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Using litigation finance: 12 Leading lawyers weigh in (Part I)

October 17, 2019

In June and July 2017, Burford conducted individual phone and in-person interviews with leading lawyers in conjunction with our 2017 Litigation Finance Survey, and we share excerpts from those interviews in the pages that follow. We are grateful for their time and perspective.

Collin Cox, Partner, Yetter Coleman

Patricia Glaser, Partner and Chair, Litigation, Glaser Weil

Guy Harvey, Head of Commercial and International Disputes, Shepherd and Wedderburn

Howard Janis, Director of Strategic Pricing & Analytics, Dentons

Ben Knowles, Partner and Co-Chair of the Global Arbitration Group, Clyde & Co.

Craig Martin, Partner and Chair, Litigation, Jenner & Block

Michael Mills, Partner, Quinn Emanuel Urquhart & Sullivan

Paul Skiermont, Partner, Skiermont Derby

David Thompson, Managing Partner, Cooper & Kirk

Co-Chair, Intellectual Property, AmLaw 100 Firm

Partner, AmLaw 20 Firm

Managing Partner, Corporate and Business Litigation Firm

In your view, what’s driving the growth of litigation finance?

David Thompson: The cost of litigation and desire to shift risk.

Howard Janis: Clients’ unwillingness to pay for legal services directly, clients are looking to reduce their legal spend, and law firms’ desire not to take on all of the financial risk.

Partner, AmLaw 20 Firm: There’s been a generational shift in terms of thinking. As litigation finance was written about in the trades and more and more firms were becoming involved—and they were name-brand, AmLaw 200 firms—people got more comfortable with it. As a firm, simultaneously, we had to adapt and become more entrepreneurial to stay profitable.

Patricia Glaser: Funding is growing because of a combination of (i) law firms being more creative in fee arrangements and (ii) the frequent disparity of resources between plaintiffs and defendants.

Craig Martin: I see litigation finance growing particularly in arenas that are not necessarily the Fortune 50, but rather business entities relating to bankruptcy, private equity and hedge funds, where litigation finance is seen as a necessary tool to access the best lawyers available. What is driving the growth in litigation financing, in my experience, is simply the need to fund significant litigation which is inherently costly and also risky. Those factors combine to lead those with substantial claims to seek to spread risk and reward.

Co-chair, Intellectual Property, AmLaw 100 Firm: In my field of intellectual property, there’s an increasing degree of uncertainty... [and] an increasingly high-risk, high-reward dynamic that’s well-suited for litigation finance.

Paul Skiermont: Litigation finance means we have options if we don’t want to take all the risk on fees, or if we want to share risk on expenses, or some combination. It allows us to take on more of that work and expand our business. We know from having worked with litigation funders that we’re comfortable with sharing risk. We know based on our experience that it’s been far more effective to share risk in a blended pool and have the ability to take on more work.

Guy Harvey: [A] growing type of need is when a client makes a conscious decision to use funding to keep the costs off the balance sheet and to avoid using its own funds…. For law firms, there is increasingly a recognition that clients expect us to be well-informed about litigation funding, and also a sense that funding will allow us to work in new ways and be more competitive.

Some firms and companies are reportedly forming internal task forces to study litigation finance. Has that been true in your experience, and do you think it’s advisable?

Managing Partner, Corporate and Business Litigation Firm: No and yes. We work with by far some of the most sophisticated investors in the world—who know almost nothing about litigation funding. They look to us provide that option. They want it. They know it's out there but most are pretty unsophisticated about it. We’re pretty knowledgeable about this. As part of our process [of reviewing financing options] we spoke to a lot of funders.

Paul Skiermont: There could be some benefits to taking that approach, because it’s my perception that there are more folks trying to get into the business of litigation finance. We have only worked with litigation funders that we knew…. I can see the desire to have internal standards in place, to have certain criteria in place, before going down the road with a potential funder, because there are people trying to break into the industry and it’s important to know how reputable they are, and their capacity to go all the way down the road for the duration, before getting into any kind of funding relationship.

