How to bring certainty to litigation budgets

 

Greater litigation budget certainty can minimize the risk of pursuing valuable affirmative litigation and arbitration cases. For legal departments whose dockets include affirmative matters, legal finance helps increase budget confident, reduce risk and boost working capital


 

When litigation is brought against a company, in-house lawyers historically have had no choice but to attempt to dispose of the matter as quickly and cost-effectively as possible. In my prior life as an in-house lawyer at JPMorgan Chase, my docket was entirely on the defense side. We had to allocate resources to cover the expense of defending these matters. By contrast, affirmative litigation tends to get less attention and fewer resources in in-house legal departments. In part this is because, by definition, a company has to choose whether to bring those cases. Another reason affirmative litigation can seem untenable is the difficulty of coming up with a budget that is appropriate in light of the expected recoveries from the case.

Sophisticated legal financing providers … analyze litigation risk and litigation budgets for a living.

It’s therefore understandable that planning for, let alone budgeting for, affirmative litigation might not be a priority inside companies. And recent research confirms that one reason GCs hesitate in pursuing affirmative matters is the challenge of obtaining accurate budgets.1 In the 2022 Legal Affirmative Recovery Programs Report,2 three of five senior in-house lawyers interviewed said they believe it is possible to predict with a high degree of accuracy what litigation matters will cost. Yet nearly half noted their outside law firms do not provide accurate and reliable litigation budgets.

Sophisticated legal finance providers can help in-house lawyers prepare and adhere to accurate litigation budgets because these financers analyze litigation risk and litigation budgets for a living. Burford, for example, has spent more on litigation than many huge corporate clients have, and has received more than 11,000 requests for funding since its founding. Each time we assess a new case brought to us, we apply that unique proprietary historical data as well as external data to model and quantify budgets and legal risk.

This kind of knowledge and expertise is essential for a company that is considering bringing an affirmative case. Let’s say your company is considering filing an antitrust case against a supplier that you believe engaged in a price-fixing conspiracy with other suppliers that unlawfully inflated the price your company paid. You’ve hired counsel. They’ve worked with your business to estimate the volume of commerce affected and how much you spent on the supplier’s products. They’ve also told you they think you have a good case. And they have provided a budget for fees and costs.

Now what? You can bring in a legal finance provider to help estimate damages based on its experience with similar cases and to consult on and benchmark proposed budgets. The two go hand in hand. The legal finance provider may have seen many similar cases and can anticipate the twists and turns they are likely to take; if they are likely to settle and at what stage; and what damages scenarios are most likely.

An experienced legal finance provider will also have access to its own data and third-party data on legal fees and costs and can assess and compare the proposed budget provided by the law firm. By modeling likely fees and costs, as well as a range of possible litigation outcomes, the provider can arm the corporate legal department with analysis to help them quantify and prioritize their affirmative litigation, predict its probable value and help determine an appropriate and realistic budget. While there are many factors to consider, deciding whether to pursue costly affirmative litigation should be based on rigorous research and a systematic approach to vetting matters and evaluating and modeling possible financial outcomes and costs.

An experienced legal finance provider will also have access to its own data and third-party data on legal fees and costs.

The result: Greater confidence in deciding whether to bring litigation, greater certainty in setting budgets and, likely, more internal support across the business for pursuing affirmative litigation. This in turn benefits external law firm partners—because augmenting the accuracy of budgets for their work also augments support for that work.

These benefits are even more likely given that financing the litigation can create budget certainty on a much bigger scale: Legal teams that secure portfolio-based financing, in which multiple matters (possibly the entirety of the company’s affirmative litigations or even some defense matters) are financed in a single capital facility, can transform the legal department from being solely a cost center to being a revenue generator. Whether for one case or many, legal finance mitigates cost by providing the capital required for the litigation in exchange for some of its upside in return. This means companies can pursue litigation without drawing from their own working capital, which can instead be used for business operations and expansion.

In failing to pursue affirmative litigation when their businesses have been harmed, companies might be leaving money on the table. When two of three GCs agree that pending claims are financial assets3 that represent future cash flow, these in-house counsel need to know about the tools available to them to tap that value.

Legal finance providers make or lose money based on the soundness of their analysis of a case’s risks, costs and likely recovery. Partnering with a legal financer that uses sophisticated tools and deep experience to analyze the cost and value of pursuing litigation can deliver crucial insights that legal departments need to make decisions about affirmative litigation. For legal departments whose dockets include affirmative matters, legal finance is a must-use tool to improve budget certainty.

 

Christopher Catalano is a Managing Director with responsibility for managing Burford’s global litigation finance portfolio. He was previously a Vice President and Assistant General Counsel at JPMorgan Chase, and has been a litigator at Kirkland & Ellis, Wilson Sonsini Goodrich & Rosati and O’Melveny & Myers.

 


[1] Catalano, Christopher. “Burford Insights: What's the secret to accurate litigation budgets?” https://www.burfordcapital.com/insights/insights-container/video-accurate-litigation-budgets/
[2] Burford Capital. 2022 Affirmative Recovery Programs Report. https://www.burfordcapital.com/insights/insights-container/2022-affirmative-recovery-programs-report/
[3] Ibid.