Litigation Finance, Then And Now: 3 Industry Shifts
Litigation Finance, Then And Now: 3 Industry Shifts
Litigation funding isn’t going anywhere—but as a maturing industry, it faces new challenges and opportunities.
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When I started covering litigation finance in 2013, the field was, according to The New York Times, “an obscure corner of Wall Street.” Today, it has emerged from obscurity—and grown into a $15.2 billion industry, up from $9.5 billion just five years ago.
I’ve remained interested in litigation funding over the years, and in September, I headed out to Los Angeles to attend LITFINCON, a great conference hosted by Siltstone Capital. The three-day event—attended by a wide range of industry participants, including funders, investors, lawyers, bankers, and even a few judges—provided me with an excellent overview of the state of litigation funding.
As the industry has matured, the issues it faces have evolved. Here are three significant shifts in the world of litigation finance that I’ve seen over the past decade.
1. From Legality to Disclosure.
In the early days of litigation funding, the industry confronted significant questions about its legitimacy—and even its legality. A number of states had common-law or even statutory prohibitions of maintenance and champerty, ancient doctrines that prevent third parties from financing another person’s litigation (maintenance) or doing so in exchange for a share in the damages (champerty). Would states interpret and apply these laws aggressively, in a way that would threaten the viability of litigation finance?
Fortunately for supporters of the practice—as well as the recipients of funding, who might not be able to bring their cases without outside financial support—that didn’t happen. Some states construed their laws so narrowly that they became irrelevant to commercial funding—like New York, which bans champerty only when the purpose of taking the claim is “with the intent to sue.” Other states abandoned their laws entirely—like Minnesota, whose state supreme court abolished its common-law prohibition against champerty in a 2020 decision.
Instead of litigation finance’s underlying legality, the critical question it now faces is disclosure: must funding arrangements be disclosed in litigation, and if so, what exactly must be disclosed? Is disclosure of the existence of funding or the identity of the funder sufficient? Or must the funding agreement be disclosed in its entirety?
In the past decade, some states—including Wisconsin, West Virginia, Indiana, and Louisiana—have passed laws requiring varying levels of disclosure, depending on the context. On the federal level, legislation has been proposed that would require the disclosure of litigation funding: the Litigation Transparency Act of 2024, introduced by Representatives Darrell Issa (R-Cal.) and Scott Fitzgerald (R-Wis.).
The U.S. Judicial Conference’s Advisory Committee on Civil Rules also plans to study the issue of disclosure. And some individual federal courts, such as the District of New Jersey, have adopted or are considering disclosure rules.
The litigation-finance industry generally opposes these proposals. At a panel discussion at NYU Law School last month, Dai Wai Chin of Parabellum Capital said, in response to the notion of nefarious funders operating in the shadows, “We don’t have something to hide; we have something to protect. What we can’t have is prejudice coming from disclosure.”
Addressing the specter of funders exercising undue control over litigation, Andrew Cohen of Burford Capital asked, “Why do we not trust lawyers in this context to give independent, professional judgment? Why is litigation funding different from the current rules of legal ethics as they apply?” Existing ethics rules already require lawyers to provide clients with their best professional advice—even if the lawyers might have their own personal interests, as they always do.
Funders’ concerns over the negative effects of disclosure are understandable. Even if the existence of funding is disclosed only to the judge and not the jury, it can lead to a discovery sideshow that doesn’t go to the merits of a case and simply wastes time and money.
At the end of the day, though, the fact that the focus is now on disclosure is a victory for the funding industry. It shows how opponents of litigation finance, such as the U.S. Chamber of Commerce, have given up hope on shutting down funding entirely—and have turned to disclosure as a fallback position.
2. From Fringe to Mainstream.
“My firm was somewhat reluctant to embrace litigation funding,” said Casey Grabenstein, a litigation partner at Saul Ewing. Mayer Brown litigation partner Michael Lackey put the point in even stronger terms: a decade ago, litigation finance “was just anathema” to him.
