The Financing the Fight Edition

Episode Notes

Transcript

[Note: Audio had a bit of an issue, compressed at places. Identifying spoken words was tough. The Editor found it problematic in identifying speakers and sound alikes. Much of the portions had overlaps, it was hard to figure out. Places have been tagged with time-stamps. Thanks.]

@theBar

The Financing the Fight Edition

08/01/2018

[Music]

Jon Amarilio: Hello everyone and welcome to CBA’s @theBar, a podcast where young and youngish lawyers discuss legal news, events, topics, stories, and whatever else strikes our fancy.

I am your host Jon Amarilio of Taft Stettinius & Hollister, and co-hosting the pod with me today is my friend Jack Sanker of Thompson Brody & Kaplan. Hi Jack.

Jack Sanker: How’s it going?

Jon Amarilio: So Jack, for those of our listeners who categorize themselves as fellow legal nerds, I think we have really got to do the legal pod for them today. We are joined by Ajit Singh, Funding Director of the Law Finance Group and Travis Lenkner of Burford Capital. Their company names probably give away what today’s subject is, it’s litigation financing and funding.

And Jack, correct me if I am wrong, but this is an area of the law that is really booming and rapidly changing the day-to-day practice of law and yet, oddly enough, it’s often overlooked by practicing lawyers and really even legal hunters.

Jack Sanker: Yeah, that’s exactly right and that’s kind of what we wanted to discuss, specifically what litigation financing is, whether it’s a good thing for lawyers and their clients, how it can be used by lawyers and their clients and the potential impact that it can have on all of us.

Jon Amarilio: Yeah. And I should probably add for our listeners that Ajit is joining us virtually from San Francisco and Travis is joining us also virtually from New York.

Welcome Ajit and Travis. Thanks for coming to the pod today.

Travis Lenkner: Thanks for having us.

Ajit Singh: Thank you for having us.

Jon Amarilio: So Jack, before we get started, let’s set the scene a little bit in general and for those in our audience who haven’t dealt with litigation financing before, what is it generally, what are we talking about here?

Jack Sanker: So litigation financing or litigation funding it’s sometimes called is the practice where a third party that’s unrelated to the lawsuit provides capital, usually, but not always, to the plaintiff in a lawsuit in return for a portion of any financial recovery from that lawsuit, so in return for equity in the outcome of the lawsuit.

Now, the money from financing companies goes to paying attorneys fees, expert witness fees, court costs, a number of things. Now, it can also provide working capital for companies involved in expensive litigation or help business owners pay for personal expenses while they are working their way through a lawsuit. So it really spans the spectrum of potential uses for cash and a lawsuit in both sides of the bar.

Jon Amarilio: Interesting. I have to admit that before we started researching for this episode, I really didn’t have a firm understanding of just how versatile and widespread litigation financing is and how litigation is essentially becoming a booming new asset class.

Ajit, Travis, maybe let’s start with Ajit, if you would, why don’t you take a moment and describe for our listeners, in your own words, what it is that you and your companies do in this sector?

Ajit Singh: Okay. Law Finance Group is a privately owned litigation financing company with offices in San Francisco and New York. We were founded by 02:55 23 years ago and we funded over a thousand law related transactions in our history, primarily provide non-recourse advances to attorneys or to clients for late stage, prejudgment cases, federal case, judgments on appeal and other opportunities.

And for law firms, we offer portfolio financing, whereby we advance portion of anticipated attorney’s fees in a select group of cases. We are particularly experienced in AppealFinance, that’s how our company started 23 years ago and we have done it throughout our long history.

And my personal responsibility at Law Finance Group is the Funding Director/Legal Counsel, just originated in transaction, educated in the marketplace and managing transactional process for the clients and counterparty and throughout the whole process and servicing the transaction and so on.

Jon Amarilio: Got it. Travis, would you describe Burford similarly?

Travis Lenkner: Somewhat similarly, yes. So Burford Capital was launched in 2009. We are a publicly traded provider of litigation finance and legal finance solutions, listed on the — traded on the London Stock Exchange with more than $3 billion committed to the legal market overall.

Our offices are in Chicago, where I am headquartered, when I am not joining podcast virtually from New York, I am seating in the Chicago office, and also offices in New York, London, recently opened in Singapore, so operations around the world with a team of about 100 people.

