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Stimulus for The Legal Industry

April 6, 2020

Stimulus for The Legal Industry

The following piece was contributed by Louis Young, Managing Director of Augusta Ventures.  The Legal Services industry, like many others, is today racing to come to terms with the implications of coronavirus. A range of impacts have been felt to date, including cases being put on hold, staffing concerns and critically, cash flow issues. With clients under pressure, bills aren’t being paid and pipeline looks increasingly uncertain. Alongside this, law firms have high fixed costs, particularly staff, so income is urgently needed. Whilst well-managed firms will have a limited cash buffer, leaders now need to look at all sources of finance. There are three challenges: Firstly, they will want to identify the best way to keep firms afloat in the short term of the lock-down without taking on crippling long-term debts. Secondly, they will want to ensure whatever action they take does not damage client relationships. And thirdly, they will want to position for growth for when the crisis eventually subsides. Litigation funding could be the solution that many law firms seek to all three challenges. In all likelihood, the greatest fall in law firm revenues will be in their corporate and commercial practices. These businesses are usually the mainstay of a firm – offering steady, regular income. In normal times, this reliable revenue streams helps to subsidise more volatile practices including disputes. One option for corporate teams is to seek payment of outstanding invoices. The challenge here is that clients are themselves under pressure. Partners will, therefore, be reluctant to squeeze long time clients in such difficult circumstances, when it has taken many years to cultivate these relationships. Another source of funds may naturally be preferable. Today, the signs are that disputes work is increasing in importance for many firms as a source of income for partnerships as a whole. The challenge however is the lumpy, often delayed nature of revenue from litigation work. Third-party funding offers a solution to this challenge. Law firms may consider introducing a funder to their key clients to seek funding of the corporate’s portfolio of cases. This would allow the client to move forward with cases that might otherwise be on hold for cash flow reasons. It could also allow the firm to pick up work that wouldn’t normally come their way. And it would ensure that the law firm gets paid today, rather than many months down the line, thereby avoiding taking on external debt or damaging precious relationships. A key difference between such third-party funding and traditional bank finance is the impact on the client’s balance sheet. Bank loans are liabilities requiring repayment by the client in any eventuality. Litigation finance on the other hand is non-recourse. Whatever the outcome of a case, the lawyers’ fees are paid by the funder and can include both costs incurred to date, and time yet to be recorded. Should a case be lost, the client does not bear any liability for the law firm’s fees. And when a case is won (70%+ of funded cases usually are), the client receives a substantial return. In this way, lawsuits can be converted by clients from an onerous liability, into a potentially valuable asset. And the client is likely to thank the law firm for introducing this solution, providing the choice of funder is appropriate. Established litigation funders have effective case management processes in place. Often combining analytical and legal skill, they assess cases on a variety of bases including not only the legal merits, but also the financial dynamics of the claim and the defendant’s ability to pay. And well-managed funders participate in the self-regulatory body ALF – the Association of Litigation Funders. Here they undertake to act transparently, fairly and to ensure appropriate returns for claimants. ALF membership demonstrates a commitment to good governance and fair businesses practices akin to established insurers. Law firms will want to protect their reputations and client relationships in selecting funders to introduce. The time for law firm leaders to act is now. As businesses of all types seek to mitigate the impact of the coronavirus, many investments and activities will be put on hold. Such decisions around legal cases may however be reversed if corporate leaders were able to obtain third-party funding that would not strain their balance sheets. Lawyers who are able to introduce such an option now, would not only win valuable guaranteed fees today, but cement or even develop new client relationships for the long term. When the turmoil of COVID-19 subsides, hopefully sooner rather than later, the law firms best positioned for growth will be those who provided value to their clients through the lock-down.

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Commercial Regulatory Issues

Congress Debates Litigation Funding Bill

By John Freund |

Republican lawmakers have renewed their push to rein in third-party litigation funding, with a House Judiciary Committee debate highlighting how politically charged the issue has become.

An article in The Daily Signal reports that members of the House Judiciary Committee clashed this week over legislation that would require disclosure of third-party litigation funding arrangements in federal courts. Supporters of the bill framed it as a transparency measure aimed at exposing the financial interests behind major lawsuits, while opponents warned that the proposal risks limiting access to justice and unfairly targeting a growing segment of the legal finance market.

