The United States has a fairly new and underdeveloped litigation funding industry. According to Harvard Law School, the country’s first litigation funding group was established roughly 16 years ago. This has left space in the industry for smaller investors to enter the market.
Because of the industry’s relative youth, litigation funders and law firms have had to develop processes to protect their respective interests.
Law firms must strive to win cases while preserving ethical relationships with clients. Funders must confirm that law firms convert litigation funding into compensable cases with the greatest return on investment.
Here are some of the questions funders should think about as they consider potential law firm partners.
Top Questions to Ask Law Firms Before Investing in Litigation
Funders have many options when looking for law firm partners. Personal injury and mass tort practices benefit greatly from establishing symbiotic relationships with funders.
Law firms, like most businesses, have operational challenges. Not every law firm has the leadership, staff, and procedures needed to identify, acquire, retain, and convert compensable injury cases.
A rigorous collateral examination is an important first step, but litigation funders should also consider other factors when undertaking due diligence.
We’ve answered some of the most important questions funders should ask when exercising due diligence.
Which lead acquisition firm does the law firm use to get new cases?
Law firms acquire new cases in many ways. Most firms rely on:
- Repeat business
- Client referrals
- Lawyer referrals
- Advertising
With personal injury and mass torts, these traditional routes for case acquisition will not generate the level of leads needed to justify your litigation finance investment. Instead, the law firm must use a lead acquisition firm to generate a large volume of cases.
These firms identify potential clients who used the products or suffered the injuries involved in the mass tort. It’s important to vet lead acquisition firms carefully and avoid those that generate leads based on poor data or unethical marketing practices.
Ethical rules dictate how law firms pay for legal leads. In many cases, lead acquisition firms are paid for the number of leads they generate, which provides them with an incentive to prioritize quantity over quality.
As a result, inferior lead acquisition firms often generate prospects with low conversion rates or cases with less-committed clients.
More sophisticated law firm lead acquisition companies charge the firm per qualified prospect or per signed retainer. Make sure you understand the case criteria used to vet these prospects. Does it align with MDL leadership criteria? Have medical records been pulled to verify leads?
Understanding the processes and partners the law firm uses to acquire leads will help you estimate the number of cases the law firm will get and the quality of those cases.
What is the protocol for developing cases after getting a signed retainer?
You can gain insight into the risk to your investment and your potential ROI by knowing how your law firm partner gets its leads. But getting a signed retainer agreement is just the beginning.
The law firm must then turn the client’s allegation of an injury into a legal claim. The law firm must retrieve the client’s medical records. This is more complicated than it might seem because of medical privacy laws such as HIPAA.
A qualified medical professional must review the medical records to verify the client’s injury and the causal link between the injury and the tortious act. Without these elements, the law firm could spend money on a case that is unlikely to succeed.
As the source of funding for the litigation, you need to understand the protocols your partner uses to perform these tasks.
Factors to Consider
- Which tasks will the firm perform in-house, and which tasks will the firm outsource?
- Does the firm use case management software? If so, what are the capabilities especially as it relates to reporting and data transparency?
- How does the firm avoid missing deadlines or losing documents?
Without protocols in place, the law firm could end up with a docket full of worthless cases or, worse yet, valuable cases that are underdeveloped or clients have gone unresponsive given the volume but lack of operational efficiencies.
How will the firm leverage technology to keep you informed?
Law firms that take litigation investments still owe a duty of loyalty to their clients. At the same time, the firm must keep you reasonably informed about the state of your investment.
The firm must maintain the confidentiality of the details of its cases. But it can and should identify ways to provide funders with high-level information about case expenditures, statuses, and recoveries.
How will the firm keep plaintiffs engaged in their case?
Despite the money you invest in a case and the work the law firm devotes to a case, if the client has not been kept informed throughout the litigation process, they are likely not engaged or have signed up with another law firm, diminishing your ROI.
Litigation funders should consider the following:
- If the client instructs the lawyer to dismiss a case, the lawyer must follow the client’s instructions.
- If the client accepts a low settlement in the case, the lawyer cannot overrule the client’s wishes.
- If the client loses interest in the case and stops responding to the lawyer’s phone calls, the case will stall and may be dismissed.
You should discuss the law firm’s process for keeping clients informed and well engaged in their case.
Bear in mind that in a mass tort case, clients will suffer a range of injuries and their damages will vary. Not every client will have a case strong enough to merit a multimillion-dollar settlement or damage award. Some clients may be willing to settle for a few thousand dollars.
Steps law firms can take to keep clients engaged include:
- Signing only quality leads to retainer agreements
- Setting client expectations starting at the time the client signs the retainer agreement
- Providing regular case updates to clients
- Communicating with clients through their preferred channels
An open channel of communication is the key to keeping plaintiffs engaged in their case. Avoid dual representation issues with clients that are actively engaged from the moment they sign their retainer until the case conclusion, which often takes years.
Due Diligence on Law Firm Partners
Understanding the litigation process and identifying areas of concern will help litigation funders ask the right questions during due diligence.
To discuss how Case Works can help you evaluate a litigation funding opportunity, contact us today.