We focus on complex commercial litigation, business-to-business litigation, and we work with companies involved in that litigation, as well as with the law firms that serve them. And as you have all described in explaining this sector and what it does, we provide capital in a lot of situations that look like litigation finance, but a lot of transaction structures that are more complex and more creative, but always with legal or regulatory claims or legal regulatory risk as the underlying asset or issue or thing that we are underwriting in order to provide capital ultimately to our counterparty.

(00:05:11)

And as you said, sometimes those dollars are generally being used to fund the litigation, often they are not, and turning to Burford or LFG or others is simply a way to monetize an asset that otherwise is contingent and intangible and really no other capital providers are willing to extend cash against those sorts of continuing 05:33.

Jon Amarilio: That’s interesting. I am learning things even in the intro part of this podcast.

Jack Sanker: So when we were putting this together and doing a bit of research we realized that litigation financing is a growing sector of the finance world. We have some data in front of us that shows that litigation financing has grown by over 400% in the last five years and we see that demand for financing is coming from law firms of all shapes and sizes, as well as clients, businesses and even Fortune 500 companies.

So we will give you a bit of a softball question here, but what are some of the reasons that lawyers, clients, law firms, companies are seeking financing, why are they coming to you and what are they looking for?

Jon Amarilio: Travis, why don’t you lead off?

Travis Lenkner: Yeah, sure, happy to, and I promise not to take the whole podcast. I will leave some ground for Ajit to cover as well.

I think we are providers of capital and also warehouses of risk for companies and law firms in connection with commercial and complex litigation and also just the legal industry more broadly.

So what are they looking for, sometimes someone who might approach us, a litigant might approach us because they are looking for a solution to manage the ever increasing cost of complex litigation, so they are looking for capital to fund the cost associated with litigation, to pay legal fees, to pay expert witnesses, discovery vendors and the like.

Jon Amarilio: And that’s from both sides of the bar, right Travis, not just plaintiffs?

Travis Lenkner: That’s right, that’s correct, that’s correct. Other times it might be a law firm or litigant that approaches us. Ajit mentioned appeal financing and that’s something that we do in our space as well, where someone approaches us, let’s say there is a District Court judgment in hand, but now it’s subjected to Seventh Circuit risk, and I used to be able to say it’s subject to the whims of Judge Posner, but I can’t say that anymore.

Jon Amarilio: Yeah, he is a friend of the pod. We had him on a couple of weeks ago.

Travis Lenkner: Absolutely. And so there are folks who are sitting on those judgments, both litigants and law firms, on contingent or alternative fees, who might for their own timing reasons or risk management reasons want to convert some of that contingent position into actual cash, so that they can offload some of the risk of how that case might actually turn out.

All of these investment structures that we will be talking about today are generally speaking non-recourse, meaning we are making an investment based on the litigation outcome and if that litigation outcome is unsuccessful or bad, you don’t receive a recovery.

Jon Amarilio: And that’s how it’s different — sorry Travis, I was just going to ask that’s how it’s different than maybe more traditional funding sources for law firms, right, because traditionally if a firm didn’t have the capital to fund, let’s say a contingency case, they would go to a bank for the money, right, in which case they would have to pay it back no matter what.

Travis Lenkner: Right. So it’s transformative in that way for law firms in particular, because firms that are looking to expand the amount of work that they are engaged for on a contingent fee basis, for example, can take money — obtain funding from a litigation finance provider to pay some of the cost of those cases, knowing that if they are unsuccessful, they haven’t put the tax and the trust and the state’s partners at risk of having to pay back the bank because they drew on a line of credit in order to fund that work. So it dramatically changes the risk calculus for law firms in that way in particular.

Jack Sanker: So you guys touched on this a little bit and maybe Ajit can talk about the underwriting process. How do companies like Burford Capital and Law Finance Group, which are not law firms, attach a certain risk assessment to very complex litigation, maybe in situations where even the attorneys that are involved in those cases really don’t quite know how the case is going to turn out, that’s got to be something that’s unique to your field.

Ajit Singh: Yeah. Well, it’s a pretty extensive underwriting process. Both of our companies have attorneys on staff; I know Travis is one, I am one, so you have to talk to the attorneys, you have to start looking what is publicly available, and it is an objective viewpoint on the case and honestly we — I am sure our purpose is same, we reject more cases than we accept, because they are sometimes trying to transfer too much risk to us and so that’s part of our assessment.

(00:10:11)

And so we just do a detailed review of the factual disputes, legal issues, claims and then make an assessment of the likely outcomes and timeline to resolution. And we also have outside counsel we work with, reviewing transactions as well for us independently, so with two reviews. It’s a pretty extensive underwriting process.

