Soon after its 2009 launch, Burford began commissioning independent research to better understand risk- and cost-sharing trends impacting corporate legal departments and law firms and the role that legal finance can play in helping them meet their business goals.
In 2022, Burford commissioned three distinct independent research reports with GCs and senior in-house lawyers. These studies reveal that in-house legal teams are increasingly motivated to pursue their meritorious claims in ways that minimize their costs and maximize their returns, and increasingly likely to consider a more systematic approach to pursuing such claims, up to and including establishing a formal affirmative recovery program for the business.
The highlights of these three studies are summarized below.
2022 Affirmative Recovery Programs Report
The 2022 Affirmative Recovery Programs Report draws on extensive one-on-one interviews conducted with 52 GCs, heads of litigation and other senior in-house lawyers. The research demonstrates that legal departments are increasingly leveraging affirmative litigation programs to maximize their recoveries and exploring ways to reduce the costs of doing so. A the GC of a multinational logistics company put it, “Everything about what I do is about the value that the legal department generates for the company, so new creative ways of generating revenue and reducing risk are very appealing.”
- Affirmative recovery programs are increasingly common, with 2 of 3 GCs, heads of litigation and other senior in-house lawyers interviewed saying that their companies have an affirmative recovery program.
- However, few legal leaders say their companies have robust affirmative recovery programs—indicating room for growth.
- Senior in-house lawyers recognize that when they do pursue affirmative recoveries, new tools to increase certainty and manage costs will lead to better results.
- 2 of 3 GCs interviewed say pending claims are financial assets that represent future cash flow.
- As the deputy GC of a multinational chemical company put it, “We want to potentially find opportunities to turn the legal department into a revenue generator rather than a cost center.”
Shifting cost and risk of affirmative recoveries with legal finance
Interviews with GCs show that a common barrier to pursuing meritorious claims and establishing an effective affirmative recovery program is the concern that doing so will create additional costs and risks for the business. However, legal finance plays an important role in providing greater certainty about costs and risks.
Senior in-house lawyers admit to varying levels of knowledge about legal finance, but many are eager for more information—and many remain unsure about how legal finance works. In-house lawyers whose companies use legal finance consistently report that their companies have robust affirmative recovery programs that meet their needs. As the GC of a multinational logistics company said, “Fifteen years ago, if someone asked about funding litigation it sounded radical, but now it is mainstream.”
A Report on Class Action Recoveries: Why Companies Opt Out and What They Have to Gain
In the US, companies that have suffered harm that is the subject of a class action can either remain a member of the class or decide to opt out and bring an action as an individual plaintiff. Companies that opt out recover significantly more than by remaining a class member, but they must take on the cost and risk of pursuing an individual claim. To better understand the factors that influence how and when companies choose to opt out, Burford surveyed 150 GCs, heads of litigation and other in-house lawyers in the US, and published A Report on Class Action Recoveries: Why Companies Opt Out and What They Stand to Gain.
- 1 of 5 (19%) report claims worth more than $25 million.
- 56% of companies routinely recover less than 25% of their entitlement when they remain in the class.
- Companies are far likelier to mostly or always remain in the class (60%) than they are to mostly or always opt out (8%). The lost value is stark for large companies, which have bigger claims and more upside to be gained by opting out but are currently likelier to remain in the class.
- Companies’ top reasons to stay in the class are economic, and solvable. Not being able to justify the cost of pursuing an opt out claim (64%) and not having the budget to do so (61%) are the top 2 reasons companies remain in the class.
- Companies’ top reasons for opting out are maintaining control and maximizing return. The #1 reason large company GCs opt out is their fiduciary duty to maximize recoveries to their company.
- Companies that have used legal finance are 3x more likely to say that they mostly or always opt out.
- 52% of all GCs surveyed and 56% of GCs with little prior knowledge of legal finance say its availability would positively impact their decision to opt out of a class action.
- Companies that tend to opt out are almost 2x likelier to have used legal finance compared to all companies and 3x likelier than companies that mostly or always remain in the class.
How can legal finance help maximize recovery?
GCs say the availability of legal finance would impact their opt out strategy. GCs recognize that by opting out of class actions and pursuing individual claims, they can maximize recoveries for their companies. Legal finance removes economic barriers to pursuing valuable individual claims, enabling companies to build a better opt out strategy. Additionally, legal finance capital removes or reduces downside risk: Should the opt-out fail, or an award take longer to recover or the recovery itself be far less than expected, the company keeps the capital advanced and owes nothing.
Companies that decide to use legal finance in an opt-out claim have two main legal finance products available to them: Fees and expenses financing and monetization.
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2022 GC Survey: How Law Firms & Legal Finance Can Help Fuel Success
GCs are proactively looking to generate value for their businesses and transcend outmoded ideas about the legal department as a cost center. To better understand this ongoing trend and to offer actionable insights to in-house and law firm lawyers, Burford commissioned independent research that was conducted with 300 GCs, heads of litigation and other senior lawyers at companies in the US and the UK on how law firms and legal finance can help fuel success.
- Over half (54%) say the legal department is understood to add value to the business by pursuing recoveries through litigation or arbitration.
- Half (50%) of in-house lawyers say that the company pursues affirmative recoveries when they have meritorious claims rather than leaving money on the table.
- An even larger majority (69%) say identifying new ways to add value to the business is the most important means by which in-house lawyers can contribute to the success of the company.
- Over half (51%) say they need to build infrastructure and process to add value through meritorious affirmative recoveries.
- A clear majority (65%) say that receiving guidance from law firm partners about opportunities to innovate or add value to the business is one of the most important factors in individual GC success.
- 6 in 10 say either that their panel litigation firms have spoken to them about legal finance in the last five years or that the firm’s doing so would have contributed to the company's success.
Legal finance has a role to play
GCs see a role for legal finance, especially in relation to their affirmative recoveries. Legal finance has a role to play in supporting these recovery efforts by shifting cost and risk to a third party. Legal finance can fund legal fees and expenses associated with pursuing meritorious claims or accelerate a portion of the expected entitlement from pending claims or unenforced judgments through monetization. For legal teams lacking robust litigation experience or expertise, Burford can help funded clients identify and prioritize their most valuable claims.
GCs are changing the way in which they think about pursuing meritorious claims, becoming more strategic. As a result, law firms are expected to be well-versed in all available risk-sharing options and to advise their clients on these. To discover all available risk-sharing options, legal finance has a role to play whether that be in funding a robust affirmative recovery program or an opt out claim.