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A Prognosis for Civil Litigation in the U.S.

The following piece was contributed by Eric Blinderman, Chief Executive Officer (U.S.) at Therium Capital Management. This piece was originally published on Mr. Blinderman’s LinkedIn page.  To learn more about Therium and their U.S. operations, visit them at their website

Approximately two weeks ago, the world as we know it changed.

Every assumption that governed our daily lives was uprooted. Grabbing a bite to eat with friends stopped. For most, commuting to work ceased. Touching an elevator button became tinged with the fear of contracting an unknown disease. Riding a subway and hearing the person next to you cough caused panic. Stock markets collapsed and businesses across the country simply shut their doors, laying off millions. Courts shut down.

Those who were merely frightened but kept their jobs were the lucky ones. The unlucky ones lost their jobs, or worse, were infected with this mysterious disease called COVID-19 and began an unthinkable journey from which many have recovered but others have not.

In spite of these upheavals, businesses are attempting to adapt. Those with jobs are continuing to perform their duties, albeit in large part from home. And life continues. Making sense of these changes and their impact remains challenging but is also important so that people can plan, take steps to minimize harm, and protect themselves and their livelihoods from continued disruption to the extent possible.

That is where we are today. But it may help to keep in mind, as California Governor Gavin Newsom has said, that this pandemic occupies only a moment in time. At some point, we will come out the other side. For those who find solace in contemplating that future, here is our prognosis for the short-and longer-term effects of COVID-19 on litigants, law firms, and the litigation finance industry.

Litigants

In the short term: Already, the coronavirus outbreak has given rise to lawsuits tied directly to the disease or to the economic disruptions that have followed. Restaurants and other business simply seeking to survive have filed suit against their insurers to recover some portion of their losses. Class action lawyers have filed suit against Norwegian Cruise lines which allegedly told sales reps to lie about passengers’ risk of contracting the virus. Investors have also sued a biotech company for claiming it could develop a COVID-19 vaccine in three hours, while other class action lawyers have filed suit against Germ X, which made advertising claims that its hand sanitizer protected against coronavirus. These claims represent the smallest fraction of suits that will likely get filed and which lawyers will litigate for years to come.

Beyond this immediate burst of litigation, the judicial system needs to begin functioning anew. At present, dozens of federal courts throughout the country are closed or have delayed trials while approximately 30 state court systems and the District of Columbia have followed suit. Indeed, the Supreme Court postponed oral arguments on more than a dozen cases for the first time since the 1918 Spanish flu pandemic.

Once the judicial system restarts (and it will), the new normal of how lawyers and clients litigate will change at least for the short term to medium term. Already, courts, arbitration tribunals, and mediators are requesting that litigants refrain from attending in-person hearings or trials in favor of video proceedings. Ignoring the ramification of these closures on the criminal justice system for a moment and focusing on civil litigation, every practitioner has to ask whether such alterations in how the practice of law is conducted will become regularized and how such disruptions might impact the cases they are presently prosecuting.

In the longer term: When COVID-19 reached America, half a trillion dollars in M&A deals were waiting to close. All of those deals are now imperiled, with buyers as deep-pocketed as Volkswagen (which had inked a deal for U.S. truck maker Navistar) expressing reservations about going through with them. It appears a near certainty that a massive wave of disputes over the duty to consummate these deals and perform other contracts will occupy the courts for years. Fewer than 10% of force majeure clauses contain a carve out for pandemics, leaving ample room for argument over that doctrine, as well as defenses like impossibility, impracticability, and frustration of purpose.

Conventional wisdom holds that economic slowdowns are accompanied by a compensating increase in litigation, which smooths out the economic ride for those connected to the legal profession. These contractual disputes could bear that wisdom out. But they aren’t likely to if courts remain closed for an extended period. Also, while remaining humble about my ability to predict the future, I will point to this unfortunately prescient piece about the impact of a recession on BigLaw, which I wrote in late December. There, I discussed that conventional wisdom did not hold in the Great Recession; demand for litigation was down in 2008, 2009, and 2010. The most likely reason was fear: “As corporate resources become more precious in a recession, general counsel may have been spooked by the thought of spending them on cases – even strong and valuable ones – only to lose.”

Law firm litigation departments

Short term: At the moment, law firms do not have the luxury of thinking far into the future. They are busy staying operational in our current, locked-down state. With so many lawyers and staff working from home, multiple AmLaw 50 firms have experienced network capacity issues. Normally, the impact of slowing economic activity takes time to hit law firms, but this situation appears different. While law firm mergers did not fall off in 2008 or 2009, for instance, the current disruption to the M&A market appears to have hit firms with full force. The merger between Troutman Sanders and Pepper Hamilton, for instance, has been delayed to July 1.

Longer term: The expected boom in contractual disputes may provide a cushion of sorts for litigation-focused law firms. But most litigation departments, particularly at AmLaw200 firms, are sitting in a life raft with any number of other practice groups, some of which could get heavy in a recession or depression. This experience will prove a stiff test of how well law firms learned the lessons of the Great Recession. Many responded by diversifying their practice mix and improving their balance sheets. Already, however, law firms are asking banks for credit line increases at a rate six times higher than this time last year.

