Of the 55 lawyers on Burford’s global team as of publication, 18 are former in-house lawyers, including Burford’s CEO, Christopher Bogart, who co-founded Burford in 2009 inspired in no small part by his experience as the former General Counsel of Time Warner Inc.
In June of 2019, Burford Senior Managing Director and former in-house lawyer Aviva Will gathered members of the team who recently joined Burford from in-house legal teams for a roundtable discussion of lessons learned on both sides of the in-house/legal finance divide.
Craig Batchelor, Former Vice President, Barclays
Christopher Catalano, Former Assistant General Counsel, JPMorgan Chase
Michael Sternhell, Former Senior Vice President and Managing Counsel, OppenheimerFunds
Moderator: Aviva Will, Former Assistant General Counsel, Time Warner
All of you joined Burford directly from in-house legal teams, three within the last year. Although it’s my experience that many in-house lawyers are still just learning about legal finance as a category, you clearly saw an opportunity here at Burford. Tell us what appealed to you about making legal finance part of your career, and why you think it is an attractive transition for in-house lawyers.
Christopher Catalano: Legal finance was a natural transition from my in-house role. In-house, my docket was entirely defense side—I saw legal claims against my client as a potential liability to be managed and minimized. As primarily a claimant-side financier, Burford sees litigation claims as investable assets that if successful will generate value disproportionate to the legal spend. So the two roles are really mirror images of one another.
Michael Sternhell: As in-house counsel for a global asset manager, I was interested in using legal finance to address a persistent problem faced by fund managers who find themselves in possession of valuable legal claims. I often worked with portfolio managers evaluating legal claims against issuers and other market participants. As a litigator supporting investment professionals focused on delivering superior investment returns, it was natural for me to think of claims as fund assets. Moreover, I observed how the fee pressure affecting the industry could lead investment advisers to abandon valuable claims. Fund boards and advisers are often reluctant to expose funds to unpredictable legal expenses in pursuit of uncertain recoveries because legal spend can impact a fund’s expense ratio. I joined Burford because I believed legal finance could help solve that problem by transferring litigation risk from the fund to the legal finance provider.
Craig Batchelor: Legal finance appealed to me because I could apply the skills I had developed as an in-house lawyer to this innovative and growing industry. As an in-house lawyer, you must quickly assess the strengths and weaknesses of new claims, consider different damages scenarios and evaluate potential outcomes to advise your internal clients. These are essentially the same skills that you need when evaluating a potential investment as a legal finance underwriter. What makes legal finance even more attractive is that you go from being a “cost center” to a “profit center” and get to work with some of the smartest and most creative lawyers around.
As an in-house lawyer, did you think about legal finance? How?
Christopher Catalano: Legal finance was a big part of my role at JPMorgan. My job was to spend money prudently on outside counsel and potential judgments and settlements. I was responsible for approving legal budgets, tracking spend against budget, setting litigation reserves, and ensuring that we were litigating the cases in a way and on a burn rate that was commensurate with the legal and business risks. The fundamental view that a legal claim is an asset (or liability) depending on which side the “v” you are on informs what I do every day at Burford.
Michael Sternhell: Before joining Burford, I thought of legal finance as traditional single-case finance: A financier provides non-recourse capital to a plaintiff pursuing damages in exchange for a share of the plaintiff’s eventual recovery. But a fund may be pursuing injunctive relief to protect or increase the value of a portfolio investment. A fund may be a defendant in some cases and a plaintiff in others. Whether through portfolio finance or principal investment strategies, a sophisticated and well-capitalized legal finance provider like Burford can deliver solutions to a diversified asset manager I never would have thought of as an in-house lawyer. It’s exciting to now have the opportunity to present those solutions to my former industry peers.
What were the trends and pressures you faced in-house? Without addressing whether or not you used legal finance to relieve those pressures, could it have been useful to you?
Craig Batchelor: The overriding trend year after year was a pressure to reduce legal costs. For many in-house legal departments, costs soared in the years following the global financial crisis due to increased litigation and investigations, but many of those long-running matters are winding down, and companies are scrutinizing legal costs much more now than five or ten years ago. In hindsight, legal finance definitely would have been useful to me, particularly in funding affirmative claims that would have offset defensive legal costs and turned the in-house legal department into a profit center.
Christopher Catalano: It’s what you’d expect—better service at lower cost. In-house legal departments are not just cost centers in terms of in-house and outside spend, but, on the defense side, really should be thought of as cost-containment centers, because the decisions they make can help avoid painful judgments and settlements.
With a possible recession looming, how should GCs prepare for a possible downturn while still taking advantage of a growth economy? Has the global financial crisis of 2007-2008 better prepared in-house counsel to deal with the legal challenges that are part and parcel of economic uncertainty?
Michael Sternhell: It’s no coincidence that legal finance grew exponentially in the US in the wake of the 2008 financial crisis. Economic downturns often give rise to sizable legal claims while simultaneously leaving companies with fewer resources to pursue them. I left a law firm and moved in-house at the height of the global financial crisis, and most of the litigation I initially managed—both defensive and offensive—arose in one way or another because of the financial crisis. When a company is dealing with multiple claims simultaneously, a portfolio financing solution can help relieve the economic burdens of a large litigation docket and ensure the company is focused on maximizing legal recoveries, rather than minimizing legal spend. Companies would be well served by their GCs’ investment of time and energy now in developing the infrastructure necessary to address what might come in an eventual downturn.
Craig Batchelor: Ironically, I do not think the global financial crisis has prepared in-house counsel in the financial services industry to deal with a possible downturn. The global financial crisis spurned a wave of litigation that caused in-house litigation departments and their corresponding legal spend to grow dramatically. Those legal departments are now under tremendous pressure to cut costs, and I believe those pressures will only get worse during a downturn.
Christopher Catalano: The global financial crisis caused a great leap forward in corporate clients recognizing the tremendous financial leverage they have over the law firms that work for them. What had been a cozy, patronage-type arrangement between certain big law firms and certain big clients became a much more of an arm’s-length business relationship. Expense took center stage. Clients put engagements out to bid rather than going back to the same firm. They took a closer look at whether they should be paying for the work of summer or junior associates. They pushed firms to outsource document review especially as the volume of documents exploded with the use of email and other electronic media. And “alternative fee arrangements” became anything but alternative. All of these changes have well prepared in-house lawyers prepare for any economic uncertainty that may lie ahead.
Read more of “Former in-house lawyers weigh in on legal finance”:
Part I • Part II
To read the article in full, download the Summer 2019 Burford Quarterly.