April 8, 2019 / 8:06 PM / 15 days ago

Litigation funder Burford raises $300 million for post-settlement deals

(Reuters) - When I first read an announcement Monday from Burford Capital, I thought the tectonic plates of litigation finance had shifted.

The industry, as you know, is really two different businesses: funders such as Burford, Harbour, IMF Bentham and Therium, which invest in commercial litigation in exchange for a cut of any recovery; and consumer operations, like Oasis and Lawcash, that advance money to plaintiffs at relatively high interest rates. The business models are completely different. Making money on the commercial side requires exhaustive due diligence about big-money litigation and arbitration. The consumer model, in which advances are vastly smaller, takes much less vetting but way more volume.

Burford’s press release Monday announced a new $300 million fund focused on investments in cases that have already settled. The fund, it said, would “meet the needs of law firms awaiting payment of their fees and clients eager to release cash from the settlement, who find it attractive to secure financing against those expected receipts.” Advances to clients waiting for their settlements to come through? Was Burford getting into the consumer business?

Burford CEO Christopher Bogart set me straight in an interview about the new fund: The market for those advances, he said, is not consumers but businesses engaged in the sort of big cases Burford typically finances. And the law firms that obtain advances against their receivables, Bogart said, are expected to be mostly commercial litigation shops already working with the litigation financier. The new fund, he said, is not a mass torts play, although Bogart said Burford would not rule out funding for a plaintiffs firm based on its anticipated contingency fees.

“This is a service for our clients,” Bogart said. “It’s not particularly lucrative for us. We’re doing this because our clients want it.” Burford will charge “single-digit” interest rates to law firms and clients that receive funding based on post-settlement receivables, Bogart said. Such investments carry very little risk but also present less upside than funding a case in exchange for a share of the recovery. Bogart analogized Burford’s role in post-settlement funding to that of a bank offering a loan with settlement receivables as collateral, although litigation financiers typically structure funding agreements to avoid banking regulations.

Burford previously inherited a $400 million post-settlement fund when it acquired the litigation financier Gerchen Keller in 2016. That fund expired this year. The newly announced fund is its successor. (The Gerchen Keller post-settlement fund ran into controversy in early 2016, when the former business development officer of a Texas plaintiffs’ firm said in a lawsuit against the firm that Gerchen Keller had paid $45 million to acquire a docket of pelvic mesh claims of allegedly suspicious origin; Gerchen Keller declined to comment on the lawsuit, which was settled confidentially.)

Burford’s new fund did not go unnoticed by longtime foes of litigation funding. John Beisner of Skadden Arps Slate Meagher & Flom, who frequently represents the U.S. Chamber’s Institute for Legal Reform, said there’s a “possibility for mischief” when a funder provides money to both law firms and law firm clients.

ILR and its allies have been ferociously lobbying the federal judiciary’s Committee on Rules of Practice and Procedure to amend civil procedure rules to require the disclosure of litigation funding agreements. It’s a good bet that litigation funding opponents will find some way to argue that Burford’s new fund is yet another justification for transparency.

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