We also underwrite the attorneys and potentially the venue, the judge’s history, and we also even look at political external consideration.

Jon Amarilio: Interesting. I wonder how it would feel to come to you guys with a possible case and then be rejected because you don’t think it’s good enough. I mean that’s kind of —

Ajit Singh: Yeah, that’s always a tough thing.

Jon Amarilio: Pick up the phone and start talking settlement with the other side.

Travis Lenkner: Let me actually jump in there. I mean first of all, interacting with 11:01 is amazing. I am not doing my job if I don’t tell you that. But the serious point in response to what you were saying though, just like Ajit said, I mean we reject a vast majority of opportunities that we see, but I think even when we reject cases, which could be for a variety of reasons that are our own reasons that don’t reflect on the merits of the case, we are not popping up out of a black box to just utter the word no and then disappear again. We are working with law firms and litigants to tell them why.

And I think that is a helpful service to the people that we work with that we might not fund a case this time, we might fund that case or a different case down the road, but we don’t make it a mystery, and I am sure Ajit and his team don’t either about why we aren’t able at this point in time to extend capital.

So I think in terms of how it does feel to work through the diligence process, but ultimately not be successful if you are on the asking and not the providing end of this relationship, I think at the very worst, you are getting insight into how a neutral third party, like for example a court, might view the claims that you are about to make and you are about to make them potentially on a contingent fee or paying out of pocket to pay the lawyers and either way maybe you want to rethink how you are framing the case or thinking about the litigation based on your interaction.

So I hope even when we turn people down that we are doing so constructively and not reflexively or without giving them at least the benefit of the experience.

Jon Amarilio: Sure. So for those of our listeners who are attorneys who haven’t worked with financing companies as sophisticated as yours, what kind of considerations might lead you to turning down the case other than just you think they won’t win on the merits of a case?

Travis Lenkner: I am happy to speak from our perspective, I think that Ajit laid out the list of a lot of the things that anyone in this space would think about, I like to tell people that the experience is a lot like if you were at a law firm and internally you were approaching your contingent fee committee for approval to take on a new matter, what would the people on that committee want to know; we want to know much the same things.

I think one of the biggest reasons for us that can lead to a situation where we wouldn’t be able to invest is where we think that because of the size of the case or some of the likely outcomes of the case, as Ajit said, someone is basically asking us to transfer too much of their risk to us, meaning they want too big of an investment relative to the size of the case.

And again, an important thing for us to talk about is that we don’t control the litigation in which we invest, and because of that, because we are passive capital, we have to make sure that we are setting up a situation where all of the people who do have control; the litigant and the lawyers are incentivized to make decisions that we think are good decisions.

So if we are investing too much in a case that’s too small and then a settlement offer is put on the table, the litigant if acting rationally at that point will reject it, because she will want to go to trial and see if there is a grand slam possibility, because that’s the only way that she gets a big return, because we have already basically provided too much in comparison to what the case is actually worth.

So incentive structures and investment sizing is probably one of the biggest obstacles we run into when looking at cases on the front end.

Jon Amarilio: Okay. Ajit, anything to add there.

Ajit Singh: I think Travis covered it pretty well. Obviously one thing we — I am sure those companies doing litigation financing do it as well, substantiate the defendant’s ability to pay, and that’s obviously important for us to get repaid at the end of the day, but I think Travis covered it pretty well and we are very similar in our approach.

(00:14:52)

Jon Amarilio: Okay. One of the things Ajit that Travis raised that caught my attention; I mean they all did obviously, but one of the things that my ears perked up on was when he was talking about how law finance companies don’t have control over a case and that raised the whole issue of ethical concerns, which I think is a big barrier to entry for a lot of lawyers out there.

They think back to their law school professional ethics class and the word champerty jumps into their head, which is that century-old ban, and I think still exists in most states against third parties meddling in court cases by backing one of the parties. Can you speak to that a little bit? What that relationship is like? Can you make — if you can’t have direct control, can you make suggestions? What’s your involvement like?

Ajit Singh: We definitely do not have any control in the decision making process and most litigation financers 15:44 will put that in the contract and transactional documents reflect it, so we want to obviously avoid any perception of champerty, maintenance, et cetera. So that’s usually an expressly part of the agreement.

