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We’re About to Learn a Lot More About Litigation Finance

June 24, 2021, 9:30 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at how the light is about to shine on litigation funding in a never-before-seen way. Sign up to receive this column in your Inbox on Thursday mornings.

In 2014, I was writing for Chicago’s local legal paper when I first heard about something called litigation finance. Professionally, it was an embarrassing moment, learning as I did through a New York Times article about a Chicago-based operation that had raised $260 million to invest in lawsuits.

To my eye, at least, it was one of the more exciting developments on the “business of law” beat. It came in my own backyard. And I had whiffed. It’s easy to feel sorry for yourself when you’re grinding away in a 10-person newsroom and you’ve been scooped by the national paper of record. But you can’t get discouraged in this business! There’s always a local angle to follow up with on a national story.

So, I found a litigation finance story of my own: A group of enterprising lawyers who were leaving their midsized Chicago law firm to try their hand at investing in lawsuits. A big risk! It seems to have paid off. That group, Longford Capital, has now raised more than $1 billion.

Ever since I wrote that story I have tried to convince litigation finance shops to discuss their business more openly. I’ve tried to persuade law firms to discuss their relationships with funders. I’ve had a few close calls, but I whiffed at this, too—up until this week.

Longford announced it’s in a partnership deal with Willkie, Farr & Gallagher to finance up to $50 million in cases. And there’s good reason to believe we are about to learn a lot more about litigation finance. That’s largely because New Jersey’s federal court just changed its local rules to force plaintiffs to disclose when they’ve received third-party funding.

Let’s start with the Willkie-Longford pact.

The specifics are fairly vague, and industry sources said the deal likely amounts to a right of first refusal for Longford. That is, if Willkie has a client interested in getting funding for one of its cases, Longford gets the first look.

Financially, the deal is probably not transformative for Willkie or Longford. Law firms like Willkie have access to plenty of funding sources. And for Longford, even if it spends all $50 million it says it committed to the deal, that’s a relative drop in the bucket of the more than $1 billion the firm has raised in its lifetime.

But it’s a marketing device, and sources in the litigation funding industry believe the publicity could be a benefit. Pointing to Willkie, a highly respected firm, as an example of the caliber of those who use funding is a good way to legitimize the business, they said.

Dai Wai Chin Feman, director of commercial litigation strategies at Parabellum Capital, said funders and law firms are more comfortable revealing their relationships in jurisdictions where there are rules around disclosing a funder’s participation in a lawsuit. They’re warming up to the idea in the U.S., he said, as case law develops showing most judges will not allow broad discovery into funding agreements.

“However, unless and until we have legislated limits or norms that prevent defendants from seeking irrelevant and potentially prejudicial discovery when they suspect funding, we can expect that funders, law firms, and clients will continue to proceed cautiously,” Chin Feman said.

That brings us to the recent rule change in New Jersey federal court.

Funders will now have to file a statement of their interest in lawsuits and attest whether they have control over settlement decisions. The rule has been described as among the broadest disclosure regimes among the very few that exist. (For instance, the Northern District of California requires disclosure of third-party funding only in class actions.)

The rule takes effect in 45 days and applies to all pending cases. That means we will get the best sense to date of just how much litigation funding has proliferated the industry—at least in one federal district court.

Charles Agee, CEO of litigation finance advisory firm Westfleet Advisors, said the New Jersey development could make it less risky for other law firms to publicly disclose their relationships with funders.

“Litigation funding is an established practice. There are highly credible people running litigation funding firms. Blue chip law firms are involved. Marquee names are investing in the space,” he said. “There’s just no reason it all has to happen in the shadows.”

If you agree with him, let me put in a self-serving plug: Let me know.

VIDEO: A look at the growing field of litigation finance and what it means for the future of the business of law.

An Aside

For longer than I care to divulge, I have had a personal fascination with a very un-serious question: How long could a Big Law associate get away with doing absolutely nothing and still take home a paycheck?

The curiosity surfaced, I think, from the confluence of stories about: the bureaucracy of Big Law firms, young lawyers being dissatisfied their jobs, Big Law doing a poor job training and monitoring young associates, and, of course, the large salaries they make. It always felt to me like somebody, somewhere would almost stumble into phoning it in. Dissatisfied people who are more or less ignored seems like the recipe for it.

I still don’t know the answer to that question, but I am even more interested in it after a story came out this week about a former Big Law associate who allegedly billed more than 2,000 hours to a single pro bono case that was already closed over the span of a year. He reportedly earned a $12,000 bonus for meeting his hours target—thanks to working on a case nobody was ever going to be paid for in the first place and, for most of the time, didn’t exist.

If this happened, how many things had to go wrong?

I didn’t know law firms were counting 2,000 hours worth of pro bono time toward bonus targets, but kudos to them if that is the case. I also didn’t think there were pro bono cases that took up 2,000 hours of a single associate’s time. And I guess I figured there was some kind of system making sure the cases lawyers reported were taking up their time were actually happening. Even if that system was a person reading timesheets and signing them, the system probably should have caught something like this. Right?

Shouldn’t somebody have asked about the status of a pro bono case that took up virtually all of one person’s year? Maybe a marketing person would do it. They are tasked with writing up the compelling pro bono stories, they get a list of the lawyers who filed the most pro bono hours last year, and they call up the lawyer on top of the list. “Tell me about this gigantic case you’ve been working on, it must be fascinating.”

My point is: If nobody noticed for an entire year, what changed? Maybe it is easier to do nothing at a Big Law firm than I ever thought. Except you will, probably eventually, get caught if you try it.

Worth Your Time:

On the Bar Exam: There is a significant racial gap in bar exam passage rates, according to a new American Bar Association survey. That is forcing the legal profession to take a longer-term view toward diversifying the pool of lawyers, Ayanna Alexander reports.

On Big Law to Big Weed: Lauren Thomas, a former Wachtell corporate associate, has become the first general counsel at Dutchie LLC, a provider of delivery technology to cannabis dispensaries, Brian Baxter reports.

On Lawyer Fees: The lawyers leading the litigation against Monsanto Company’s Roundup were chastised by a California federal judge over their request to hold back 8.25% of all recoveries for lawyers’ fees, Maeve Allsup reports. Judge Vince Chhabria said the case suggests clearer guidance is needed on how attorneys are compensated for mass litigation.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com;
John Hughes in Washington at jhughes@bloombergindustry.com

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