Four Lessons for Portfolio Litigation Finance: Lesson 1

In the past few months, we have engaged with colleagues in litigation finance at the LF Dealmakers and IMN conferences, and worked alongside trial counsel collaborators at the AAJ Annual Meeting and Mass Torts Made Perfect.  Invenio LLP is both a complex litigation firm and a litigation finance advisory practice.  We see both sides of the marketplace on a regular basis.  Through this recent study, collaboration, and work, we identified four lessons relevant to both funders and borrowers in a law firm portfolio transaction.  Here is the first lesson:

Lesson No. 1:  This is both an asset management business and a compelling human drama of persuasion and justice. 

Many law firms seeking portfolio financing have profoundly talented trial lawyers who have already invested time and resources in developing a handful of compelling cases in a particular litigation.  These lawyers know intuitively, because the cadence of trial is in their DNA, that aggregated plaintiffs mean power in complex cases.  Law firms then seek third-party funding to draw clients to their practice and to develop their cases, assembling a client roster that can be managed under complex docket or multi-district litigation rules.  But far too often, firms will engage in undisciplined marketing strategies to bring potential clients to their doorstep or do not apply the same rigorous intake and development criteria to cases 50-100 as they do to the first 10 through the door.  These firms see the power of overall numbers to be stated at status conference or in complex litigation registries, and don’t always manage the wide range of claims in a discerning way.  Funders are looking for exactly this kind of warning sign. 

Funders may initially look at a deal because the trial lawyers are persuasive and have a record of significant verdicts, but they will actually close the investment because the aggregate pool of clients have been developed in a disciplined way.  If law firms want streamlined due diligence, timely closing, and fair terms from litigation finance companies (and they should), their processes should manage their client claims as what they are:  a valuable financial asset worthy of leverage.  This honors both the client journey towards a fair and realistic resolution and the litigation finance market’s mission to level the litigation playing field against major corporations and governments by investing in portfolios where value is carefully curated.  Lawyers grow up learning how to ethically discern and present a colorable claim to a court.  Asset managers and investors grow up learning how to avoid investing in assets that will not produce a meaningful value.  The field of litigation finance is vital to civil justice in this country and around the world.  Put plainly, we can’t afford to be trading on junk assets. 

But both sides of the trade, both funders and firms must always remember that claimants in large mass harm cases are humans who had things hidden from them or were neglected or injured indiscriminately.  Their claims are collectively an “asset class” but each one is also a human story.  This human dimension needs more attention from litigation funders during the deal process.  When investigating or closing a deal  - honor the human side of this pain.  Be mindful of the language that you use to describe a deal and its underlying credit profile.  Each person who touches a law firm portfolio deal should have actually been to watch court, and hopefully at least part of a trial; most especially non-lawyers.  All credit professionals in litigation finance should see first hand the very true human drama of our civil justice system play out. 

The litigation finance marketplace and our civil justice system will only get stronger if law firms and funders can navigate this dichotomy.