Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at a path for post-coronavirus litigation as a litigation finance executive sees it. Sign up to receive this column in your Inbox every Thursday morning.
I wrote weeks ago about how the coronavirus may impact litigation funders. The article was about how provisions in funders’ contracts with plaintiffs could end up making the finance companies more money as a result of court delays.
But that may matter less than the demand for litigation funders’ capital. Which raises a different question of great interest to law firm leaders: What will the post-virus litigation climate look like?
Speaking with Big Law litigation partners, there’s a common view that litigation will dip in the short-term before a surge in lawsuits related to the pandemic-driven economic downturn and business disruptions.
Litigation is expensive. Spending money on a lawsuit that might not pay out for a few years is less important today than paying employees or keeping the lights on. But when the cash crunch ends, partners figure their phones will be ringing. It’ll be time to settle scores and cash in claims.
This is mostly intuition and guess work. It makes some sense, but nobody knows how corporate America’s legal departments will behave.
Burford Capital CEO Chris Bogart laid out a similar view of a post-coronavirus litigation timeline in an interview following the litigation finance firm’s release of its annual financial report
The report showed profits declining in 2019 during a tumultuous year that saw the firm withstand allegations of financial misconduct. Still, the company committed more than $1.5 billion to funding lawsuits. Its shares on the London Stock Exchange’s AIM market surged as much as 35% on the release after having more than halved since Muddy Waters said it was shorting the company in August.
Bogart said the “bulk of the new business” Burford is seeing right now comes in the form of corporate legal departments looking to shift the price of litigation on to a third party. Plaintiffs whose cases were progressing through the courts want to spend money on other things.
“You have companies who were paying for those litigation matters on their own and they are now concerned about liquidity,” Bogart said. “They want, either, not to pay anymore, or they may even want to try and get an advance on the future prospects of the case.”
The next stage of lawsuits will involve pandemic-related cases, Bogart said. They will usually involve insurance coverage litigation and contract litigation related to force majeure clauses, which will determine responsibility for business interruptions caused by the virus.
“We are at the very, very early stages of seeing those cases, but there will be many of them,” Bogart said. “We have started to see inquiries about insurance coverage litigation, but you’ve not seen a lot of it filed. Part of the reason is most companies don’t know the total extent of their damages.”
Bankruptcy-related lawsuits will be the third stage of coronavirus-related litigation, Bogart said. Burford has seen this before, the company got its start in 2009, following the global financial crisis, and often funds cases brought by bankrupt companies.
As for which law firms will be positioned to capitalize on those lawsuits, it is unlikely that there will be one or a few big winners like there was coming out of the recession, Bogart said. That’s because most Big Law firms were conflicted out of a big type of money-making litigation following the recession: suing banks. A similar dynamic won’t exist for a pandemic that has impacted almost every industry.
Quinn Emanuel stood apart from the Big Law pack after the financial crisis by suing banks instead of representing them. The firm’s plaintiff-side practice in this area netted more than $25 billion in settlements.
One dividing line this time will be between firms that represent insurance companies and those that represent policy holders. Policy holders looking to sue insurers will need Big Law firepower, Bogart said. It’s unlikely large firms will flock to defend insurers, which have spent recent years cutting the bills they pay law firms.
Worth Your Time
On Diversity: As law firms make cuts related to Covid-19, Meghan Tribe and Stephanie Russell-Kraft report there is a risk they will disproportionately impact diverse lawyers. Diversity advocates are hoping law firms learned lessons from their response to the last recession.
On Pro Bono: Big Law firms are embracing virtual clinics to help undocumented immigrants brought to the U.S as children, known as “Dreamers,” renew their status during the coronavirus pandemic, Elizabeth Olson writes.
On “Audacious” Behavior: A federal judge in Texas reprimanded Kirkland & Ellis for its “audacious” discovery-related behavior in a lawsuit between two legal recruiters, my colleague Porter Wells reports.
On Big Law Hires: The week’s not over yet and there have already been several Big Law hires to note. Jenner & Block brought back a top Mueller team prosecutor. Latham & Watkins hired the U.S. leader of O’Melveny & Myers’ bankruptcy practice. Sidley Austin picked up a pair of partners from Shearman & Sterling. And Dechert hired a team of product liability and mass torts litigators from Kirkland & Ellis who recently won a big verdict for Johnson & Johnson.
That’s it for this week. Thanks for reading and please send me your thoughts, critiques, and tips.