Litigation finance clients are growing more sophisticated. And they're aware of the promise the tool has to keep litigators busy in the event of a recession. Those are two key takeaways from a Burford Capital survey of 509 lawyers, legal professionals and finance professionals Want to weigh in? Email me here. Want this dispatch in your inbox every Thursday? Sign up here.

Burford Unbowed

Burford Capital hasn't let its recent turn in the barrel impede its research and marketing efforts.

Two months after an August short selling attack by Muddy Waters put the company and its business model in the spotlight, Burford released its eighth annual legal finance report Wednesday, noting that it had moved from an online survey limited to a U.S. audience in 2012, later adding the U.K. and then Australia, and augmenting it with one-on-one telephone interviews with law firm and in-house lawyers for the first time last year.

The 32 participants in 2019 included partners at Freshfields Bruckhaus Deringer, Reed Smith, Arnold & Porter, Akin Gump and boutique Bartlit Beck, along with companies including DXC Technology, DISH Network and AIG Retirement.

Obviously, this is a marketing effort. The company has a clear interest in demonstrating there's nothing "scary" about the still-relatively-novel product they are selling. But nonetheless, the takeaways are intriguing, and the anonymity of the survey participants and the shielded identity of the interviewees allows for a discussion of the strides the industry is taking into the mainstream.

In effect, Burford's own research has matched its takeaway on the state of the litigation finance industry: both have grown more "sophisticated."

Some takeaways:

"Law firms may be becoming more entrepreneurial… I don't remember hearing about this from any law firms for the first five of my 10 years in house, but in the past two years, a few law firms have raised the idea of litigation funding."—one litigation counsel at a U.S. company.

That's in line with the survey finding that 80% of lawyers agree that third-party finance is an essential law firm new business tool.

"When litigation funding emerged as a tool … there was a lot of gnashing of teeth and wondering whether there was something wrong with using it, but that has disappeared completely. Now, I don't think that anyone has a negative impression of a party that uses funding. In fact, it may be a good thing because a third-party has independently evaluated the merits of a claim and made an independent determination to invest in it. There is no stigma…" — a partner in an international law firm.

Interestingly, in-house attorneys were more likely than law-firm attorneys to agree with the statement that "most lawyers support litigation finance; its opponents are a vocal minority who exploit unjustified fears about its use." 72.4% of the in-house respondents were on board with that contention, compared to 64.7% of law firm attorneys.

"We… would [be more likely to use legal finance in a recession] because if your budget contracts and you still have the same demands on the legal department, you might look to supplement elsewhere." —litigation counsel for a U.S. company.

Talk about using litigation finance as a recession hedge is real. 67.5% of law firm attorneys and 71.6% of in-house attorneys agreed that they would be more likely to advocate the use of third-party financing in the event of a recession. Strikingly, this number was highest among U.S. attorneys: over 82%, compared to right around 64% for the U.K., Canada and Australia. The expectation that legal budgets will shrink in the event of a recession is also substantially higher in the U.S.: over 70%, compared to around 65% for both the U.K. and Australia and just 58% in Canada.

I can't help but wonder if these disparities aren't more a sign that the fear of a recession is sharper here in the U.S. than in the world's other large English-speaking economies. Or maybe there's just far more discretionary spending on litigation in the U.S. than elsewhere: lawsuits that would get pursued in a time of plenty but not when belts are tightened—at least before the explosion of third-party finance.

In the News

The FT has a special section on the rise of "intelligent business," with plenty to say about the legal industry. The findings—that the Big Four are ramping up their legal capabilities even if they're not trying to compete directly with Big Law, that it's hard to get away from the billable hour, that reviewing documents is a miserable task for young lawyers, and that attorneys are catching up on technology—are hardly groundbreaking, but it's nice to see these ideas packaged for a generalist audience.

I've spilled plenty of ink on Dentons' aims for the U.S. My colleague Dylan Jackson turned his attention to Greenberg Traurig, the firm that said it's already built a truly "national" presence. One consultant he talked to suggested the squabble between the two firms might be moot: "Let's say there's a big business in Miami that needs high-level securities work. They want a high-level securities lawyer and don't really care how many offices you have."

Dylan also did some smart data work to show that minority partners at more than three dozen Am Law 100 firms disproportionately occupy the nonequity tier. Take a look.

Back again next Thursday! What do you want to hear about? Tell me at [email protected]. Sign up here to receive The Law Firm Disrupted as a weekly email.