For the third consecutive year, Certum Group will host one or more summer fellows, introducing accomplished law students and business students to the growing field of litigation finance. The Certum Group Litigation Finance Fellowship provides top law students with an opportunity to gain hands-on experience in the rapidly growing fields of litigation finance and litigation insurance. Fellows will evaluate litigation funding submissions, draft memoranda analyzing legal and damages issues, help structure and negotiate funding agreements, and contribute to marketing and business development initiatives. They will work closely with Certum’s experienced team of litigation finance, litigation insurance, and investment professionals. Throughout the program, Fellows will develop a practical understanding of how claimholders, law firms, insurers, and capital providers assess litigation risk — and how capital can be deployed as a strategic tool in complex disputes. Further information about the fellowship and instructions about how to apply are available here.
Columbia Law School’s blog on corporations and the public markets, The CLS Blue Sky Blog, recently featured the scholarly work on litigation finance written by Indiana University Business School Professor Suneal Bedi and Certum’s William C. Marra. In their blog post, Bedi and Marra discuss their article Litigation Finance in the Market Square , which was recently published in the Southern California Law Review. Their work reframes litigation finance as a capital markets innovation rather than solely a civil justice mechanism. While much of the public debate has centered on questions of disclosure, control, and settlement incentives, Bedi and Marra emphasize that legal claims often represent significant but illiquid contingent assets on a firm’s balance sheet. When policymakers regulate litigation finance, they are regulating not just the legal business but the capital markets. And they are regulating capital markets in a way that is more likely to harm small and medium-sized enterprises (SMEs) while protecting large companies from competition. The full blog post is available here.
You signed an NDA and shared case materials with your funder. Then you negotiated and signed a term sheet . Now it’s time to negotiate the litigation funding agreements. Funding agreements sit at the intersection of law, finance, and business. They’re not equity transactions, and they’re not debt transactions either. For most people, they’re new: Most funded parties we encounter—even the most experienced operators—have never before negotiated or signed a funding agreement. Here are some tips as you navigate the funding agreement process. Make Sure the Funding Agreement Tracks the Term Sheet The term sheet sets the commercial deal, but the funding agreement is the binding contract. The funding agreement should accurately reflect the economics and key terms you agreed to. Pay close attention to ensure the return structure, waterfall, and budget closely track what was agreed to in the term sheet. Small deviations from the term sheet can have big economic consequences. Confirm that the final agreement memorializes the deal you negotiated. Control and Decision-Making Litigation funders do not control litigation strategy or settlement decisions. Some court rules, including those in the District of New Jersey , request a disclosure that a funder’s approval is not necessary for case strategy or settlement. Certum’s contracts expressly disclaim control. Consider whether an express disclaimer of control, frequently tracking the language of the District of New Jersey rule, is appropriate. As repeat players in the litigation space , litigation funders can and do still provide valuable advice to funded parties, who are often involved in their first and only litigation. Thus although funders cannot control litigation, funded parties typically consult with funders for advice during the course of the litigation. Define “Case Proceeds” Clearly Litigation funding agreements are typically non-recourse, which means the funder recovers only if there are case proceeds. So the definition of “case proceeds” is quite important, and it’s something you should pay close attention to. Cash recoveries are straightforward, but not all litigations resolve solely or exclusively for cash. What happens if there is a non-cash settlement—for example, if the funded party receives stock, real estate, IP rights? What happens if the settlement is structured as a payment over time? Or if there is a sanctions award entered against the defendant? It’s best to address all these issues ex ante at the time of the funding agreement. Funding agreements typically provide a mechanism for valuing consideration other than an immediate payment of cash from the defendant to the plaintiff. Resolving this issue today can help avoid ambiguity tomorrow. Address Other Customary Provisions Several boilerplate provisions deserve attention: Representations and warranties: As with all financial transactions, the recipient of funds needs to provide certain customary representations and warranties. Make sure you study those reps and warranties, to ensure you can stand behind them. Termination rights: When can the funder withdraw? Funders typically have termination rights, for example in instances where the funded party commits a material breach of the agreement. Make sure you understand the consequences of a termination. Consider Hiring Experienced Deal Counsel Litigation funding agreements are specialized contracts. They combine elements of finance, litigation, and insurance. Most generalist lawyers—and even many litigators—have never negotiated one. Certum typically recommends that funded parties retain an independent deal counsel who understands the funding market. Experienced advisors can streamline the process and increase the likelihood that the deal will close. And you can typically negotiate with the funder to have the deal counsel’s fees covered as a closing cost of the investment.