The biggest news in December, as covered by the Wall Street Journal and New York Times, was when Burford Capital announced its acquisition of Gerchen Keller Capital, turning most likely the two largest players in commercial litigation finance into a behemoth.
Additionally, there were even more articles than usual this month providing evidence that the legal funding industry will continue its upward trend in 2017, including relevant developments in case law, technology, the access-to-justice movement.
Burford Capital Acquires Gerchen Keller Capital for $175 Million
Here are a few perspectives on this groundbreaking M&A move by the two commercial leaders:
- With Burford-Gerchen Deal, Litigation Finance Comes of Age - This deal could be an early sign that the litigation finance market is maturing. It also legitimizes the economic value of these businesses. "It shows the growth and the vitality of this alternative asset class," said Howard Shams, managing principal of Parabellum Capital in New York.
- Lessons from the Burford-Gerchen Keller Deal - Michael McDonald compares the acquisition to mainstream finance deals, and observes how it has some unique features that should raise eyebrows, especially how Burford is paying a significant premium for GKC, 20x GKC's 2016 earnings. In addition to postulating why that may be, he illustrates what he sees as the most important issue facing the legal funding industry: gaining institutional investor acceptance. McDonald explains, "Litigation funding firms right now simply do not know how to talk to institutional investors ... The point here is that finance and accounting people speak a different language than attorneys, and until litigation finance firms learn to operate in both worlds, they will be missing out on the true level of growth potential in the field."
More Industry News
- There are a number of startups, Mighty included, bringing technology and innovation to the litigation industry.
- The evolution of case law and erosion of champerty doctrines such that alternative litigation funding can grow as a financial tool (NAACP vs. Button and Miller UK Ltd. et al v. Caterpillar, Inc).
- It provides better access to justice to those who have historically been frozen out.
- Big-Time Litigation Funding Vs. Consumer Legal Funding - Based on his research detailed in the journal article "Modeling the Likely Effects of Litigation Financing", Jeremy Kidd, associate professor of law at Mercer University's law school, draws the conclusion that pre-settlement legal funding of personal injury cases "shouldn't increase the danger of cases brought for spite or profit." He goes on to acknowledge that legal funding may increase litigation, but that the increase would come from individuals who have actually been harmed and otherwise wouldn't have the resources needed to pursue their legitimate claim. Kidd points out that "When legitimate claims are brought and justice served, it can actually benefit the economy by deterring bad and inefficient behavior."
- Year in Review: 2016 Cases Will Not Hinder Litigation Funding - There were four meaningful cases for commercial litigation finance that hit the docket in 2016. On their face, these cases seem detrimental, but not to worry! In fact they were outliers and should have little long-term impact on the growth or sustainability of the litigation finance industry.
- An Epic Legal Battle With Big Implications for Litigation Funding - What does a complicated, 20+ year legal battle between Liberia's biggest importer and American insurance companies have to do with legal funding? In this case, with $3 million of litigation funding fueling the suit, the proceedings show that in some instances third-party funders can be identified in court proceedings and, in frivolous cases, be held liable for costs over and above their original investment. We'll let The Economist handle the details explaining this one...
- Variety Fuels Billion-Dollar Litigation Finance Funds of Tomorrow - Despite the growth and incremental maturation of the market, there is still a significant lack of standardization across the legal funding industry. As one example of this variety, litigation funding can take a number of different forms: single case, portfolio, disbursement funding, non-recourse, and partial recourse, to name just a few. This unsettled environment means that there is plenty of room for innovation and new ideas in the space, and we can't help but think that some of our readers are perfectly positioned to be leaders in that innovation.
- David vs. Goliath: Legalist Levels the Lit Playing Field - In this interview, Legalist's CEO Eve Shang sheds light on how they are planning to succeed in the legal funding market. One niche they are attacking is funding small commercial cases by using data and algorithms to assess these more efficiently than large commercial funders can.
- - Continuing coverage from November, Bloomberg recently wrote an article looking at the potential effects of the proposed California rule change that would require attorneys to disclose when their cases are backed by third-party investors. Three perspectives in this article are provided:
- U.S. Chamber of Commerce and other pro-business advocates contend that letting judges, lawyers, and parties know who's footing the bill will help avoid hidden conflicts of interest or frivolous suits.
- Burford argues that once outside funding is revealed, adversaries will try to pry deeper into confidential communications, resulting in expensive pretrial sideshows.
- UCLA legal historian Stephen Yeazell splits the difference and thinks that transparency might actually help fund parties by encouraging defendants to settle without protracted court battles. He says that having outside investors is "a little like the Good Housekeeping seal of approval."