So there are suggestions. Sometimes they will come to us, discuss settlements, whether — like just economics of our deal, whether we should make a discount or just kind of facilitate settlement on our end, and sometimes they will come to us on how to — because we have underwritten the case, they will actually approach us and just ask us our input on the briefing or how — what our thoughts were, just kind of — just like bouncing ideas off, but in no way do — the requirements obviously actually go through a diligence process and they are comfortable with us and they realize we are approaching it objectively and now we have an economic interest in this case.

So, most attorneys are receptive to feedback from third eyes on the case. So more input is always better and so that’s kind of how we approach it, and we offer that, but we don’t require it.

Jon Amarilio: And I am sure all of this stuff is done with the explicit informed consent of the clients obviously, right?

Ajit Singh: Yes.

Jon Amarilio: It’s not like they are sharing things with you without — behind their clients’ back, so to speak.

But as someone who has used certain types of litigation financing myself in my own practice in the past, it does create somewhat of a balancing act, where you, with the consent of your clients and everything else, you are balancing the interests of your client versus the outcomes that are going to affect the way that a third party lending company may be invested in the case, so it does tend to complicate things.

Ajit Singh: Well, I think echoing what Travis said, that’s why — I mean we reject cases for a lot of the same reasons that — the economics of the case potentially may cause us conflict down the road when there is a recovery. So we are conservative in how much we will put into a case and we hope to avoid those situations and avoid that. We don’t want you to create a balancing act on your end, so we try to avoid that and that goes into our diligence underwriting process.

Travis Lenkner: Yeah. I would just say the balancing act is far more pronounced in situations where lawyers themselves are directly working on a contingent fee basis and the attorney — we have lived in that world for many decades now and the attorney ethics rules handle that just fine. So I think in situations where there is client disclosure, the client is involved, the firm is involved, the litigation funder has made an investment with one side or the other or both in terms of the litigant and the law firm.

The best analogy that I have, once the investment is made, in terms of attorney ethics and just what the relationship looks like, we look like a jury consultant or a non-testifying expert or any number of the non-lawyers, even though we are lawyers by background, we are not lawyers who are engaged on the case, we look like the constellation of non-lawyers who get involved in big litigation cases and who get to have the benefit of work product protection and provide strategic insights, but of course at the end of the day, the client is in control and that the attorney retains all of the ethical obligations that are present under the rules to be a zealous advocate, independent of outside influences.

But litigation finances is far from the only thing that can be part of the attorney-client calculus, that it just makes it imperative on attorneys to be sure that they understand their kind of background ethic.

Jon Amarilio: So it sounds like you are describing — I am sorry about that Travis, it sounds like you are describing it essentially as venture capital with a very light touch, is that fair?

Travis Lenkner: Sure, maybe that’s fair. I mean I think the — I think any — and well, I guess I will pick on the analogy only a little bit, which is to say any venture investor has reasons that they have conviction behind a new technology, a new management team, a new idea.

(00:20:07)

The cost of capital, if you want to think of it that way in venture capital and the odds of success, venture capital to — I guess to the layperson sort of sounds like someone is implying, well, that you’re taking a bunch of flyers and if only one of them works out, you get a massive return and that makes it all worth it.

Jon Amarilio: Yeah, fair enough.

Travis Lenkner: For a host of reasons that’s not what we’re doing, but in terms of what the relationship looks like and then the degree of influence we have going forward on if you’re analogizing to the portfolio company of the venture capital firm, yes, that’s about right.

If the investor doesn’t have control rights, which we never do, you can give suggestions and the lawyer says, well, oh, what a great idea, I hadn’t thought of that or you have no idea what you’re talking about. This has been a pleasant phone call but I’m now going to go and litigate the case the way that I see fit.

Jon Amarilio: That reminds me kind of at the extreme ends of the spectrum in legal finance income — obviously before this pod I did research on both of your companies and I don’t think you’re anywhere near this, anywhere associated with what I would describe as activist investing or what others have described as activist investing, probably the most prominent example that may come to people’s minds still is Peter Thiel’s revenge plot against Gawker, but there’s also another legal financing company that was recently reading about where they are actually offering $100,000 to anyone who has a claim against Harvey Weinstein for sexual harassment —

Travis Lenkner: Oh wow.

Jon Amarilio: — in order to get their lawsuits off the ground. What do you think about that end of the spectrum in litigation financing?

Travis Lenkner: Well, I think I hope they have a lot of capital.

Jack Sanker: There is going to be a lot of money, it seems like.