Their recollections are consistent with mine. When I first started covering the industry and mentioned it to attorneys in Biglaw, they’d respond with either befuddlement or skepticism. I wondered: would litigation finance remain on the fringes of law and finance—a profitable little niche for its participants, but a bit “sus” to the establishment?
The answer started becoming clear a few years ago. In 2021, Willkie Farr became the first major firm to publicly announce a partnership with a funder—a $50 million deal with Longford Capital. Other firms, including Cadwalader and Quinn Emanuel, followed suit.
Today, according to Lackey, “virtually every large law firm that does litigation probably has a funded case somewhere”—including his firm, Mayer Brown. In fact, according to Westfleet Advisors, a litigation-finance consultancy, Am Law 200 firms accounted for more than a third of total capital commitments in two of the past three years.
And funding has gone mainstream not just in law, but finance. Treating it as an important new asset class, major investment-management firms are now investing in litigation—like Fortress Investment Group, which has roughly $6.6 billion committed to legal assets.
Even insurance companies, some of the most staid players in finance, started exploring the space. For example, insurers like Liberty Mutual and HDI Global Specialty began issuing judgment-preservation insurance (JPI), which protects the trial-court awards of plaintiffs—and their law firms—if the judgments get reduced or reversed on appeal.
Pricing for JPI has risen by about 10 percent over the past year, according to Charles Agee of Westfleet—perhaps because some insurers have lost money on it. It wouldn’t be surprising to see some of them exit the market. But even if individual participants come and go, litigation finance in general has found its footing—and isn’t going anywhere.
3. From Growth to... Commoditization?
A decade ago, those of us who followed litigation funding wondered whether it was here to stay—and even if it didn’t get shut down by legal challenges, whether it had the potential for real growth. Now that it’s a $15 billion industry, the answer to that question is clear.
Now, if anything, some are wondering: has the industry grown too much, or too quickly? Several speakers at LITFINCON mentioned the dreaded C-word: “Commoditization.”
Burford Capital, the world’s largest provider of legal finance, described commoditization in a 2019 report as “more and more capital providers vying to enter the market, flooding lawyers with capital, thus resulting in lowered standards and race-to-the-bottom costs.” But after raising the prospect, Burford rejected it, arguing that even “as the industry continues to grow dramatically, the shift in front of us is—and indeed must be—the maturation of legal finance.”
Maturation but not commoditization seemed to be the dominant view among panelists at LITFINCON. As Wendie Childress of Westfleet noted, key indicators of commoditization, such as standardization in funding agreements and transparency in pricing, are still missing.
According to Benjamin Blum of the Flexpoint Ford private-equity firm, signs of commoditization might be starting to emerge in certain areas, such as the funding of litigation portfolios. But it’s not widespread, and one can understand why: the underlying assets don’t lend themselves well to commoditization.
Every lawsuit is different—not just in its facts and relevant law, but in terms of the law firm handling the case, the jurisdiction where it’s pending, and the judge overseeing it. As a result, each litigation presents a different investment proposition—especially in terms of large commercial cases, the traditional focus of funders, as opposed to consumer or mass-tort cases.
What does the future hold for litigation finance? In his opening remarks at LITFINCON, Mani Walia, general counsel of Siltstone Capital, expressed optimism.
Walia noted the arrival of many new industry participants, from Biglaw firms to investment funds to insurers. He highlighted recent innovations, including the rise of post-judgment insurance, the development of a secondary market for claims, and the harnessing of artificial intelligence, both to hedge existing investments and to make better investments in the future. But he stressed that if funding is to enjoy continued success, industry participants must continue to act ethically, responsibly, and with a focus on increasing access to justice.
Given the high cost of litigation today, many litigants can’t afford to bring their cases—or see them through to the end, in the face of vigorous opposition from well-heeled defendants—without help from funders. But funders must act fairly, with respect to both the claimants they finance and the claimants’ lawyers, for litigation finance to continue to flourish.
“There will continue to be innovation,” Walia said. “But ours is a young industry, and we need to make sure that there are no bad apples.”
A version of this article originally appeared on Bloomberg Law, part of Bloomberg Industry Group, Inc. (800-372-1033), and is reproduced here with permission.
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