunding-Peter to pay Paul and in so doing has already spilled valuable work-product strategy in order to lure in dollars. Worse, he's also padded his claims a bit. No sweat off of his back, right?

Well what about you?

Related Resources:

• Third-Party Litigation Finance Promotes Justice and Deters Wrongdoing (New York Times)
• 3 Tips for Gathering Digital Evidence (FindLaw's Strategist)
• Handling Client Fee Arrangements -- Ethically (FindLaw's Strategist)
• Small Firms Should Host Networking Events Now (FindLaw's Strategist)