The Litigation Funding Triangle

On the surface, litigation funding seems like a straightforward proposition. A plaintiff or attorney needs money to pursue their case against someone who wronged them, and the litigation funding firm agrees to advance that money, which they will get back with fees once the case successfully concludes.

But in reality, litigation funding is quite a bit more nuanced. It’s not enough to simply grant funding to every plaintiff who asks, even if underwriting indicates we will make a profit. Mustang Litigation Funding was founded on the idea that every party, not just us, must stand to see a real, definitive benefit from being funded by our company.

We consider a well-funded litigation to be a triangle, with the plaintiff on one side, the plaintiff’s attorney on another and Mustang occupying the third. We carefully explore all three sides of the litigation funding triangle to make sure a successful outcome will be good for all parties.

Plaintiff

In examining the plaintiff’s side of the litigation funding triangle, we examine outcome forecasts with the idea that it isn’t enough to simply win the case. A favorable judgment can be a pyrrhic victory if the plaintiff is awarded money but can’t take much of it home. It is entirely possible for inappropriate litigation funding to result in the plaintiff walking away with nothing while the litigation funder enjoys a healthy payday.

Our approach to litigation funding puts ethics at the forefront, and we strongly believe funding a case to a level that results in the plaintiff getting little to nothing is entirely unethical. Properly funding a case not only increases the likelihood of success, but also the likelihood the plaintiff will materially benefit from that success.

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In our last article we highlighted litigation funding’s role in making sure a case can be tried to its full potential. Without sufficient funding, plaintiffs are often forced to settle for a lower judgment than they might otherwise be entitled to. But that’s only part of the decision-making process.

When we evaluate cases to determine if we’re a good fit as a litigation funding partner, we first look at the need. In some cases, litigation funding can literally make the difference between the plaintiff’s economic survival and collapse. Many plaintiffs are unable to work due to the injuries that led to their lawsuits. In those cases, funding is not simply a question of trying the case to its potential. Rather, funding can be the lifeline a plaintiff needs to avoid financial ruin and even homelessness.

By making sure the plaintiff has enough money to not only pursue their case but to economically survive while doing so, they’re able to pursue higher judgments that can keep them financially healthy long after the case ends. Many plaintiffs lack access to capital entirely, leaving us as the sole resource they can rely upon to pursue their case.

Plaintiff’s Attorney

For the second side of the litigation funding triangle, case funding also needs to benefit the plaintiff’s attorney, which is why part of our institutional approach to funding evaluation considers the forecasted benefits to the lawyer and law firm. A thoughtfully-funded case gives the plaintiff’s attorney a better chance of securing the full value of the case.

As a plaintiff’s attorney, you’re able to focus on trying the case rather than having to concern yourself with finding a path forward through your client’s economic shortfalls. This not only allows you to help your injured clients recover by earning them a larger judgment, but it secures you a higher contingency fee. Having the appropriate capital available to your client allows you to pursue the best outcome you can, without worrying that your client’s immediate economic needs will force a premature resolution of the case for less than its full value.

Litigation Funding Firm

Of course, any litigation funding firm is a business. In order to continue to fund cases, we must make a profit. However, we feel it’s important that any profit we make is within reason and that the plaintiff walks away with the majority of the settlement. This is why we regularly reject cases we believe would prevail if we find that “sufficient funding” would impose such a high burden on the plaintiff that we would profit at their expense.

A recent example was a plaintiff who had already been funded by another firm. They’d gone through the $100,000 from the first company, which means that if we had funded them, we’d have paid off that $100,000, and the plaintiff would then have owed us for that plus the additional funding we extended. Our underwriter determined the lawsuit had a high probability of success, but the expected judgment would have been so low that the plaintiff would likely have walked away without a single dime of it for themselves. We would have made money if we had funded it, but we declined because the outcome for the plaintiff would have been poor.

This decision went straight to Mustang’s core values. Our team was very successful in the investment industry before Mustang was founded, but we were also heavily invested in ethical practices. We feel being trustworthy, and not out to drain plaintiffs for our benefit, is simply the right thing to do.

In the end, we have no interest in funding anything where any party to the funding is not completely in support of it. We don’t push a plaintiff to accept funding if their attorney isn’t in favor of it. Likewise, we don’t pressure plaintiffs to accept funding just because their attorney wants it. The core of the litigation funding triangle concept is that all three parties must benefit, and we do not see a scenario in which all three benefit unless all three are in support of the funding. Pursuing funding without full agreement from all sides does much more harm than good.

We feel the triangle model of litigation funding is the only way to ensure all parties avoid harm resulting from the funding process. If you’d like to know more about how we select cases to fund, please visit our website.