During the committee debate, Republican lawmakers argued that outside investors are increasingly influencing litigation in ways that can distort outcomes and inflate settlement values. Several speakers characterized litigation funders as profit-driven actors operating in the shadows, asserting that judges and defendants deserve to know who stands to benefit financially from a case. Proponents also linked litigation funding to broader concerns about rising legal costs and what they describe as abusive litigation practices.

Democratic members pushed back, questioning whether the bill was designed to solve an actual problem or simply to deter plaintiffs from bringing legitimate claims. Critics of the proposal argued that disclosure requirements could chill funding for complex and expensive cases, particularly those involving individual plaintiffs or smaller businesses facing well-capitalized defendants. They also raised concerns about confidentiality and whether revealing funding arrangements could give defendants a tactical advantage.

The debate reflects a broader national conversation about the role of litigation finance in the civil justice system. While disclosure requirements have already been adopted in certain courts and jurisdictions, the proposed legislation would impose a uniform federal standard. Supporters say this consistency is overdue, while opponents argue it could undermine carefully negotiated funding structures that allow cases to proceed at all.

Commercial

APCIA Supports Federal Litigation Funding Disclosure Bill

By John Freund |

The insurance industry has intensified its campaign for greater scrutiny of third-party litigation funding, with one of its most influential trade groups backing new federal legislation aimed squarely at disclosure.

An article in Insurance Journal reports that the American Property Casualty Insurance Association has thrown its support behind a proposed federal bill that would require parties in civil litigation to disclose the existence of litigation funding agreements. The legislation, which is currently being considered by the House Judiciary Committee, would mandate that courts be informed when a third party has a financial stake in the outcome of a lawsuit. Proponents argue that this information is essential for judges to understand who stands behind a claim and whether outside financial interests may be influencing litigation strategy.

APCIA framed its endorsement around long-standing concerns about rising litigation costs and what insurers describe as “social inflation.” According to the group, undisclosed litigation funding arrangements can drive up claim severity, prolong disputes, and ultimately increase costs for insurers and policyholders alike. By requiring transparency, APCIA believes courts would be better positioned to manage conflicts of interest, assess discovery disputes, and evaluate settlement dynamics.

The association has been an active voice in the national debate over litigation finance for several years, often aligning with other insurance and business groups calling for disclosure regimes at both the state and federal level. APCIA leadership emphasized that the proposed legislation is not intended to ban or restrict litigation funding outright, but rather to ensure that judges and opposing parties have visibility into financial relationships that could bear on a case.

The bill would apply broadly in federal courts and could have significant implications for how funded cases are litigated, particularly in complex commercial disputes and class actions where third-party capital is more common. Insurers view federal action as a way to establish consistency across jurisdictions, rather than relying on a patchwork of state rules and local practices.

Commercial Regulatory Issues

Why Big Law Is Walking Away From Suits Against Governments

Elite global law firms are increasingly declining to pursue massive claims against sovereign states, even when potential recoveries run into the billions. The trend reflects a reassessment inside Big Law of the risk, cost, and strategic value of investor state and public law disputes that can take years to resolve and often carry significant political and reputational complications.

An article in Law.com International reports that top-tier firms which once dominated investor state arbitration and other government facing disputes are now far more selective about taking on such matters. Lawyers interviewed for the piece point to a combination of commercial pressure, client demands, and internal firm dynamics that make these cases less attractive than they once were. Although headline damages can be enormous, the cases typically require years of work, large multidisciplinary teams, and significant upfront investment with no guarantee of recovery.

Another key factor is reputational risk. Firms are increasingly cautious about being seen as adversaries of governments, particularly in sensitive jurisdictions or disputes involving public policy, natural resources, or infrastructure. Partners noted that political backlash, enforcement uncertainty, and the potential impact on other client relationships all weigh heavily when firms decide whether to proceed.

The article also highlights that many corporate clients are less willing to bankroll these disputes directly. Budget scrutiny has intensified, and companies facing disputes with states are often reluctant to commit tens of millions in legal fees over a long time horizon. This dynamic has contributed to a rise in alternative fee arrangements and third party litigation funding, though even those tools do not fully offset the burden for law firms carrying significant work in progress.

As a result, specialist boutiques and arbitration focused firms are increasingly stepping into the space once dominated by global giants. These smaller players often have lower overhead, deeper niche expertise, and a greater tolerance for the long timelines associated with sovereign disputes.