Ajit Singh: Yeah, that’s, I mean, yeah, I just think that’s going to lead to — that I would say I don’t think either one of our companies is engaging that and so it’s just — I mean it’s you don’t have a claim and 22:09 with the claim. People are always going to look at that and be skeptical, it’s like are you coming forward now because it’s 100,000, such and so. I think that’s — it’s a pretty extreme example with all industry — every industry there’s responsible funders and there’s potential activities that are irresponsible. So, I don’t think — I am trying to – I don’t want to talk ill of the competition.

Jon Amarilio: Sure.

Travis Lenkner: Yeah, I mean I guess I’m little more — it bothers me a little less on its face, it’s not something 22:44, but those are —

Jon Amarilio: Well, if someone has a legitimate claim and passes through your rigorous system of vetting and underwriting, what’s the difference?

Travis Lenkner: I think that’s probably where I come out, I mean, it’s a more newsworthy example maybe it’s as much of a PR play as it is a sort of serious push for new cases in which to invest, but to your point if five women who had not previously come forward had reasons that they need capital or simply would take that capital in connection with bringing cases and put it toward the claims themselves, the only difference is that, the perspective funder here, I think the firm Legalist put out a press release saying they were doing this as opposed to just trying to contact women individually or waiting for the women to contact them, that difference I think is a little more aggressive and so it quotes maybe some of the issues that we were talking about in full relief, but I don’t think that on its face it makes the underlying investments more troubling from an ethical perspective, but yet to be sure it’s a bit more in-your-face than either Ajit’s firm or mine has traditional issue been. There’s no question about that.

Jon Amarilio: But ultimately you guys are investing in an outcome that’s going to be decided by a judge or a jury or it’s going to be negotiated between a number of attorneys that are representing their clients in a way you are investing in — it’s not to get on my soapbox but investing in sort of justice and the justice system running its course. So, it’s not as though this is speculative investing or it’s investing for the sake of accomplishing something politically.

Ultimately the outcome and your value of your investment is going to be determined based on series of laws and judicial system and everything else that we have in place.

Travis Lenkner: For sure, and that I have a lot more than two but I’ll limit it to two push backs on the Peter Thiel comparison because you imagine when you can combine sex tape and litigation finance, a lot of people have done that and want to talk about that.

Jon Amarilio: We were trying to entertain our listeners.

Travis Lenkner: Sure. People are doing, well, whatever you are doing, that’s interesting. So I hear it.

(00:25:00)

Look, I think you’re right that we ultimately are involved for — we have investors to which we are accountable. Burford has public shareholders as well as private fund investors, so that is — that makes us different from Peter Thiel.

I guess though I would say — so I’ll defend Legalist and maybe now I’ll defend Peter Thiel as well. I mean, what he did is just a more personalized one-on-one version of people funding public interest litigation, which also has been going on for decades, and it’s one of the things that really drove the champerty laws out of business because we’ve decided that it’s okay and sort of the public good for the 25:44 NAACP and other groups to —

Jack Sanker: Oh sure, the ACLU, yeah, this is something that’s old.

Travis Lenkner: Right, right and so Peter Thiel had just said, hey, it’s not me Peter Thiel, it’s Committee of Concerned Citizens for stronger defamation laws, whatever that acronym is.

Jack Sanker: He could slap together a 501(c)(3) to do this and look a lot better from a PR perspective.

Travis Lenkner: Correct. But like from a workings and justice standpoint, it’s really no different at the end of the day and I think a lot of people missed that.

Jon Amarilio: So with that — the point brings up — sorry go ahead, Ajit.

Ajit Singh: No, I guess, I mean, to echo what Travis said and also discussed a little bit, because I still got a lot of publicity, we don’t we ever do their investors and we don’t — most funders will not finance cases to extract pain kind of what Peter Thiel did. And so — but on the — just on the flip-side, there are other parties out there who use money to kind of punish people economically on the defense side on the product liability, bend out cases, insurers won’t lay down their swords, so to speak until much later down the road after they extracted something. So kind of similar like —

Jon Amarilio: All right, you don’t say.

Ajit Singh: We see it, yeah.

Jack Sanker: So, this conversation raises a kind of an interesting dichotomy that fascinates me about litigation financing and there is on the one hand what Jack was talking about which is that, it seems like a great tool for access to justice, which is such a big problem today. It helps under-capitalized parties, law firms, companies pursue meritorious claims that they otherwise wouldn’t be able to just because the cost of litigation is so high.

On the other end of the spectrum, you have some criticism that litigation financing actually just makes everything more expensive because there’s more sunk monies in cases, larger judgments and settlements are required to satisfy all the parties. What do you guys think about that dichotomy?

