In May 2020, Burford Senior Vice President Elizabeth Fisher and Vice President Rufus Caine III asked a select group of leading law firm lawyers about the challenges corporate legal departments face due to the current economic climate and how those lawyers and their firms advise GCs to adjust. Their answers are excerpted and collected below.
In a downturn, GCs face pressure to cut legal budgets and manage risk more carefully than ever, and that can lead to a reluctance to pursue affirmative litigation. In your experience, what does it take to get clients comfortable with moving forward with affirmative litigation via a risk-sharing solution? What factors—other than cost—disincentivize GCs from taking such actions? Are there lessons from the last downturn, and has the growth of legal finance made a difference?
Reed Oslan: Affirmative litigation is an asset that should be pursued even in difficult financial times. Contingent fee and risk-sharing special fee arrangements have been available for decades and litigation finance is simply an efficient extension of that longstanding option. The reality is that sharing risk and recovery with a law firm or a funder can be a sensible way to pursue affirmative litigation in challenging circumstances, as we are all experiencing now. In 2008-9, Kirkland saw a dramatic uptick in the number of requests for risk-sharing fee arrangements and we are just starting to see that develop again. Now that litigation finance is widely accepted, I would expect a large number of law firms to see the same uptick, and partnering with a funder will provide clients with favorable financing opportunities. One thing to bear in mind: Litigation financiers are able to provide clients funding in ways that law firms cannot. For example, funders can advance not only the fees and costs, but also a portion of the client’s ultimate recovery. This sort of non-recourse advance of the eventual success in litigation can provide valuable working capital and risk mitigation.
Scott Gant: Each client is unique, and lawyers will often hear from current and prospective clients how much the client appreciates lawyers’ efforts to learn about their business. The current circumstances are an extension of that important principle. In the best of times you want to understand the mechanics of your client’s business and what drives it. Even businesses in the same sector may operate differently, and it’s important in understanding the litigation the client may take on, or be subject to as a defendant, and the appetite for risk-sharing. Clients want to have an assessment for the prospects of a case and recovery when evaluating whether to share risk. Legal finance has come a long way from paying legal fees and expenses. Clients who were disinterested in legal finance in its early days may be now more open to it.
Charlie Lightfoot: One has to evaluate every situation on its own facts and circumstances. Sophisticated clients will look at litigation within the context of their business and ask whether it makes sense from a risk/reward perspective or whether there is some other compelling strategic reason to pursue it. Cost is an important part of this equation but equally important will be questions, such as merits, recoverability, brand and so forth. However, where cost is a key and sensitive consideration, and it will increasingly be so in the coming months, legal finance is one of the valuable tools available to clients that may enable a decision to proceed. In the case of insolvent or financially distressed companies, it may make all the difference.
Maja Zerjal: Legal finance has given in-house departments the ability to spotlight their value-creating role. In the current economy, companies are carefully guarding liquidity and affirmative litigation—even at companies otherwise eager to pursue it—is generally put on pause.
In these uncertain times, any bucket of value can extend a company’s runway. Litigation finance allows affirmative claims to become one of these buckets—especially if they can lead to fast settlements that can result in significant value for the company. First, the availability of litigation finance can be the deciding factor for in-house departments to conduct an internal analysis of affirmative claims. Second, companies can obtain an objective assessment of the value of potential claims from the litigation funder’s underwriting process. Third, if claims are viable and valuable, litigation finance enables a company to pursue them where they otherwise might not because of litigation cost.
Meritorious legal claims are assets which can bring extraordinary value to the organization. What are the most effective ways you have seen clients unlock the value of their legal assets and bring liquidity to the larger client organization, and are there client sectors that demonstrate greater innovation in this regard?
Cindy Sobel: Over the past several years, an increasing number of clients have utilized litigation finance. One successful strategy has been to start by financing a single case, providing opportunity for in-house legal teams to learn first-hand how litigation funding works. That experience is important in building trust and understanding that litigation funders are not going to disrupt legal strategies or influence pre-existing in-house legal processes. Following a successful experience, GCs are more willing to engage in additional funding opportunities and to explore the various options on offer. In some instances, legal departments do so by dedicating a member of their team to work hand-in-hand with the business to investigate potential claims. After an initial case generates a return for the business, we have seen a greater willingness by legal departments and companies more broadly to devote resources to litigation identification efforts, ranging from breach of contract cases to patent infringement, trade secret and other intellectual property matters.
Reed Oslan: Plaintiff-side cases are company assets just like a piece of real estate or a business opportunity. While not traditionally viewed in this light, plaintiff side cases can be significant drivers of value for clients. The notion of paying a law firm to pursue plaintiff-side cases has become far less attractive as overall legal expenses have increased over time; hence, contingency fees and litigation finance have expanded. Separately, clients are doing a very good job understanding the risk/reward profile of a funded plaintiff case. In some instances, where we have both plaintiff and defense representations for a client, we will use the plaintiff case to reduce the client’s ongoing fees in the defense cases. The currency of a plaintiff case can be a very powerful for in-house lawyers and financial officers to create value while minimizing costs along the way, across all industries.
Maja Zerjal: Legal departments with a creative approach are best positioned to be drivers of value, not cost centers. Assessing the value of legal claims and related work is often more of an art than science, but science can help determine where the art is best applied. In this context, the “science” is a methodical approach to evaluating and quantifying the value of a legal claim. Any general counsel with a flexible and creative vision, regardless of the industry, can lead with an innovative approach, although those in tech companies may be most naturally drawn to that. For example, many clients use software to scrutinize legal spend, which can remove dozens of hours of review and instead focus the negotiation on big-ticket items. Similarly, dozens of hours can be spent by a legal department in analyzing claims and the budgets to pursue such claims. Bringing a litigation funder into this process provides not only potential funding, but also another deeply experienced and expanded perspective on both the quality of the claims and the necessary investment to materialize them.
Charlie Lightfoot: I have now worked with clients who have used litigation finance both to enable proceedings and to monetize existing awards. I am not sure any one example particularly stands out but, in every case, the use of finance has enabled the client to pursue rights or realize recovery without disrupting or creating excessive burden on the rest of its business. In a post-pandemic world that will be an increasingly valuable proposition.
Read more of "Law firm roundtable: Helping GCs adjust to new economic pressures."
Part I • Part II
DOWNLOAD THE QUARTERLY
Issue 3/2020 of the Burford Quarterly features new thinking on a variety of topics, including how Burford, as the leader of an evolving industry, can be a valuable partner to in-house and law firm lawyers today.