Litigation Financiers Won’t Be Ambushed Again on Capitol Hill

Last year, the litigation finance industry was nearly taxed out of existence by a measure Sen. Thom Tillis (R-N.C.) tried to attach to a big tax and spending package.

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The measure, which would have imposed a 41% tax on litigation finance profits, didn’t become law. But it did spook many who work on this fast growing $16 billion industry.

Two attorneys have responded by launching the American Civil Accountability Alliance, a lobbying group designed to push back against laws targeting the outside funding of lawsuits. One of those two co-founders, Houston patent lawyer Erick Robinson, is our guest on today’s episode of our podcast, On The Merits.

“I think we were all just shocked,” Robinson told Bloomberg Law’s Emily R. Siegel. The litigation funding tax “came very close, a lot closer than anybody including, I think, Senator Tillis, thought to passing.”

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This transcript was produced by Bloomberg Law Automation.

Host (David Schultz):

Hello and welcome back to On the Merits, the news podcast from Bloomberg Law. I’m your host, David Schultz.

Last year, litigation finance almost got effectively taxed out of existence. Republicans, led by North Carolina Senator Thom Tillis, very nearly included a measure in their big tax and spending package that would have imposed a 41% tax on the profits of the litigation finance industry, an industry that’s now worth around $16 billion.

The practice has always had its detractors. Darrell Issa, a Republican House member from California, is pushing his own anti-litigation finance bill. But industry insiders will admit that they were caught flat-footed by the Tillis legislation, which ultimately didn’t make it into the final bill. Now these financiers are vowing not to get surprised again.

Earlier this month, a pair of lawyers created the American Civil Accountability Alliance, a lobbying group focused on fighting back against efforts to clamp down on litigation finance. Today on the podcast, we have a co-founder of that group, Erick Robinson, a Texas patent attorney who’s also a partner at the firm Cherry Johnson Siegmund James.

And we should say we reached out to spokespeople with Tillis and Issa, but didn’t hear back in time.

All right, let’s get to our interview with Erick Robinson. He spoke with Bloomberg Law reporter Emily Siegel about why litigation finance has acquired so many powerful enemies and about why he decided to start this new lobbying group.

Erick Robinson:

There’s a lot of folks on the other side that would prefer that they not get sued. Whether that’s large insurance companies, whether that is large tech companies and basically everybody that litigation finance enables smaller parties and individuals to enforce their rights against.

There have been some organizations, but we just wanted to have another organization that’s more grassroots, that’s going to allow rights holders to be represented. For instance, having somebody whose case was funded and there’s no way they could have ever done that, but for having a litigation funder and having them tell their story is a lot more compelling than either me or a litigation funder.

My view is that if we have an explanation of what’s going on, then we’ll always win because every bill that ever comes out has to engage in hyperbole and misleading statements. The reality is that, I mean, if you don’t like litigation funding, we shouldn’t have contingency cases, period. And we’ve had that for years and years and years.

Emily Siegel:

And I want to talk about another bill, the Tillis tax bill. That was the bill that would have added a tax on to litigation finance profits, which sent the whole industry into a bit of a tailspin. What was your reaction when you first learned about the Tillis bill?

Erick Robinson:

I, like a lot of folks, was caught off guard. Issa had a previous bill that was all about disclosure. Then all of a sudden, this tax comes along and basically tries to make it financially impossible for a funder to get involved in a case. And that was a big deal. I think we were all just shocked. Plus, I mean, it came very close, a lot closer than anybody, including, I think, Senator Tillis, thought to passing.

Emily Siegel:

Do you think that the industry has done a good job so far of handling the backlash against it?

Erick Robinson:

You know, sometimes yes, sometimes no. I think it’s difficult because there’s Congress, there’s big tech that has had well-funded lobbies forever. I mean, I don’t want to cast aspersions because, honestly, like we’re all on the same side. And there’s really not all that complicated issues. And in fact, the first Issa bill was a page and a half. Even my cat could read that.

My recommendation to anybody that’s like, why do we care about this stuff? Just read the bill and then read the statement by the politician of why they need it. And you’ll see that they don’t match up at all. The idea that billions of money is coming in from Iran or China to fund litigation in the United States is just absurd. You know, there was one Chinese company that everybody knew was Chinese that got involved in like one case. And if you have a problem with that, then address that. But don’t make people from Iowa disallowed from going into the courthouse simply because you’re scared of China.

