The Future Of An Industry: A Look At How Far Litigation Finance Has Come And How It Will Continue To Evolve

Last week, I attended the 2nd Annual LF Dealmakers Forum, a gathering of industry leaders aimed at advancing the burgeoning field of litigation finance. An esteemed list of attendees from litigation funders, law firms, corporations, investors, and institutional advisors got together for the second in what will likely be an ongoing series of conferences to attend panels, enjoy networking opportunities, and set up one-on-one meetings with others in the litigation finance industry.

The event took place during a time of significant growth and some uncertainty for the industry, as the field continues to transform with the expansion of portfolio funding, an increase in the number of parties seeking funding, and more funders than ever looking to enter the game, all while the specter of increased regulation continues to loom large.

Access to Justice

The panelists addressed these advancements and their potential challenges head-on in a series of talks over the course of two days. While the future of litigation of finance fueled the conference, an underlying tone of the event was a call back to the origins of litigation funding and the purposes it was designed to serve. 

Keynote speaker Stephen Susman, founding partner of the law firm Susman Godfrey and a member of the Advisory Panel of litigation finance firm Bentham IMF, spoke about the importance of ensuring that litigation finance increases access to justice rather than creating frivolous lawsuits. In Susman’s view, everyone should be in favor of litigation finance if it leads to better-filed lawsuits. He placed the responsibility for providing access to justice on lawyers and funders alike.

Litigation Funding: A Success Story

The message of litigation funding promoting access to justice was perhaps best embodied in the panel on Day 1 of the conference entitled “A Case Study: How Litigation Funding Saved a Business.” The talk told the story of Business Logic Corporation’s experience with litigation finance and featured the following panelists:

• Paul Yetter, Partner, Yetter Coleman
• Bill Patterson, Partner, Swanson, Martin & Bell (former General Counsel of Business Logic Corp)
• Boaz Weinstein, Principal, Lake Whillans 

Business Logic was a small software company in Chicago with about 20 employees and an annual revenue of around $4 million. They had contracted with Ibbotson Associates to build a software infrastructure that allowed pension fund managers to manage their investments online, wherein Ibbotson provided the front-end advice and Business Logic provided the back-end infrastructure on which all the online tech was based. They had a successful relationship for many years under a contract that prohibited reverse-engineering of the software and strongly protected Business Logic’s trade secrets.

Morningstar, Inc. later acquired Ibbotson and terminated the contract, deciding to build the infrastructure themselves. What Morningstar developed was nearly identical, and Business Logic had reason to believe the software had been copied in violation of the parties’ contract and trade secrets law. Litigation ensued, to the point where Business Logic’s entire revenues and savings were tied up in the case, which had basically stalled. They were facing a choice between laying off employees or abandoning the litigation to keep their business alive.

That’s when Business Logic decided to turn to Lake Whillans for litigation financing. Lake Whillans was able to not only continue funding Business Logic’s lawsuit, but to also lend the company capital to continue to thrive and help them figure out the optimal resources they needed to win their case. In this instance, that meant bringing on Yetter Coleman to supplement the great legal work that had already been done and take the stalled case through trial and to the finish line.

To Yetter Coleman, Business Logic’s case was the perfect candidate for funding, because it had a great venue, facts, and law, but client who, without funding, would be on the verge of no longer existing despite having a solid potential claim. The defense hadn’t offered to settle because they figured Business Logic would eventually run out of money and drop the case after being buried in endless discovery disputes, where the case had stalled.

As Boaz Weinstein described it, this was a paradigmatic David v. Goliath case — one with a strong and developed record, a compelling narrative, and very technical facts that would have to be taught to a jury, but one where a plaintiff with a solid case simply lacked the funds to see it through to completion. And, in the end, the Business Logic case was an example of how litigation funding can go really well.

At one point, Business Logic’s damage expert had estimated the company’s top damage claim at $65 million dollars. After procuring funding from Lake Whillans and bringing Yetter Coleman onboard, Morningstar ultimately paid 95 percent of that figure to settle case. Business Logic went from being within weeks of having to lay people off to now being a successful new company called NextCapital with 150 employees. At the time, the case represented the 9th largest trade secrets settlement in history and is still the largest in Illinois.

The Takeaway

The Business Logic story is a textbook case of how litigation funding can create a positive result for a client. It’s also a perfect example of how litigation funding fits into the bigger scheme of litigation and business in general. Those themes continued to play out through the rest of the two-day LF Dealmakers conference, as participants had compelling and frank discussions of where the industry stands today and where it’s headed in the future.

The overall takeaway of the gathering was that as long as the litigation funding industry can continue to master case selection and proper pricing, it will continue to thrive. In the next year, we can expect to see more quality cases and an increased access to justice, which should give the attendees of next year’s conference plenty to talk about.