Burford Capital has spent more than a decade pitching its investments as a way for Big Law firms to bridge the gap with clients reluctant to pay the steep costs of pursuing legal claims in the U.S.
Litigation funders have slowly won over lawyers in a conservative industry. Burford’s first half financial results released on Thursday highlight how another side of legal finance—referred to as “claims monetization"— has grown without the uphill battle of convincing attorneys giving up a share of their juicy contingency returns.
Investors are more frequently buying direct stakes in judgments or legal claims from the clients who hold them, rather than investing in a case at the outset by agreeing to pay lawyers’ fees and expenses in exchange for a share of any returns.
The trend was on display in Burford’s first-half results, which showed its investment of $145 million in a group of related cases recently paid out $423 million. That’s an example of how monetization deals can dwarf the amount of money at stake when funders’ investments are limited to the amount of lawyer fees in a case.
Future payouts from those cases also contributed to the firm listing a further $281 million due from settlement receivables. Burford’s shares rose 7.5% percent on Thursday on London Stock Exchange’s AIM market.
“Claim monetization is one of the fastest-growing segments of the litigation finance industry,” said Dai Wai Chin Feman, director of commercial litigation strategies at Parabellum Capital. He said the practice allows for significant capital to be deployed to claims that are seen as having strong value and that these types of contracts can be cut relatively simply without having to negotiate lawyer-side details such as a budget for legal fees.
Monetizing legal claims has lured hedge funds, private equity firms, and specialist litigation funding firms who are willing to pay upfront for a chunk of a legal claim or judgment that still requires court action before it is paid out. These deals are often struck after a case passes an initial hurdle or is awaiting an appeal.
Investments in legal judgments or claims can be in the hundreds of millions, and the returns can reach into the billions. Litigation finance marketed directly to lawyers often involves investing an amount limited to the cost of the attorneys’ fees in a case. Finance firms typically receive a multiple of that investment paid out of the case’s returns—should there be any.
To be sure, monetizing legal claims is not new and the deals rarely reach the size of the returns reported by Burford. But monetization is an important way for a large funder to put money to work, as it would be virtually impossible to invest sums that large strictly by paying attorney’s fees.
“This is obviously something that is different from plain-old, traditional, case-expense and fee-funding,” Burford CEO Christopher Bogart said in an interview. “Nobody is spending $60 or $100 million on a single piece of litigation. This means we are monetizing client positions, and we are doing that across related cases.”
Risk Corridor Payments
The firm does not provide information on the specific cases in which it invests. Bogart declined to offer more detail on those that generated the large returns.
A significant set of cases alleging the federal government owed insurance companies more than $12 billion, which litigation funders were known to have made investments in, has recently led to nearly $6 billion in federal payments, according to U.S. Treasury Department records. The Supreme Court ruled the insurers were owed the money in April.
Burford’s annual report from earlier this year describes a set of cases with investment amounts similar to those described as paying out during the first half of the year. The annual report says the cases were in the insurance industry and involved “federal statutory” claims.
A contract between a health insurer and a litigation finance firm that purchased part of its claim in the so-called “risk corridor payment” litigation showed the funder, Chicago-based Juris Capital, could receive up to 2.25 times what it paid for the claim.
The case has also led a major AmLaw 100 firm, Quinn Emanuel Urquhart & Sullivan, to request more than $180 million in legal fees, which some insurers are challenging.
Emerging Business Lines
Burford has invested more than $50 million in at least four other categories of related litigation, its annual report shows. They include a utilities industry arbitration in Europe; a food, beverage, and tobacco industry antitrust case in North America; a North American contract dispute in the energy industry; and an antitrust case in the North American software and services industry.
Burford’s size—it says it is valued at nearly five times its next closest publicly traded competitor—allows it to stomach the win-or-lose risk involved in these large claims, Bogart said.
While monetizing claims doesn’t necessarily require litigation funders to win over skeptical lawyers, Bogart said the traditional single-case and portfolio style litigation finance would remain an important part of its business. He said the firm’s business “predominately” involves Big Law firms.
“What I think you see developing here is nothing more than a multi-product line finance approach,” Bogart said, comparing his company to how investment banks help companies sell equity stakes, issue debt, or list shares publicly.
“Those businesses coexist with each other absolutely fine,” Bogart said. “And you’ll see exactly the same thing happening in law and with Burford’s business. It doesn’t mean one of them will favor or cause an injury to the other. They’re just entirely different needs.”
Burford on Thursday also said it expects its shares to start trading on the New York Stock Exchange in October.
The company said Covid-19 had caused the level of commitments it made in new cases to fall, as companies focused on more pressing needs than litigation during the pandemic while Burford was wary of their credit risk. The cash it spent on cases also declined as litigation paused with courts closed.