What is the Difference Between Litigation Funding and Contingency Firms?

contingency attorney outlining payment to client

It’s no secret that litigation is expensive. While large corporations may have the reserve funds to cover legal costs should a lawsuit arise, small- and medium-sized businesses don’t usually have that same luxury. So, what happens when a smaller business needs to go to court to defend its rights? Litigation funding companies and contingency law firms are two possible ways a business can afford to litigate without millions of dollars in their back pocket. Though these funding options appear similar to most consumers, their small distinctions often make all the difference for their clients.

Litigation Funding Companies

Litigation funding companies (LFCs) are companies funded by investors that connect clients to attorneys. These LFCs have gained popularity due to the low costs associated with retaining one. However, this is not a free service by any means. In exchange for covering the upfront costs of retaining an attorney, LFCs take a percentage of the case’s winnings – usually 20 to 30 percent. This makes for a massive profit for the LFCs that act merely as middlemen. In fact, a piece published in the New Yorker in 2016 identified the litigation funding as a $3 billion industry. The LFC process can usually take weeks or months.

While that may sound acceptable on the surface, clients should always read the fine print in their LFC contracts which often outline many situations that render the contract void. Once the contract is void, the client would be expected to repay the sum used on their case as though it were a loan. Often, once a case enters settlement negotiations, the LFC aims only to recover enough to repay their investors.

Contingency Law Firms

Working with a law firm on a contingency basis cuts out the middleman for clients. “Contingency” means the law firm charges nothing to the client unless the case is successful. In that case, the law firm will take a percentage of the award, similar to LFCs. However, where the two institutions differ is the dedication to the work. LFCs are loyal to investors which keep them in business. Contingency law firms work only for the client and their goals align – to recover as much money as possible. There are no investors to repay. The law firm depends on a higher settlement amount to receive a greater profit. This motivates the contingency law firm to work harder during negotiations.

Providing Contingency Commercial Litigation Services Nationwide

Contingency law firms often provide a faster, more results-driven experience for clients. McCune Wright Arevalo, LLP, offers contingent funding for small- to medium-sized businesses seeking representation in commercial litigation matters. Our team of attorneys aggressively pursue the best outcomes for our clients and have proudly recovered more than $1 billion in awards and settlements.

If you are a small- to medium-sized business owner in need of legal representation, contact us today or call (909) 345-8110 to receive your free consultation!

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