The following is a summary and highlights of Part 4 of our podcast series “From the Inside Out,” bringing non-obvious insights from in-house legal departments to law firms and other lawyers on the outside. “From the Inside Out” is hosted by Ian Connett of Evolve the Law and sponsored by Lake Whillans, a commercial litigation finance firm with offices in California and New York.
In our final installment, we sat down with Lee Drucker, a founder of Lake Whillans. Lee holds a J.D./M.B.A. from NYU. In our discussion, Lee broke down the basics of litigation finance, a tool that is increasingly being used by in-house lawyers to control the costs of expensive lawsuits, as well as shared insider insights for lawyers looking to learn more or break into this growing field.
Highlights:
Can you give us a quick description of what Lake Whillans does and what litigation finance is?
Litigation finance is a broad term encompassing a lot of different asset investment classes. It’s any investment in an asset whose value is tied to the outcome of a litigation, arbitration, or other legal proceeding. Lake Whillans does commercial litigation finance, which involves providing capital to companies to support their legal claims or arbitrations in return for a portion of the proceeds of the claim.
Why do you think more and more companies these days are using litigation finance?
Companies are always looking for the lowest cost of capital to finance a particular asset. Litigation finance allows them to manage risk at the appropriate economics and maybe focus their other capital on more high-return businesses, or businesses with a market that rewards more favorably for success. The early adopters of litigation finance were startup companies, because they were most in need of the product. They lacked the money to fund litigations because they put it all into building a business. As litigation finance has become more widespread and understood, it’s caught on with larger companies.
What’s your advice for a GC seeking litigation funding for the first time?
Call three or four different litigation funders, explain your case at a high level, and see if it fits their wheelhouse. If it does, sign an NDA and schedule a deep-dive call with a broader team to understand the case on a more granular level. Repeat that with all the funders, and then move forward with the firm you think is the best fit and who’s providing the best terms. The best thing to do is talk to folks and get educated so you’re speaking the same language.
What percentage of cases get funded and is there an average target investment size in the industry?
In the beginning, roughly 25-50% of potential clients who approached us ended up getting funded. Today, the number of initial conversations has increased exponentially, but of the ones that move onto serious conversations, the funding numbers probably hold. The amount of funding varies widely by the funder. Some of the biggest litigation funders in the market are looking to spend $25-50 million per transaction, while others are looking to spend $250,000 or less. There’s a wide range of business models and strategies in the industry.
When a client wins, winnings are split according to the structure of the deal. What happens if they lose?
Unfortunately, losing is part of the business and it’s build into the price that we charge for our capital. Litigation finance is non-recourse, meaning there’s no repayment required if the case isn’t successful.
If you want to work for a litigation funder, is law firm experience a requirement?
It depends on the litigation funder. At the biggest, they have multiple offices and lots of different investment professionals beyond those with legal experience. At a smaller company like Lake Whillans, we want to bring in people who are involved in the underwriting process, and for those types of positions you need to have a legal background.
Do you have any general words of wisdom for law students if they’re seeking a role in litigation finance or if they’re generally struggling with what to do after school?
If you know that you don’t want to be a lawyer and you want to go into business, try to get as close to the beginning of an idea as you can. There are lots of interesting things happening in the world right now that you can learn about and get involved in. Many of those industries require legal skills, so you can take what you learned and make it useful. Find a place where the skillsets you have are really in demand and useful, so you don’t have to do the things you’re weaker at.
How does litigation finance fit into the larger access to justice conversation?
In one of my first cases, the company had to decide whether to lay off employees or continue litigation, because they couldn’t do both. The other side had offered nothing for settlement. Once we funded them, they didn’t have to lay anyone off and continued litigation. A year later, they settled for for $61 million, the defendants admitted some wrongdoing, and the company is growing and doing great. It’s great to help companies that don’t have the financial means to mount a fight against a more well-heeled opponent. Companies shouldn’t have to make the choice between laying off employees, shuttering their business, or letting bad guys off the hook. Litigation finance ultimately creates more justice and better outcomes.
Listen to our entire discussion with Lee Drucker here to gain more insights into litigation finance.
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‘From the Inside Out’ With Lee Drucker Of Lake Whillans [Sponsored] curated from Above the Law
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