Deep Pockets Swell Dockets: How Investors Fund Lawsuits
From the Wall Street Journal
What began as a cottage industry to fund personal-injury lawsuits has become a booming international business in litigation finance. Some litigation-investment firms, such as Juridica and Burford Capital, both incorporated offshore, are publicly traded. Others like BlackRobe Capital Partners and Parabellum Capital, both in New York, are privately held. All are drawn by expectations of big-time payoffs and returns in America's $200 billion litigation market.
Legal scholars and jurists have lamented this trend. "Champerty," outside investment in lawsuits, had been prohibited for centuries by common law, and more recently by state codes of legal ethics and professional conduct. The reasons were clear: to discourage frivolous lawsuits and minimize conflicts of interests. An investor, for example, might pressure a law firm to take a case to trial rather than settling, even though it might be contrary to the plaintiff's best interests.
The firms see themselves as providing a much-needed service. As Jonathan Molot, Burford's co-founder and chief investment officer, told the Washington Post in 2011, "Litigation against an adversary can cost millions. We provide the financing so the business can choose the law firm it wants."
In a 2010 case, Burford backed a real-estate developer in Arizona, Gray Development Group, that claimed a rival had tried to block one of its residential projects. When the real-estate collapse left Gray facing a cash shortage, the company's lawyer introduced his client to Burford. A $6 million infusion from Burford helped Gray pursue a case that resulted in a $110 million award from a jury. With the potential for an appeal, the two parties later settled, and Gray reportedly paid Burford more than $18 million—a 200% return on the firm's investment.
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From the Wall Street Journal
What began as a cottage industry to fund personal-injury lawsuits has become a booming international business in litigation finance. Some litigation-investment firms, such as Juridica and Burford Capital, both incorporated offshore, are publicly traded. Others like BlackRobe Capital Partners and Parabellum Capital, both in New York, are privately held. All are drawn by expectations of big-time payoffs and returns in America's $200 billion litigation market.
Legal scholars and jurists have lamented this trend. "Champerty," outside investment in lawsuits, had been prohibited for centuries by common law, and more recently by state codes of legal ethics and professional conduct. The reasons were clear: to discourage frivolous lawsuits and minimize conflicts of interests. An investor, for example, might pressure a law firm to take a case to trial rather than settling, even though it might be contrary to the plaintiff's best interests.
The firms see themselves as providing a much-needed service. As Jonathan Molot, Burford's co-founder and chief investment officer, told the Washington Post in 2011, "Litigation against an adversary can cost millions. We provide the financing so the business can choose the law firm it wants."
In a 2010 case, Burford backed a real-estate developer in Arizona, Gray Development Group, that claimed a rival had tried to block one of its residential projects. When the real-estate collapse left Gray facing a cash shortage, the company's lawyer introduced his client to Burford. A $6 million infusion from Burford helped Gray pursue a case that resulted in a $110 million award from a jury. With the potential for an appeal, the two parties later settled, and Gray reportedly paid Burford more than $18 million—a 200% return on the firm's investment.
Read more in our daily News Update...