WHEN COMMERCIAL LITIGATION RUNS OUT OF MONEY, LAWSUIT CROWDFUNDING CAN HELP

It is a familiar narrative to most commercial litigators. A client with a compelling case offers to retain your firm to file suit on either an hourly, contingency or some other basis. Prior to accepting the engagement, you spend time preparing the client for what lays ahead, discussing the litigation strategy, budget, the timing of expenses, and explaining the required time commitments . The client agrees to proceed while assuring you that money will not be a problem. The client even deposits a retainer with your firm to fund your fees and a portion of the litigation expenses.

As the case progresses through the various litigation milestones and the retainer is exhausted, it becomes apparent that your client is struggling to pay the remaining expenses, which usually increase as the matter nears trial. For example, your client may be unable to pay for an expert witness who will provide critical testimony or to hire additional legal talent to deal with a very specialized area of the law. You may also need to pay for travel expenses for key witnesses or produce high-quality court exhibits.

There are hundreds of litigation expenses and plaintiffs' capacity to pay them is frequently uncertain. At the same time, the attorney's ability to achieve a successful outcomes for his or her clients can be significantly affected when lawsuits run out of money. In these situations, plaintiffs and their attorneys can seek to raise outside capital from litigation finance companies that may agree to provide capital in return for a financial stake in the proceeds of the case. Unfortunately, this process is often opaque and the cost of capital very high. Moreover, very few commercial cases actually qualify for traditional litigation finance.

A litigation finance model recently introduced by LexShares.com now allows plaintiffs and attorneys to raise capital for their lawsuits online using the crowdfunding model. Businesses and individuals can introduce their cases to accredited investors via LexShares and fundraise some or all the costs of litigation in return for a stake in the lawsuit’s future proceeds. Capital is generally available for funding business disputes such as breach of contract, intellectual property, fraud, insurance bad faith claims, and statutory claims like antitrust.

Capital raised on LexShares can be used to fund litigation costs, although the funding facility may also be used for the plaintiff’s working capital and for personal use. All lawsuit investments made through LexShares are non-recourse, which is a no-win, no-fee arrangement.

Plaintiffs or their attorneys can submit active cases to LexShares for fundraising. The underwriting team will review the merits of the claim to decide if the case is eligible for posting. Once accepted, the case will be posted to the LexShares platform for a period of 45-60 days, during which time investors can make investment commitments. If the target fundraising amount is reached, LexShares will collect the proceeds of the raise from investors and transfer them to plaintiff.