That’s a warning sign that law firms, like their clients, are experiencing cashflow challenges. The biggest outgoing flow, of course, is compensation. Law firms had just begun to loosen the spigot a bit, with promotions increasing 20% between 2018 and 2019. Now, it seems clear that if and when COVID-19 impacts stretch into their fourth, fifth, and sixth month—if not sooner—layoffs will occur and firms that do not maintain strong balance sheets will not survive 

Litigation funding

Short term: For corporate plaintiffs and law firms with claims to prosecute and who are facing immediate and pressing cash flow needs, litigation finance offers a potential to relieve at least some degree of uncertainty. That’s not to say that litigation finance will emerge from the pandemic as the answer to every problem. To this point, investors have been attracted to litigation finance in part because its returns are not correlated to the broader economic cycle. The value of a products liability case, after all, does not depend on what happened to the Dow last week. We’re realizing now, however, that there is a limit on that lack of correlation. The disruption from COVID-19 is so severe—shuttering courts, stopping trials—that it is pausing returns on lawsuits as it pauses the rest of the economy.

Longer term: The legal industry has been incorporating novel ways to manage risk while seeking to redefine the billable hour business model for decades. Without doubt, the economic impact of recent events will likely accelerate this shift and provide litigation finance companies an opportunity to partner more robustly in this process with law firms and corporate entities large and small. For example, large firms that had to lay off attorneys may consider litigation funding as a way to further diversify their workload and keep cashflow coming to stave off additional cuts in the future. Similarly, attorneys lacking the security of a big law job and failing to qualify for conventional recourse capital will likely turn to litigation finance companies to seed their practices and to develop entirely new firms. Equally as important, larger corporate entities may begin to see the value of entering into more long-term dedicated facility arrangements with litigation finance companies as a hedge against lean economic times while small mom and pop business rely upon such arrangements to free up cash flow for recovery, growth, and expansion.

Ultimately, this is all speculation. COVID-19 has already laughed at the plans many of us had for this year. We know only this: that the virus will pass, and that until then, we very much look forward to the day when lawsuits are our biggest concerns.

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Fieldfisher Taps Jackson-Grant as Pricing Chief

By John Freund |

Fieldfisher has recruited litigation-funding specialist Verity Jackson-Grant to the newly created post of Head of Commercial Pricing, underscoring the firm’s intent to capitalize on sophisticated fee and finance structures in the wake of last year’s PACCAR fallout. Jackson-Grant, best known for translating third-party capital into user-friendly products for corporate clients, will sit within the firm’s European finance team and manage a multi-office pricing unit.

An update on LinkedIn confirms her appointment, noting that she will “drive and shape” Fieldfisher’s pricing strategy across the continent. The role’s blueprint calls for rolling out “creative pricing models” that enhance client profitability and embed alternative fee arrangements into disputes workflows.

Jackson-Grant brings a rare blend of funding fluency and law-firm know-how. A former director at TheJudge, she brokered litigation-finance and ATE insurance packages before moving in-house to develop alternative pricing frameworks for major UK and US practices.

Chubb & Marsh Chiefs Turn Heat on Litigation Funders

By John Freund |

The insurance industry’s long-simmering feud with third-party litigation finance boiled over on Monday.

In an article originally posted in the Wall Street Journal and covered in Insurance Business America, Chubb CEO Evan Greenberg and Marsh McLennan counterpart John Doyle deliver a joint broadside against what they dub the “litigation investment industry.” The duo argue that multi-billion-dollar capital inflows from hedge funds and foreign investors are fueling a 52% year-on-year jump in “nuclear verdicts,” pushing the average blockbuster award to US $51 million.

The duo's ire is heightened by Congress’ failure to preserve a 40.8% surtax on funder income that was stripped from President Trump’s “One Big Beautiful Bill” during reconciliation. Without tax parity, they warn, funders can pay 0 % capital-gains rates while plaintiffs shoulder income-tax burdens of up to 37%.

The executives cite data showing 135 verdicts above US $10 million in 2024 and estimate tort costs at US $529 billion—figures they link directly to opaque funding arrangements. Chubb, they reveal, is reviewing counterparties to sever any ties with litigation financiers, while Marsh has already refused to place insurance that facilitates funding.

Funders are already responding to the pair's remarks. William Marra, Director at Certum Group, wrote on LinkedIn: "Funders and their allies need to prepare for the policy debates ahead, because misguided proposals to kill funding may continue." Marra then highlighted proactive education, rapid response, success stories and coalition building as four strategies that funders should consider moving forward.

Burford Capital Clinches US $500 Million Bond Upsize

By John Freund |

Burford Capital has once again reminded the debt markets that litigation finance is anything but niche.

An article in PR Newswire reports that the New York- and London-listed funder upsized its private offering of senior notes from an initial $400 million to $500 million after books closed multiple times oversubscribed. The eight-year paper priced at 7.5 %, Burford’s tightest spread over Treasuries to date, and will refinance $180 million in 6.125 % notes maturing this August while extending the weighted-average life of the balance sheet to 2033.

According to Burford CEO Christopher Bogart: "We're very pleased with the results of this latest debt offering, which added a half-billion dollars in capital, building on our momentum and strengthening our position to achieve our growth targets."

For investors, the transaction offers two signals: first, that the firm’s cash-realisation cycle—driven by landmark wins such as Petersen—continues to convert headline judgments into distributable cash; and second, that fixed-income desks are increasingly comfortable underwriting the risk profile of litigation finance even in a high-rate environment.