Guy Harvey: Firms should have a sense that they have gathered information about all the options and funders and set clear guidelines about how it will benefit them and their clients. They should consider litigation funding as part of a larger understanding of all the ways they can work with clients with more flexibility.

Michael Mills: It’s become a natural part of litigation, and our clients expect it. So, firms need to know who are the best people to go to.

Describe a successful experience with litigation finance or scenarios where it’s especially helpful.

Managing Partner, Corporate and Business Litigation Firm: It can take 10 years to resolve the big cases. Given that duration, litigation finance really benefits the clients because of something that happens in the market when law firms are at risk over a long period. When the time gets too protracted, sometimes they will throw the client under the bus and push them to accept what I would consider a not-very-good settlement because they don't want to carry the case. They will tell the client, “Some things have come up in the case we couldn't anticipate. Maybe we should seek a consensual resolution.” Litigation finance serves the client’s interest in taking the economic pressure of reaching a resolution off the firm.

Partner, AmLaw 20 Firm: For certain cases, I’ve begun to think about litigation finance as early as the pitch stage…. There was [a] case where the client had gone into the pitch process hell-bent on working with a firm on a 100 percent contingency basis. The firm simply would not do that. I started talking to Burford about different options to offload risk and craft an engagement that for the client would have the same economics.

Collin Cox: One of the benefits of litigation finance is that it makes lawyers act more like businesspeople. It forces you to be more sophisticated in your financial analysis. It forces you to provide a budget, to think carefully about costs, to have accountability—all those are good things, and any time that lawyers can be more sophisticated as businesspeople, that should be welcome to clients and their firms.

Michael Mills: We’re handling a case…that is being brought across six different state jurisdictions. The complexity of the case means that it has taken a year before proceedings could even be instituted. Without litigation finance, we wouldn’t have taken it on… it’s been made possible because of litigation finance.

What questions do firms and companies still have about litigation finance?

Craig Martin: There remains a huge information gap about litigation finance. Most clients have heard of it, but I think most would admit that they don’t understand how it works, what it’s available for, how the decision-making process works for litigation funders, and what kind of control litigation finance providers do or do not have over the matters they finance.

Collin Cox: I don’t think most clients have a lot of awareness about litigation finance and I would bet they have let a lot of cases go because they didn’t know all their options for sharing risk. I think lots of clients will be eager to think about using litigation finance on a case-by-case basis, more episodically.

Partner, AmLaw 20 Firm: GCs of Fortune 500 companies [don’t] understand how Burford can help them in managing cost and offloading risk on some of their dockets in a broader and more strategic way. I think you can’t go wrong in investing in educating in-house people. The in-house lawyers to whom we’re pitching aren’t always familiar with the details of litigation finance. How is it dealt with at a budget level? How does it work at an accounting level?

Guy Harvey: It is not so much questions as it is misperceptions. I think the major areas where further education is needed are around the cost of funding and how to secure funding. Clients may perceive it as expensive—but they aren’t allowing for what funding enables them to do and why it costs what it does. Firms may not be good at addressing such questions and may themselves still lack information. But it is well past time when it is acceptable to be uninformed about litigation finance.

Howard Janis: The clients would like to understand what their options are. What’s the amount that the client could recover if they went one route versus another? It’s the cost-benefit analysis: What’s my cost-benefit relationship of going one route versus another?

What are the most common misconceptions about litigation finance?

Michael Mills: The misunderstanding is that litigation finance is “one size fits all”. That you can only structure litigation funding in one way. There’s a general need to understand that there are different kinds of litigation funders and different ways to structure litigation funding agreements, both for plaintiff and defense work.

Collin Cox: People who are new to litigation finance are confused about what happens when you bring in another party. What does that mean about who does what in the case? The way it should always work is that you have one client. Nothing changes. Now clients don’t have the cost pressures, but you still answer to that same original client.

Paul Skiermont: I am consistently surprised when clients express surprise at how “expensive” it is. The funders are putting out money that may come back as nothing.

Co-Chair, Intellectual Property, AmLaw 100 firm: There are a lot of people that assume that litigants seeking financing in IP are seeking that financing to offload risk because they don’t believe the merits of their case. The opposite is true.

Click here to see Part II of the interview series