Bill Farrell, Co-Founder of Longford Capital, Speaks to K&L Gates
William Farrell, Jr., Managing Director and Co-Founder of Chicago-based Longford Capital, recently appeared on a podcast hosted by K&L Gates. Farrell shared his personal journey from working as a prosecutor in the Cook County prosecutor's office to founding and managing litigation funding powerhouse Longford Capital. Below are some highlights of the 50-minute long podcast, which can be found here. Q: Are there any thoughts you have about what we need to be thinking about to be appropriate allies to influence or change systemic racism in our legal system? A: One thing that has struck me, in Chicago anyway, is that since the horrific incident that involved Mr. Floyd, we have had dozens of shootings in Chicago in the south and west side neighborhoods, and dozens of African Americans have died as a result of those shootings. And their lives matter, very much. I wish we’d spend time focusing on more of a grass roots community-driven effort to increase educational opportunities for all of our citizens, which I think will lead to progress and success. Q: What are some things you carry with you from being a prosecutor that might have given you a leg up? Was there something in particular from the Cook County prosecutor’s office that you took with you into the litigation realm? A: One of the things I enjoy most about my job has been interacting with people, and trying to understand people. I learned an awful lot about that as a prosecutor. Taking the skills of being able to listen to people coming from extreme situations and trying to understand them and their motivations, whether they’re telling me the truth, they’re trying to skirt the truth—and how to motivate them to tell me the truth has been really important, and I’ve carried it with me throughout interacting with juries, which is a very personal experience. Trying to understand each and every juror and trying to get them to understand me and my client’s position is a quality that was borne in my time at the state’s attorney’s office. Now, as a commercial litigation funder at Longford Capital, we have a policy that we must meet our clients in person whenever possible. That’s been a little tough as of late, with the stay at home orders. But we think making a personal connection and understanding the intangibles is important. We might understand that a client might have a meritorious breach of contract claim, but at Longford, we want to understand—what’s the motivation for trying to enforce those legal rights? What is the client trying to achieve? Is it to just have a judge rule in their favor so that they have a feeling of justice? Is it to achieve a commercially reasonable financial result? Everybody has a different approach to litigation. I want to understand it from a very personal level. Q: So you and your brother, I assume, talked about forming this company, which—even today, it’s not a road that’s normally traveled. Tell us how you came up with the idea, and some of the bumps in the road that might have occurred? A: It was in 2009 that we first learned of this idea of third party commercial litigation finance—the notion that a third party, not the client or the law firm, would participate in the funding of attorney’s fees and expenses incurred in connection with pursuing a meritorious legal claim. It was a very novel idea; in fact, I had never heard of it before. I don’t think anyone in the US had heard of it before. My initial reaction is that it’s too bad it’s prohibited in the United States, because I thought it was such a smart idea. A solution to the ever-increasing call by corporate clients for alternatives to the billable hour model. I thought it was unfortunate that it was somehow impermissible in the United States. But I took the time to research why, or what rule prohibited this, but I couldn’t find the rule. There was no prohibition against litigation funding in the US, and in fact it blended in quite well with the range of possibilities that corporate clients involved in litigation used as a means of paying for their legal services—the first and most obvious being paying their lawyers. I immediately thought of it as a solution for clients approaching me and my firm seeking alternatives to the billable hour. I thought it would be a great alternative to saying ‘I’m sorry, my firm doesn’t offer contingency agreements.’ And I began to study it, and at some point included my brother Tim in the discussion. At that point, Tim was representing about a thousand US manufacturing companies, ranging from multiple billion dollar publicly-traded companies, down to hundreds of family-owned businesses. His reaction to this also helped form our future pursuit of Longford Capital. His reaction was, ‘almost every one of my 1,000 member companies is involved in litigation, virtually at all times. And you’re now telling me that they have an option, an alternative to paying their lawyers monthly, and that option is to transfer that cost to a third party—a funding organization—specifically designed for that purpose, and that the funding will be in the form of an equity non-recourse agreement that’s only required to be repaid if the company is successful in the litigation. It’s not a loan but rather an investment in the outcome of the case.’ He said, ‘I’ll do the survey but I don’t even need to do it. I’ll tell you what the answer is. Companies will want that alternative, easily more than 50% of the time.’ Q: From there you had to take that to investors and try to get that money out the door. Talk about that process—did you have a hard time convincing people to buy into this concept? What were some of the struggles you had in those early fundraising periods? A: From the time we learned about this idea of litigation finance in 2009, we studied a lot over a two-year period, and we tried to surround ourselves with experts in the field. We tried to find answers to all the questions that might be asked of us by investors, firms, and lawyers and clients. After vigorous investigations over two years, we thought we had the answers to all those questions, and they all suggested that litigation finance would be attractive in the United States. However, there was a leap of faith: We didn’t know whether institutional investors would embrace the idea of a new investment strategy that had never really been tried or tested. There were no benchmarks or track record, and maybe worse yet, being advocated by a group of people that weren’t professional investors who had never worked investing the money of other people. The reason I think it was successful, is that some of the characteristics of litigation finance from an investor’s perspective are very attractive. Mainly that the outcomes of commercial litigation are not correlated to major investment indices. Meaning that whether the stock market is up or down on the day the jury is coming back really has no impact—and that extends to credit markets, equity markets. The outcomes of commercial litigation are not affected by presidential elections, weather patterns, geopolitical events—as a result, investment in the outcome of legal claims serves to diversify investment portfolios. And that is a very attractive feature for institutional investors. It turned out that that was the key to getting interest from investors.
