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Speaker 1: Did you ever hear about the buying and selling of lawsuits?

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Speaker 1: It's called litigation finance, and it's a decades old practice

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Speaker 1: that's booming. Plaintiffs lawyers usually get paid a contingency fee,

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Speaker 1: a percentage of the trial, or a settlement award that

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Speaker 1: means they only get paid if they win. So how

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Speaker 1: do firms without deep pockets finance the expensive costs of

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Speaker 1: litigating cases to trial? Sometimes by selling an interest in

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Speaker 1: the potential recoveries to third parties in return for financing.

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Speaker 1: Paul Barrett, Bloomberg Business Week editor, has written about the

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Speaker 1: thriving business of litigation finance, including the first time a

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Speaker 1: law firm and funder have gone public about the existence

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Speaker 1: of such a portfolio investment arrangement. Thanks for being here, Paul,

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Speaker 1: So tell us about Pierce Surgeon. Surgeonion right. This is

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Speaker 1: a new small firm in Los Angeles that's a spinoff

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Speaker 1: from the very well known litigation powerhouse Quinn Emmanuel. And

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Speaker 1: this firm has publicly let it be known that it

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Speaker 1: has litigation finance for its entire portfolio of contingency fee cases. Uh.

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Speaker 1: It's an illustration of how litigation finance is working its

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Speaker 1: way into the mainstream of American legal practice. Well generally

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Speaker 1: and certainly until now, law firms have been very reluctant

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Speaker 1: to acknowledge that they have this kind of financing, although

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Speaker 1: people have known that it existed, right, What is this

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Speaker 1: firms thinking in going public with it? I think they

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Speaker 1: want to sort of embrace the controversy around litigation finance

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Speaker 1: and let their opponents know that they have millions of

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Speaker 1: dollars at their disposal, uh to fight the lawsuits that

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Speaker 1: they've that they've filed, And in that way, I think

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Speaker 1: they hope to gain a strategic advantage. But it's also

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Speaker 1: crucial to emphasize that litigation finances operating on the corporate

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Speaker 1: side of litigation as well. It's not just a way

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Speaker 1: of finance planeiffs, lawsuits. Um. Large global law firms are

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Speaker 1: also increasingly involved with litigation finance. So, Paul, is this

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Speaker 1: just for law firms who need the financing to keep

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Speaker 1: up their caseload or do firms who could finance their

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Speaker 1: own cases use it to spread around the risk of

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Speaker 1: litigation or corporate dealings. Yeah, on the On the corporate

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Speaker 1: law firm side, I think it's more the latter. It's

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Speaker 1: a situation where firms that otherwise are well off are

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Speaker 1: in a position to say to their clients, Look, you've

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Speaker 1: got a lawsuit that you're not sure you want to

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Speaker 1: spend a lot of money on to to file, but

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Speaker 1: we can. We can finance it through litigation finance, and

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Speaker 1: that will allow you basically to take the lawsuit off

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Speaker 1: the shelf and put it into action. Uh So, I

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Speaker 1: think that's that's more of the model. So is this

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Speaker 1: in some ways, at least on the corporate side, Is

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Speaker 1: this in some ways a reaction to the trend in

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Speaker 1: in the legal arena that clients don't want to pay

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Speaker 1: that kind of fees that law firms are charging. Is

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Speaker 1: that to some degree what's driving this on the corporate side.

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Speaker 1: I think it's more a realization that litigation can be

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Speaker 1: financed the way other corporate assets can be financed. That

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Speaker 1: for example, a company may have several potential intellectual property

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Speaker 1: cases that it could bring against foes, patent cases, what

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Speaker 1: have you, but they're not sure they want to spend

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Speaker 1: the millions of dollars it takes just to get those

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Speaker 1: cases going. Well, if they can finance it, if they can,

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Speaker 1: if they can find someone else, as you said, share

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Speaker 1: the risk um. Then they might they might take those

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Speaker 1: cases and say to their law firm, go ahead and

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Speaker 1: file it. You write that Berford Capital is the Titan

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Speaker 1: of finance litigation. Tell us a little bit about their investments.

