Turning In-House Legal Departments Into Revenue Generators
Inside the growing movement of in-house lawyers transforming litigation from a cost center into a source of profit.
When I worked as a Biglaw litigator more than 20 years ago, things were very different. Generative AI was unheard of. Even e-discovery was uncommon; most document review was still done using paper copies (and paper cuts were an occupational hazard).
And almost all litigation involving major corporations—which was, and still is, the bulk of the Biglaw docket—featured companies as defendants. Even ten years ago, more than 80 percent of in-house lawyers who responded to Norton Rose Fulbright’s 2015 Litigation Trends Annual Survey reported no lawsuits with more than $20 million at issue commenced by their employers in the last 12 months.
But things are changing on this front—and continue to change, according to Greg McPolin, Managing Director at Burford Capital. As a leader of business-origination efforts at Burford, the world’s largest provider of commercial legal finance, McPolin is constantly talking to in-house lawyers about litigation they might bring or have already brought.
A New Corporate Mindset
“Generally, we’ve seen an increase in the willingness of companies to become corporate plaintiffs,” said McPolin. “Now more than half of our business comes from corporate clients.”
“Fifteen or twenty years ago, you had some companies pursuing cases as plaintiffs, but much of it was high-volume, low-value litigation,” said David Perla, a former in-house lawyer who is now Vice Chair of Burford. “Since then, there has been a rethink. And now Burford might work with a company pursuing, say, a $100 million claim that they might not have pursued in the past.”
And the pace of change on this front has accelerated in recent years—which explains why litigation finance grew from a $9.5 billion industry in 2019 into a $16 billion industry five years later.
Much of that growth took place during and after the Covid-19 pandemic—which shouldn’t be viewed as a coincidence.
“There was a sea change with Covid,” said Aviva Will, President of Burford Capital (and also a former in-house lawyer). “Companies were willing to rethink everything they did, from supply chains to cost structures to work-from-home policies. It created an opportunity for legal departments to ask themselves, ‘What resources do we have, and how do we use them?”
Another reason that companies became more open to both litigation and litigation funding during the pandemic is that many of them needed extra cash, especially during the earliest days of the crisis.
“Covid was a classic example of unforeseen financial headwinds for many companies,” said Greg McPolin. “Many had to adjust to very different conditions—and getting value out of assets, including legal assets, became an imperative.”
The Cases That Corporate Plaintiffs Are Bringing
According to Perla and Will, causes of action commonly raised by corporations as plaintiffs include business torts, antitrust violations, patent infringement, and breaches of contract (whether litigated in court or raised through international arbitration). In addition, a growing number of companies are opting out of class actions, choosing to litigate their own claims instead of accepting the settlement negotiated by class counsel.
Why? According to a recent survey of in-house lawyers, 71 percent of respondents believed that opting out of a class action would increase their company’s recovery by more than 25 percent.
And success in bringing meritorious cases breeds more success. Companies that have positive experiences with bringing litigation or financing it are more willing to do it again.
“It becomes self-perpetuating,” said Charles Griffin, Senior Vice President at Burford. “If a client has done it a few times and received successful outcomes, the client’s finance team starts to see it as a potential source of revenue.”
“We hear all the time of situations where the finance department comes to legal and says that the company is having a challenging quarter or half, or might miss its numbers,” said McPolin. “And so the finance team asks the lawyers, ‘What can we do to generate some cash?’”
And once these conversations are happening, it’s a sign that corporate leaders are viewing litigation—and the company’s lawyers—in a different light.
Corporates Embrace Affirmative Recovery Programs
“Broadly, companies—who are usually defendants—don’t like litigation,” said Aviva Will. “But when you bring in money as an in-house lawyer, suddenly they like you. They can get their arms around what’s now known as an ‘affirmative recovery’ program.”
So what’s an affirmative recovery program? In theory, it’s simple: it’s just “a fancy term for ‘trying to get the money we think we’re due,’” in the words of Chris Bogart, CEO of Burford Capital.
In practice, according to McPolin, an affirmative recovery program requires taking a programmatic and systematic approach to managing a company’s litigation-related assets. And once a company decides it wants to pursue a particular claim, it can work with Burford or another litigation funder to reduce or eliminate the associated costs—which can be considerable, especially given current Biglaw billing rates.
“Financing can allow a claimant to bring a case on a no-cost, no-risk basis,” explained McPolin.
Corporate Legal Finance in Practice
How does this work in a typical case? The litigation funder covers some or all of the costs involved in prosecuting the lawsuit, with the company paying a reduced amount—or even nothing. The funder gets its repayment—as well as a return on its investment, hopefully—from any recovery in the lawsuit.
But the funder gets paid only out of any recovery. So if the litigation is unsuccessful, the funder would lose its investment, but the corporate claimant will suffer no out-of-pocket loss (aside from any legal fees or expenses it agreed to cover as part of the funding arrangement, if any).
This certainty as to the cost of bringing a legal claim is a critical part of litigation funding’s appeal, according to former in-house lawyer Steven Greenspan. A chief financial officer or other business-side executive is far more likely to approve pursuing a particular lawsuit if the chief legal officer can say, at the outset, exactly what it will cost to litigate. Funding a lawsuit no longer requires the finance department to write a blank check to the legal department.
“For a CLO to be able to tell the CFO, ‘this is what the litigation will cost, and not a penny more’—is not only unusual, but also it makes the decision whether to commence litigation much easier to reach,” said Greenspan.
Stacy Bratcher, an in-house lawyer and host of The Legal Department podcast, has enjoyed success with affirmative recovery programs at two different companies. In a recent podcast episode, she explored the topic with Greg McPolin of Burford and veteran general counsel Andrew Johnstone—who recovered more than $500 million in affirmative recoveries for a former client.
What advice would Bratcher offer to corporate counsel thinking about establishing an affirmative recovery program? She emphasized the importance of being intentional and thoughtful.
As she said on her podcast, in-house lawyers should not take a “set it and forget it” approach to affirmative recovery. Instead, it’s important to monitor and actively manage the company’s litigation, to maximize returns while protecting the company’s other interests.
“Litigation claims are valuable assets, akin to intangible property or real property or accounts receivable—assets that companies use to generate cash every day,” said Greg McPolin of Burford. “In the final analysis, litigation finance is really just another form of corporate finance.”
This post is sponsored by
Burford Capital helps companies and law firms unlock the value of their legal assets. With a portfolio of over $7 billion and listings on the NYSE and LSE, Burford provides capital to finance high-value commercial litigation and arbitration—without adding cost or risk or giving up control. Clients include Fortune 500 companies and Am Law 100 firms, who turn to Burford to pursue strong claims, manage legal costs, and accelerate recoveries. Learn more at burfordcapital.com.