The QuantLaw Report
Law Firm Ownership Rules on the Verge of Change
Three state bar associations, plus the Washington, D.C.-bar, may be on the precipice of changing the rules that govern law firm ownership. In an effort to expand access to legal services, the state bars may lift the prohibition on nonlawyers partnering with lawyers in multidisciplinary firms. All of the state rules stem from the ABA Model Rule 5..
“This would be a very dramatic and significant decision,” said Marc Abrams, QuantLaw’s Managing Partner. “A critical issue for litigation funding has always related to harnessing the litigation funder’s control over case decisions,” he explains. “Lawyers are not supposed to be driven by the same incentives as business people. In business, maximizing profits is the objective. In the practice of law, aiding your client in solving their particular issue is supposed to be the objective. Getting paid has traditionally been the collateral consequence of good advisement."
Podcast: This is a challenging, complex issue for the legal community and investors, and next month the QuantLaw Report will take a deep dive into the pros and cons of non-lawyer ownership.
Litigation Finance Driving Big Law into Plaintiff Work
The growth of litigation finance is driving some of the biggest and most elite American law firms to do something once-unthinkable: plaintiffs work.
“There used to be a chasm between the white shoe, Big Law attorney on one side and swashbuckling plaintiffs lawyer on the others,” writes Elizabeth Korchin of Therium Capital Management in Law360. But those stereotypes are rapidly changing. In her essay How Big Law is Adapting to Plaintiff Side Litigation, Korchin reports that a growing number of Big Law partners and firms — traditionally aligned with corporate work —are making the leap to litigation finance.
Perhaps the biggest news of Big Law’s shift into plaintiff side work came last summer, when Kirkland & Ellis LLP, the largest firm in the country by revenue, announced that it will make a push into plaintiffs work, with some of it to be performed on a full contingency basis. According to Korchin, Kirkland aims to ramp up its plaintiff-side work by a “magnitude of tenfold.”
Korchin, herself a former partner at Hogan Lovells before joining Therium, explains that commercial litigation finance has opened to large firms the possibility of taking on contingency fee matters at risk levels that are more palatable. Some highlights from Korchin’s report:
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Kirkland is pursuing a different model than other big firms. According to Korchin, Kirkland has plans to work on at least some of its plaintiffs cases under a pure contingency arrangement — if it does not recover anything for the plaintiff, the firm doesn’t make anything either.
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Other Big Law firms use partial funding arrangements that give them a portion of the risk in exchange for a portion of the upside when matters succeed
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Some firms are utilizing portfolio funding. With this approach, Korchin explains, they spread risk across multiple matters and minimize exposure to loss. These firms set up structures that look like plaintiff-side boutiques within the firm.
Korchin believes that the growing openness to higher-risk high-reward plaintiff work and litigation funding is a part of a sweeping cultural shift in Big Law away from traditionally conservative culture to one that is more open to risk-taking and innovation.
Upcoming on the Quantlaw Report: Marc Abrams takes a deeper look at the implications of Big Law’s move into plaintiff work, for the legal system and investors.
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Why Litigation Finance is the Ultimate Impact Investment
Imagine if there was an impact investment holy grail — an investment that could not only impact social ills, and address environmental problems, but also advance ESG at leading corporations?
That investment exists. It’s called litigation finance.
Think about it. The legal system in the United States is in dire need of reform. Lawsuits often take years to resolve. Too many Americans are unable to access justice because of a system that is too costly, too slow, and woefully inefficient.
But investment in litigation finance, by leveraging free-market dynamics and incentives, radically improve the efficiency and speed of dispute resolution. Increased investment in litigation funding will make the system work better for everybody. It’s the ultimate win-win, says QuantLaw’s managing director Marc Abrams, “With litigation finance, the way you're making money is by improving the system for all the participants.”
Or as litigation finance entrepreneur Joshua Schwadron argued in “Why Justice for Litigation Financiers if Justice for All” by making the legal system faster and more efficient, it will improve the delivery of justice for all.
Abrams said that perhaps the single biggest reason the US legal system has been inefficient is because the practice of law in the United States fails to take into account the time value of money.
“That’s why investment counters this by making the timing relevant and with a cost,” Abrams said.
Whether investors are seeking to impact the environment, address social justice, or empower women entrepreneurs in Africa, an investment in litigation finance can create a system to achieve the impact investor’s goal: to generate a measurable, beneficial social or environmental impact alongside a financial return.
Notes from the LegalTech Frontier...
Chatbots and AI are drastically lowering the cost of basic legal services for consumers of modest means.
Ahead of its annual meeting next week, the ABA has named DoNotPay, the world’s first robot lawyer, as the winner of the 2020 Louis M. Brown Award for Legal Access. For a $3 monthly fee, users can access DoNotPay’s programs for challenging parking tickets in any state to suing Equifax for data breaches, to finding class action awards. The company claims a 50-percent success rate, and users keep every dollar they might win.
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