Mayer Brown defense partner Michael E. Lackey once regarded litigation finance with deep skepticism. “Anything that makes it easier for people to sue my clients is something I don’t want,” he remarked in an interview recently. However, the landscape for funding litigation has changed drastically over the past decade, and now “virtually every large law firm that does litigation probably has a funded case somewhere,” including Mayer Brown.
The shift in attitude is well justified. Litigation finance has become a significant industry, growing to $15.2 billion from $9.5 billion over five years, according to Westfleet Advisors. A substantial portion of this capital—more than a third of total commitments in two of the past three years—was generated by the 200 biggest US law firms by revenue.
Quinn Emanuel Urquhart & Sullivan recently announced a $40 million deal with Longford Capital to fund private equity suits. Saul Ewing has likewise embraced funded matters, with about four such cases currently in progress. The firm’s partner, Casey Grabenstein, highlighted a generational shift: “My firm was somewhat reluctant to embrace litigation funding. Now they’re fully on board.”
- Patent litigation comprised 19% of new capital commitments last year.
- International arbitration and antitrust are also popular areas for litigation finance.
Firms like Bracewell find the funding particularly beneficial in expensive, long-duration cases such as international arbitrations. Martin Gusy, a partner at Bracewell, noted that the funding is client-driven, often necessary when clients lack the capital to pursue matters or wish to avoid high arbitration costs.
Michael Bowe, co-chair of litigation and dispute resolution at Brown Rudnick, pointed out that heightened client sophistication is driving demand for better deals, putting pressure on larger firms to remain competitive. “Clients are becoming more sophisticated and they’re demanding better deals. There’s pressure on bigger firms to compete,” Bowe said.
It’s clear that the strategic use of litigation finance is not only reducing risk but also making it feasible for firms to engage in more contingency-based litigation. Phil Iovieno of Cadwalader noted that his firm uses the funding for all its contingency cases, managing cases with budgets ranging from $10 to $20 million.
While the benefits are clear, the practice of litigation finance comes with its own set of challenges. Charles Agee, CEO of Westfleet Advisors, emphasized the necessity for best practices, given the ethical and conflict issues that can arise. Saul Ewing’s Grabenstein advised that it’s best when funders are “hands off” on case strategy to avoid potential issues.
Shawn Blackburn of Susman Godfrey noted that it’s crucial to ensure that funders do not take an excessive share of the returns, as this could deter clients from settling. He also emphasized the importance of offering clients multiple funding options to secure the best deals.
Bowe of Brown Rudnick mentioned the time-intensive nature of obtaining funding, which can take several months and often has a low approval rate, adding that this can be a significant cost for clients. He also showed interest in using the insurance industry as an alternative to litigation finance due to its less cumbersome and expensive nature.
In summary, the evolution of litigation finance reflects a broader shift within Big Law to adopt innovative solutions that align financial incentives with the complexities and demands of modern legal practice. As the industry continues to evolve, it promises a broader range of options and more competitive financing structures for law firms and their clients.