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Speaker 1: You know, Berford Capital is engaged in quite large investments

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Speaker 1: where they they they've confirmed publicly that they have invested

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Speaker 1: a hundred million dollars with one global law firm, fifty

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Speaker 1: million dollars with another global law firm. And these are

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Speaker 1: uh in vestments that will basically galvanize a whole series

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Speaker 1: of cases that those law firms are bringing. So it

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Speaker 1: is a fascinating situation where you have certain corporate interests, like,

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Speaker 1: for example, the US Chamber of Commerce, that are very

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Speaker 1: much opposed to litigation finance, saying that it pays for

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Speaker 1: more litigation. And then but you've then got large corporate

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Speaker 1: law firms representing the very constituents of the Chamber of

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Speaker 1: Commerce engaging in this practice. Given that this is all

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Speaker 1: becoming public now in a way that it hasn't been before,

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Speaker 1: Paul is, do we do you have any sense of

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Speaker 1: how big a universe of money we're talking about in

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Speaker 1: terms of litigation financing, Because a lot of it is

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Speaker 1: still done confidentially. UH, there is no hard number, but

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Speaker 1: the activities of Burford give you some sense of what

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Speaker 1: the market might be like. Burford UH invested UH in

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Speaker 1: litigation in just in something like two three eighty million

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Speaker 1: dollars just in the one year, and the company has

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Speaker 1: overall more than two billion dollars that are either invested

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Speaker 1: in litigation or available to be invested in litigation. And

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Speaker 1: that's one firm we're talking about. There are dozens of

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Speaker 1: these kinds of firms. Burford, to be sure, is the

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Speaker 1: largest of its kind, but that gives you a sense

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Speaker 1: of the order of magnitude. We're talking about billions of

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Speaker 1: dollars that are now invested in this sort of alternative

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Speaker 1: finance category called litigation finance. Paul. The opponents of litigation

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Speaker 1: finance say that this kind of funding increases the volume

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Speaker 1: of expensive and sometimes questionable lawsuits. Do they have a point? Well,

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Speaker 1: in my opinion, UH, I think it's logic would dictate

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Speaker 1: that litigation finance must be seeding um more lawsuits. I mean,

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Speaker 1: if if it's certainly not causing lawsuits to go away,

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Speaker 1: it's almost impossible in my mind to argue that it's

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Speaker 1: being neutral. The point is that there are lawsuits that

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Speaker 1: wouldn't otherwise be tried that now are being tried. Whether

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Speaker 1: those pawsuits are corporate patent case or a plaintiff's case

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Speaker 1: of some sort. Now on the question of whether the

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Speaker 1: lawsuits are frivolous or not, that's very much, uh, you know,

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Speaker 1: in the eye of the beholder. So I think that

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Speaker 1: people who are engaged in litigation finance would say that

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Speaker 1: their financiers are not interested in investing in in frivolous cases. Um.

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Speaker 1: But the foes of this whole practice, such as the

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Speaker 1: Chamber of Commerce as I mentioned, UM, do say that

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Speaker 1: this leads to dubious litigation. Well, this sounds a bit

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Speaker 1: like litigation financing is a kind of a niche structure

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Speaker 1: in a way, and that the you know, you've got

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Speaker 1: firms that specialized in it, and that's who's doing it.

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Speaker 1: It should we expect as this goes public that you're

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Speaker 1: going to see more and more sort of banks getting

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Speaker 1: involved in this kind of financing. I yeah, I think

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Speaker 1: the right comparison is is to hedge funds more more

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Speaker 1: than more than banks, and I think the firms probably

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Speaker 1: benefit from being relatively small and relatively nimble. I don't so,

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Speaker 1: I don't think this is something that's going to be

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Speaker 1: industrialized and anytime soon. I think you used the word niche,

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Speaker 1: and I think that's very that's very apt. I think

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Speaker 1: you can compare litigation finance firms to hedge funds, and

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Speaker 1: just as in the hedge fund world, you range from

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Speaker 1: small to its large, you're you're going to see the

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Speaker 1: same type of variety. But I don't think it's going

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Speaker 1: to get to the point of where, you know, JP

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Speaker 1: Morgan Chase is going to be competing against Berford Capital

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Speaker 1: in this very specialized form of finance. It's really a

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Speaker 1: fascinating article. Thank you so much. As always, it's a

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Speaker 1: pleasure to have you on Bloomberg Law. That's Bloomberg business

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Speaker 1: Week editor Paul Barrett