In this week's Law Firm Disrupted, we learn about a litigation funder's efforts to quell criticism. I'm Roy Strom, the author of this weekly briefing on the changing legal market, and you can reach me here or sign up to receive this newsletter here.

A More Transparent Look at the Litigation Finance Business

Most companies don't like talking about their lawsuits. How many times have you read this refrain from corporate PR departments: “We do not comment on pending litigation.”

So, it makes sense that finance companies in the litigation business would have a reputation for being opaque. (The fact that most litigation funding firms oppose mandatory disclosure of their agreements also burnishes that reputation, but that is not the issue we are talking about today.)

But this week followers of the litigation finance business got a more transparent peek into the business of the world's biggest litigation funder, Burford Capital Ltd. In its annual financial report, the publicly traded business released a number of new financial metrics that should go a decent way toward quieting some skeptics of lawsuit backers.

One common critique of the financial metrics that have been available regarding litigation funding has been a distinction between what it means when funders “commit” and “deploy” their capital. The distinction is basically between what they say they will spend and what they really do spend.

Skeptics have said that funding companies report the “commitments” they make to fund potential deals as a way to inflate the perceived demand for litigation funders' capital. The argument goes that money they “deploy”—the cash they actually put at risk financing lawsuits—is a more accurate barometer of the market's need for their money.

At least in Burford's case, it turns out that criticism is mostly unfounded. The firm said Wednesday that it has historically spent (deployed) 84 percent of the money it says it will spend (commitments). The missing 16 percent is mostly due to the fact that cases settle before they cost the full amount that Burford agrees to spend.

Christopher Bogart, Burford's CEO, was not shy when asked if that number was released as a way to quell skepticism.

“If you are a wannabe player in this space,” Bogart said, “you are going to do two things: First of all, put out a press release that you have access to a whole lot of money, even though that money is very likely not yours to deploy just on your own discretion. And the other thing you'll do is say you have written a lot of commitments as a way to say you have spent a lot of money even if you never spend it.”

Last year Burford deployed $1.1 billion in capital, meaning it paid lawyers just a bit more than the revenue generated by Jones Day's litigation department in 2017, according to reporting by The American Lawyer.

In the interest of further disclosure (and my own self-interest as a reporter covering this business), I suggested one more number for Bogart to disclose: The amount of money the firm spends with Am Law 200 firms in a given year. He said he would consider it.

“The answer is going to be, 'a lot of money,' just by sheer necessity” he said. “Those firms make up a very significant part of the American legal infrastructure. So while we absolutely work with smaller firms and particularly boutiques that have spun out of those kinds of firms, the simple reality is that a considerable majority of our spending will be with those firms just because of their sheer size.”

Maybe we'll find out the real number next year.

Roy's Reading Corner

On Lawyer Misbehavior: Law firm leaders who find themselves in trouble with the law can also find themselves in trouble with their firm. That was the second-day message, and warning, The American Lawyer reported on regarding Gordon Caplan, the former co-chair of Willkie Farr & Gallagher who was named as a defendant in the college admissions scandal. It is a story that drives home the moral responsibility that comes with being a licensed lawyer.

On Law Firm Compensation: I believe it was Theodore Roosevelt who said, “Comparison is the thief of joy.” If you don't want to take a U.S. president's word for it, a Big Law chair once said to me something similar: No Big Law partner is unhappy with their compensation until they know what the partner in the office next door makes. For that reason, I'm sure there are plenty of Big Law chairs who wish they had a closed compensation system. My colleague Meghan Tribe reports that Baker McKenzie has moved toward a black box compensation system. The firm says it still allows partners access to the compensation ledger, which may be just enough to keep the joy around during compensation time.

On Law Firm Mergers: Paul Hodkinson, my colleague from across the pond, writes about the ramifications of the reported merger talks between O'Melveny & Meyers and Allen & Overy. If those talks lead to a deal, the Legal Week editor-in-chief writes that A&O's fellow Magic Circle firms will struggle to respond. But what is more interesting to me is what he says will happen if the talks fail.

On Law Firm Pricing: I know better than to use the term “non-lawyer,” but if you do pricing at a law firm, you now have more options to feel like a “professional.” After a legal pricing accreditation launched last year, now a couple of well-known pricing consultants are offering online classes to teach legal employees about how to cut alternative fees.