By Jason Gabbard, Esq. | The Forefront Law Group
Litigation is expensive. Whether you are an individual who has been wronged, a small business locked in a commercial dispute, or an institutional plaintiff facing a well-funded defendant, the financial asymmetry of civil litigation is often the deciding factor in whether a meritorious case ever gets tried.
Litigation finance — also called legal funding, third-party funding, or lawsuit financing — exists to correct that imbalance. Over the past decade it has evolved from a niche instrument used primarily in international arbitration into a mainstream tool available to plaintiffs at virtually every level of the civil justice system.
This article explains how litigation finance works, who it is designed for, what it costs, and how to evaluate whether it makes sense for your situation.
What Litigation Finance Actually Is
Litigation finance is a transaction in which a third party — a fund, a specialized lender, or a financing platform — provides capital to a plaintiff or plaintiff’s counsel in exchange for a share of the proceeds if the case resolves favorably. If the case is lost, the funder receives nothing. The investment is non-recourse: you do not repay the capital out of pocket regardless of outcome.
That non-recourse structure is the defining feature. It is not a loan in the traditional sense. There is no monthly payment, no personal guarantee, and no credit check. The funder’s return depends entirely on the litigation outcome.
Funding can be structured in several ways depending on the nature of the case and the identity of the recipient:
Plaintiff cash advances. An individual plaintiff receives a cash advance against an anticipated recovery — most commonly in personal injury, medical malpractice, or employment matters. These are typically smaller amounts ($500 to $50,000) designed to cover living expenses while litigation proceeds.
Medical lien financing. A healthcare provider treats an injured plaintiff on a lien basis — deferring payment until the case resolves — and a financing company purchases or advances against that lien. This allows providers to manage cash flow without refusing treatment to uninsured or underinsured patients.
Case cost financing. Plaintiff’s counsel borrows against anticipated case fees to fund the hard costs of litigation: expert witnesses, depositions, e-discovery, and trial preparation. This is common in contingency practices where individual cases require significant upfront investment.
Portfolio financing. A law firm or institutional plaintiff pledges a portfolio of cases as collateral for a credit facility. The funder underwrites the portfolio as a whole rather than case by case, and the borrower draws down as needed.
Who Uses It
Litigation finance is not a product of last resort for desperate litigants. It is a strategic capital allocation tool used across the spectrum of civil litigation.
Individual plaintiffs use it to maintain financial stability during protracted litigation — particularly in personal injury cases where an injury has disrupted income and a well-resourced defendant or insurer has every incentive to delay.
Small and mid-size businesses use it to pursue legitimate commercial claims against larger adversaries without diverting operating capital or distorting their financial statements. A $2 million breach of contract claim against a Fortune 500 company is worth pursuing; it is not worth pursuing if doing so depletes the company’s working capital for two years.
Law firms use it to manage the economics of contingency practices. A firm carrying 40 active contingency cases has substantial embedded value in its docket but may face cash flow constraints that limit its ability to invest fully in each matter. Portfolio financing unlocks that value.
Institutional investors and hedge funds increasingly hold litigation assets as an uncorrelated alternative investment class. Major sovereign wealth funds, university endowments, and pension managers now allocate to litigation finance through dedicated funds.
What It Costs
Litigation finance is not cheap, and it should not be evaluated as though it were a bank loan. The cost structure reflects the risk profile: the funder receives nothing in a loss scenario, so the return in a win scenario must compensate for that binary risk across a portfolio of cases.
For individual plaintiff advances, the pricing model is typically a multiplier applied to the funded amount, accruing over time. A $10,000 advance might carry a return of 1.5x if resolved within six months, 2.0x if resolved between six months and one year, and 2.5x or more beyond that. The effective annualized rate is high — often 40 to 80 percent — but the relevant comparison is not a bank loan. The relevant comparison is the alternative: settling early at an inadequate amount because of financial pressure.
For institutional and portfolio transactions, pricing is more competitive and more variable. Returns are typically structured as a multiple of invested capital (MOIC) — commonly 2x to 3x — or as a percentage of recovery, often 20 to 30 percent of proceeds attributable to the funded portion.
The key question is not whether litigation finance is expensive in absolute terms. It is whether access to capital produces a better net outcome than the alternative — and in most cases where funding is appropriate, the answer is yes.
What Funders Evaluate
Litigation finance is not available for every case. Funders underwrite the merits and economics of the litigation with the same rigor a sophisticated investor applies to any non-recourse asset.
The threshold questions are: Does the claim have clear legal merit? Is the defendant solvent and capable of satisfying a judgment? Is the expected recovery large enough to generate a return after legal fees, litigation costs, and the funder’s share? Is the attorney handling the case credible and capable of taking it to resolution?
Cases with strong liability, quantifiable damages, and a collectible defendant will attract competitive financing. Cases with liability ambiguity, uncertain damages, or collection risk will not — regardless of how compelling the story sounds.
The Ethical Framework
Litigation finance is regulated at the state level in the United States, and the regulatory landscape is uneven. Most states permit it; a handful impose restrictions or disclosure requirements; a small number remain hostile.
For attorneys, the relevant professional responsibility considerations involve disclosure to the client, conflicts of interest, and the prohibition on fee-splitting with non-lawyers. Properly structured litigation finance arrangements do not violate any of these rules — but the structure matters, and not all financing products are properly structured.
Any financing arrangement your counsel enters into must be disclosed to you and must not impair your attorney’s independent professional judgment. If a funder has contractual influence over settlement decisions, that is a red flag.
A Note on New York
New York has one of the most active litigation finance markets in the country, driven by the volume and scale of commercial litigation in state and federal courts here. The New York State legislature has considered — and continues to consider — disclosure requirements for third-party litigation funding in commercial cases. Attorneys practicing in this space should monitor those developments closely.
For consumer-facing plaintiff advances in New York, the relevant regulatory framework is the state’s consumer protection statutes and, increasingly, proposed legislation that would classify certain advances as loans subject to usury limits. The legal characterization of these products — as investments versus loans — remains contested and consequential.
Should You Use It?
Litigation finance is the right tool when three conditions are present: you have a meritorious claim, you face financial pressure that threatens your ability to prosecute it fully, and the economics of the case support sharing a portion of the recovery.
It is the wrong tool when the claim is marginal, when the expected recovery is too small to support the cost of funding, or when access to capital would cause you to pursue litigation you would not otherwise pursue.
The decision requires an honest assessment of your case, your finances, and your objectives. It is a decision best made in consultation with an attorney who understands both the litigation and the financing landscape — and who has no financial interest in steering you toward or away from a funding arrangement.
Jason Gabbard is a founding partner of The Forefront Law Group and the founder of JUSTLAW, a litigation finance platform providing funding solutions to plaintiffs and plaintiff’s counsel. He has represented clients in complex commercial litigation, regulatory matters, and high-stakes transactional work for over two decades. He can be reached at [email protected].
The Forefront Law Group | 420 Lexington Avenue, Suite 2360, New York, NY 10170
This article is for informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship. Consult qualified legal counsel regarding your specific situation.
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