Great Example of Litigation Funding at Work
Litigation funding continues to produce good outcomes for plaintiffs in need of financing, and the US Chamber of Commerce continues to complain about litigation funding. A recent example of funding by Burford highlights that litigation funding can be great for a business facing unfair actions by a another business (which may be why the Chamber dislikes funding). And, "big law" (Simpson Thacher) happily used the funding to represent its client, after introducing the client to Burford. The latest examples are set out below from a DealBook article by William Alden.
"In one recent case, Burford backed a real estate developer in Arizona that claimed that a rival had tried to block one of its residential projects. The developer, the Gray Development Group, had hired Barry R. Ostrager, a prominent partner at Simpson Thacher. When the real estate collapse left Gray facing a cash shortage, Mr. Ostrager introduced his client to Burford.
A $6 million infusion from Burford helped Gray pursue a case that resulted in a $110 million award from a jury, according to Bruce Gray, the company’s chairman. With the potential for appeal, the two parties later settled, and Burford stands to get an $18 million payday, Mr. Gray said.
For companies that invest in Burford — institutions like Fidelity and Invesco — such returns have been lucrative at a time when hedge funds and private equity firms have been posting disappointing results. Juridica Capital Management, which has about $200 million under management, reported that 2011 profit increased nearly sevenfold from the year earlier. Burford, with about $300 million under management, posted a tenfold rise in profit in 2011, its second full year of existence.
But some business leaders have questioned the value of the litigation financing industry, said Lisa A. Rickard, president of the Institute for Legal Reform at the United States Chamber of Commerce. A third-party investor, she said, can affect a company’s legal strategy, potentially to its detriment. The American Bar Association recently issued a report that outlined the risks of litigation financing but did not condemn the practice.
John H. Beisner, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom, who has been retained by the United States Chamber of Commerce, testified last year before the House of Representatives that litigation financing could encourage frivolous lawsuits.
“The whole theory is to take the legal system and turn it into a stock market,” Mr. Beisner said in an interview."