Emily Siegel:

So do you think that the Tillis bill’s ultimate exclusion from the reconciliation package was due to lobbying efforts or was it more luck?

Erick Robinson:

I think it was both. There was only about five weeks from insertion of the bill into the big, beautiful bill and its death by the Senate parliamentarian. That’s a crazy short time, which was the reason why the Senate parliamentarian killed the bill because the whole point of the process is you can’t throw stuff right in the middle of a whole bunch of stuff that nobody else knows about and get it passed. That’s not how the process is supposed to work. Everybody should at least look at it and think about it. And that didn’t happen. But yeah, there was also some luck.

Emily Siegel:

So there are other bills in Congress and there are also some state bills. What will the ACAA do to help handle this onslaught of legislation?

Erick Robinson:

I mean, if I had told you that I knew everything about what we’ll be doing over the next couple of years, I’d be lying. I just don’t. We’re still new. I’m still new at this. But what I will say is that we’re going to get the news out there. For instance, just in the short time that I’ve been involved, I’ve become aware of, for instance, state legislation that’s just crazy.

What I see as being the bigger danger right now is actually the state legislations, not the federal legislation, because federal legislation gets a lot of light thanks to people like you and the general media. And this is as clear a case of David versus Goliath as there is. Goliath is the folks that, I’m not saying they’re intentionally going out there and doing bad things, but when they do, the American system goes through court and they’re paying money to lobbyists so that that doesn’t happen.

Emily Siegel:

So with the state bills, there has been some success on the state level. Some of them passed last year. Is your concern that it will affect funding in those states? Or is it more that if one state passes this legislation, others could?

Erick Robinson:

I think it’s more of the latter. If one thing happens, then everybody assumes that somehow that’s okay.

Emily Siegel:

And what is the status with ACAA? Have you hired a lobbyist yet?

Erick Robinson:

We have not yet. As far as I know, we’re in that process. It’s still in the sausage making portion of this. As far as I know, Charles Silver and I are still the only board members, but we’re actively trying to change that. And I suspect that, especially after the big freeze, we’ll see a flurry of activity.

Emily Siegel:

And you mentioned you work in the patent space, which is one of the more popular areas for funding. Can you talk about why funders like patent cases?

Erick Robinson:

Because they can make money. I mean, that’s quite simply it. This goes toward one of the arguments that those against litigation funding always say. It’s like, oh, it’s encouraging frivolous litigation. No, that’s just dumb. It allows for certain litigation. And will investment banks, will hedge funds, will anybody with money, family offices, will they invest millions and millions of dollars in bad cases? No, no, they won’t. Will they find cases, troll cases, where you leverage the high cost of patent litigation against the cost of settlement? No. They’re going to want generally 10x return. It’s not always the case, but that’s a good way of thinking about it.

So if they’re going to be spending $5 million, they’re going to want $50 million, or at least the opportunity to think about $50 million before they do that. And that means it can’t be a crappy case. Patent litigation is extraordinarily expensive compared to most types of litigation. One reason is that a lot of times it’s, they’re just products that are involved that make an awful lot of money. Like for instance, iPhones, Galaxy phones. The other thing is that it just takes an awful lot of time, brainpower, and expertise to prosecute or to file a patent case and to defend one.

And that’s why litigation funding is needed, because it used to be that a lot of law firms and good lawyers would do patent cases on a contingency fee, similar to torts and things like that. Over the last 15 to 20 years, it’s just become a lot more difficult to win and keep a win in a patent case. Because of that, doing patent cases on contingency has been very difficult. I’ve worked at a number of law firms and I’ve heard this so many times: yeah, we’re a law firm, not a bank. In other words, if you want to volunteer your time, we’re not a huge fan of that, but that’s sort of your call. But you’re not going to take the other partner’s money when we haven’t been paid anything. And that is the problem that litigation finance fixes.

Host:

That was Erick Robinson, co-founder of the American Civil Accountability Alliance, speaking with Bloomberg Law’s Emily Siegel. And that’ll do it for today’s episode of On the Merits. For more updates, visit our website at news.bloomberglaw.com. Once again, that’s news.bloomberglaw.com.

The podcast today was produced by myself, David Schultz, our editors were Chris Opfer and Alessandra Rafferty, and our executive producer is Josh Block. Thanks everyone for listening. See you next time.