Litigation Finance

3 Questions For A Harvard Dropout Turned Litigation Funding CEO (Part II)

The most notable change in litigation finance from 2017 to now is how widely accepted litigation finance is in the legal community.

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(Image via Getty)

This week, I continue my written interview with Eva Shang of Legalist, regarding her experiences cofounding, and now leading, a successful litigation funder. Please see below for Eva’s answers to my second and third questions, focused on how the current pandemic has led to increased demand for litigation funding — and how that demand could serve positive social goals moving forward.

As usual, I have added some brief commentary but have otherwise presented Eva’s answers as she provided them.

Gaston Kroub: There are more funders than ever targeting IP firms and clients. What sets Legalist apart?

Eva Shang: The first and foremost thing that sets Legalist apart is that we are the only litigation funder which specializes in cases requiring less than a million in legal fees. Although we have the capital to make larger investments, our technology allows us to originate and underwrite the kind of volume that allows us to specialize in funding smaller claims. If litigation is a pyramid, the base of the pyramid are exactly these standard small claims. Most cases do not have tens of millions at stake, and that’s why the less-than-a-million bracket is where the greatest need in the legal industry lies. You can’t let the desire to deploy capital distract you from where the need is the greatest.

COVID-19 is forcing many clients and attorneys into considering litigation funding arrangements for the first time by necessity. Attorneys who work on an hourly basis are seeing clients with reduced legal spend unwilling to pay their usual monthly bills; contingency attorneys are seeing large settlement payouts delayed by court closures.

In practice, Legalist has deployed more capital in Q2 of 2019, since the advent of COVID, than any other quarter previously. However, our goal is to convert these first-time users of litigation finance into long-term clients who will continue to see us as a resource even when the pandemic passes. Our hope is that clients will get their first exposure to litigation finance during COVID by necessity, and then use it in the future by choice.

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GK: It is clear from Shang’s answer that Legalist aims to develop relationships with firms, even if those firms end up first working with Legalist because of the fallout from the Covid-19 pandemic. At the same time, it is easier to establish longer-term relationships when your funding model welcomes volume and is targeted to the broadest base of potential firms. Legalist’s established success to date bodes well for its ability to capitalize on the increased need for litigation funding, whether that need is driven by Covid-19 claims or not.

GK: Is there a critical misconception you think exists around litigation funding, and if so, how would you correct it?

ES: The biggest misconception around litigation funding is that it’s not mission driven. By design, it is used by the financially disadvantaged party to get on an equal footing with their opponent in court. At Legalist, because we’re focused on individual and small business plaintiffs, we see this systemic imbalance in almost every case we fund, and we want to do even more to address widespread social issues.

The most notable change in litigation finance from 2017 to now is how widely accepted litigation finance is in the legal community. Three years ago,  law firms would frequently bring up issues such as champerty and fee-splitting as reasons why they couldn’t even entertain conversations with us. Ethical concerns were top of mind.

Today, the regulatory framework around litigation finance is much different. With the recent abolition of champerty in Minnesota, you’re starting to see the last few remnants of resistance crumble. Biglaw firms are increasingly engaged in litigation finance, and smaller companies are turning to litigation finance to pursue their claims before they even retain an attorney.

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Since the inception of our first fund in 2017, we’ve invested in cases challenging police brutality, workplace discrimination, sexual harassment, prison conditions, and wrongful conviction. We’ve worked with leading exoneration nonprofits as well as with AmLaw 100 law firms. To me, funding can be a powerful tool to build the world we want to see. Providing money to lawyers and plaintiffs working on important cases is a way of literally putting our money where our mouth is. We won’t stop until the work is done, but our roster of mission-driven cases speak for themselves.

With the advent of COVID, you’re likely to see adoption of litigation finance accelerate even more. As both law firms and their clients experience cash crunches in the short term, the appeal of long-term capital from litigation finance firms will be even more apparent. Unlike law firms, who have annual revenue targets, and clients, who have limited legal budgets, litigation funders offer far more patient capital that can wait for two years before being paid out. Inquiries and applications have surged in recent months across the industry; if litigation finance was growing before, COVID-19 only accelerates its progress.

GK: It is not often that you hear how litigation funding can help drive beneficial social change, but Shang makes that case with aplomb. Likewise, her drawing of a contrast between the patience of a litigation funder versus the reacting to cash crunches approach to legal finance engaged in by most firms and clients hits the mark. Indeed, perhaps the greater counterweight to many of the important ethical considerations that arise when we think about litigation finance is the ability of the funder to provide capital and then recede into the background while the case advances on the merits. For one, that type of passive approach can help allay concerns about the litigation funder controlling settlement or otherwise encroaching on the decision-making ability of either the client or the law firm. At any rate, the work of many in the litigation finance industry, Shang and Legalist included, recognize the need to educate lawyers and clients about litigation funding. In my view, that is one area where many of the leading funders do an excellent job and have helped advance the uptake of at least considering litigation funding for many firms and their clients.

My thanks to Eva Shang for the insights and cooperation, and I wish her continued success at the helm of Legalist. It is always a privilege to hear from someone who has bucked the odds as a legal outsider that has found success in the industry, and I thank her for agreeing to this interview. I am always open to conducting interviews of this type with other IP thought leaders, so feel free to reach out if you have a compelling perspective to offer.

Please feel free to send comments or questions to me at [email protected] or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at [email protected] or follow him on Twitter: @gkroub.

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