Los Angeles, CA — Once considered a niche sideline of the financial world, litigation finance has surged into prominence, transforming into a robust $15.2 billion industry, marking a significant rise from $9.5 billion just five years earlier. This growth trajectory was highlighted at the recent LitFinCon, hosted by Siltstone Capital in Los Angeles, which brought together funders, investors, lawyers, bankers, and judges to discuss the sector’s evolution and current issues.
At the conference, a history of litigation funding was recapped, reflecting its journey from dubious legality to a mainstream finance tool. Initially, the practice faced legal and ethical scrutiny under ancient doctrines of maintenance and champerty, which prevented third-party funding of lawsuits for a share of the potential awards. However, perceptions and regulations have shifted significantly. States like New York and Minnesota, for instance, have eased their stances, making such financing more feasible by narrowly interpreting or altogether abolishing those old prohibitions.
The conversation has largely moved from the legality of litigation funding to issues of transparency and disclosure. Various states have crafted legislation dictating what must be disclosed in funded litigation cases, and on a national level, the US Judicial Conference’s Advisory Committee on Civil Rules is exploring federal disclosure requirements. These developments are seen as a compromise by opponents of litigation funding, who have now shifted focus from opposing the practice outright to advocating for transparency.
Litigation finance has increasingly gained acceptance in the legal community. A few years ago, the idea was still met with confusion or skepticism among traditional law firms. This has changed dramatically with firms like Willkie Farr and Mayer Brown not only embracing but actively engaging in litigation funding agreements. Today, a significant proportion of large law firms have some involvement in litigation financed cases.
Investment in litigation is also seen as an emerging asset class, enticing major investment-management firms and even traditionally conservative entities like insurance companies to explore these waters. The phenomenon broadens as companies like Liberty Mutual and HDI Global Specialty offer judgment-preservation insurance, safeguarding plaintiffs and law firms financially against reversed or reduced trial-court awards.
Despite its growth, some at LitFinCon voiced concerns about potential commoditization in the sector. Commoditization, as described by Burford Capital, involves an influx of capital providers that could lead to decreased standards and competitive pricing pressures. However, as the industry matures, many argue that standardized funding agreements and transparent pricing, key indicators of commoditization, remain absent.
The diversity of lawsuits—each varying by law applied, jurisdictions, involved law firms, and overseeing judges—makes commoditization challenging, particularly in large commercial cases which are the mainstay of most litigation funding investments. This individuality is what keeps the industry dynamic and resistant to broad standardization.
Looking to the future, speakers at LitFinCon, including Mani Walia from Siltstone Capital, painted a cautiously optimistic picture. They highlighted ongoing innovations such as post-judgment insurance, secondary investing, and leveraging artificial intelligence to refine investment strategies. Ethical conduct and increased access to justice remain central to these discussions, ensuring that litigation finance continues to evolve positively.
With litigation finance no longer on the fringes, but firmly embedded in both the legal and financial landscapes, it seems set for sustained growth and evolution, marked by ethical practice and innovation. However, as a still-developing field, it retains a need for vigilance to maintain integrity and contribute constructively to access to justice.
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