Community Spotlight: Jeffrey Stern, Partner, Reed Smith

Legal funding has never before achieved such widespread adoption and acceptance within the legal industry, whilst simultaneously attracting increasingly vociferous opposition from those who wish to see limitations on its influence enforced. 

In its latest Quarterly Focus, Commercial Dispute Resolution (CDR) looks at the prospects for the third-party litigation funding market in the year ahead, highlighting both the tremendous progress the industry has made and the persistent critics who continue to call for enhanced regulations. In the article, CDR garners insights into what the coming year may hold from senior executives at some of the largest litigation funders, as well as those working with funders at law firms and consultancies.

The established and accepted position of legal funding is a key talking point with funders, as Burford Capital’s David Perla emphatically states that “legal finance is mainstream”, whilst William Marra from Certum Group points out that after many years of educating and raising awareness, “litigation funding is integral to the business models of many and maybe even most law firms.”

Despite the achievement of becoming a mainstream feature of the legal services industry, critics of third-party funding have not relented in their vocal opposition to its use, and if anything, have turning up the heat on lawmakers to introduce restrictions. Boris Ziser, a partner at Schulte Roth & Zabel, offers the straightforward rebuttal to these critics that he doesn’t “see how anyone can argue with the fact that litigation funding increases access to justice.”

Similarly, Avenue 33’s CEO, Rebecca Berrebi points out that the most prominent critique of third-party funding, the US Chamber of Commerce cannot be considered an unbiased observer as it “is funded by the big defendants in many of the cases that are funded”.Additional analysis from these top executives on the various legislative efforts to restrict legal funding, and the role of the courts, can be found in the CDR article.

As litigation funders strive to forge closer relationships with lawyers, one benefit for all participants in the legal industry is the opportunity to share best practices.

In an article for Today’s General Counsel, Jeffery Lula, principal at litigation funder GLS Capital, suggests that in-house legal departments and GCs should adopt the litigation valuation approach used by litigation funders. Lula argues that in-house counsel “often take an ad hoc approach to valuation—which can lead to biased or imprecise evaluations”, whilst funders’ very longevity is tied to their ability to repeatedly evaluate lawsuits accurately. As a broad framework for litigation valuation, Lula highlights four key components that should be assessed: legal merits, damages, duration and collectability.

On the legal merits of any individual case, Lula suggests adding a level of ‘qualitative rigor’ by evaluating the probability of success for each significant milestone of the litigation, such as the probability of losing a motion to dismiss or motion for summary judgment. When it comes to assessing the scale of possible damages, Lula emphasizes that ‘damages are not created equal’, and that ‘this nuance regarding the certainty of damages is key to valuing a case.’

Whilst Lula acknowledges that the duration of a lawsuit is often hard to predict, he does point a particular spotlight on the scheduling order for courts, and the importance of understanding ‘whether the current scheduling order is likely to change.’ Lula closes his piece by noting that of all these components, collectability often receives less focus than others, and that it is of utmost importance for ‘in-house counsel to inquire whether the defendant entity is expendable.’