Travis Lenkner: So, I think that you hear that criticism much more in connection with a somewhat separate industry and a space from the one in which Ajit and I are involved, namely consumer litigation funding where individual consumer plaintiffs are able to obtain an advance of the value, a car accident settlement that they might have coming to them as a result of an insurance dispute, for example.

And I guess I’ll stick with the theme of defending Legalist and Peter Thiel and now consumer litigation financing, but I do think that there can be some predatory practices in that space, those practices are bad, but the concerns that you hear about driving up settlement values, I frankly think that is more of the just sheer hackery of the special interest groups criminal defense bar, who just wanted obviously, for their own reasons pay as little as they can for claims, and force individual consumers into settlements much sooner because those individuals might have really dire needs for cash.

So, as long as the rates being charged are commensurate with the risk and they’re not opportunistic or anti-consumer, I think a lot of people would say even in the consumer space, you’re probably on the side of the angels if you’re saying that consumers are getting higher settlements because insurance companies aren’t able to settle before the first week, it is easy to file.

Jon Amarilio: Sure, and Ajit, I’ve read an article recently, I think it was in Law360 that quoted one of your co-workers, Alan Zimmerman. And Alan was explaining that it’s been five years since the nearly $18 billion Deepwater Horizon oil spill settlement was struck and the lawyers involved in that incredibly successful suit have yet to be paid in it.

And litigation financing has proved to be a way for those plaintiffs to leverage the settlements and essentially take out loans on their expected earnings rather those plaintiffs lawyers I should say. So, going to Travis’ point, this isn’t something that can only be good for consumers but it can be really be a boon for law firms as well, right?

(00:29:54)

Ajit Singh: Yeah, that’s accurate, plaintiffs firms, a lot of them are contingency majority firms. So, lumpy cash flow is their business model and so from there, we provide the capital and there’s a need there. So, I think it’s very advantageous for law firms, it also can — they can expand their portfolio, expand their risk appetite, et cetera by partnering with a litigation funder which will access — would give them additional access to capital beyond just the potential bank line, et cetera.

So, it’s tough right now for law firms to get loans from banks or credit lines et cetera, especially expensive ones. So, we provide that need and obviously the civil justice system is not getting any cheaper or anymore efficient, and so, we are a capitalist response to those inefficiencies in the civil justice system, which affects attorneys and law firms. And so we believe we’re a solution to those problems today. And so, yeah, law firms can survive day to day operations, they don’t have to worry about that by using lit financing.

Jon Amarilio: Right, and not only survive but I was also reading another article. I think it was in Bloomberg, where it was talking about a firm that had — it was a startup firm essentially, a handful of big firm attorneys or exiles left to create their own firm but they needed capital do it. And they found that through litigation financing, they found a litigation finance firm to essentially capitalize their entire portfolio.

So, it’s not just for existing firms but it actually can be useful to start new firms, right?

Ajit Singh: That’s correct. And so, it’s a way to just get off the ground. Well, I read about that same firm and that was interesting and it’s just a way to get off the ground and get moving and obviously, capital makes this country go around.

Jon Amarilio: Yeah.

Ajit Singh: To help to have access to it.

Travis Lenkner: Yeah. And I think if you think about it from the law firm’s perspective, what does a law firm have against as the assets like what is a law firm’s inventory? It’s the accounts receivable from the work that it’s doing.

Jon Amarilio: It’s the cases, right?

Travis Lenkner: Yeah, and particularly in contingency cases where that AR is contingent and tough to value or if you’re wanting — if you have a lot of AR than is hourly and you’re an Am Law 50 firm but you want to expand your plaintiff’s side trade secret practice or your plaintiff’s side insurance coverage practice; as I said earlier, the folks in the tax practice group are perfectly happy with the annuity that they take home every year based on the hourly fees that are generated.

But the firms looking around basically wanted to take more risk and needing to put more capital out the door to fund those cases but it can only pledge what it can pledge, you have some personal guarantees from the partner.

So, this is expansion capital, working capital, a way for firms to convert what they have into cash either to increase their own year-end results or on the front end of the case to take on more cases and to be more aggressive than they would be able to be otherwise, if they were simply self-funding.

Jon Amarilio: Sure, and it seems like we read on a daily basis about the contraction of the legal market and the increasing problems that even the biggest of law firms are having with the billable rate model. So, this certainly provides more versatility to law firms and more options. And, you know, I think that’s probably a good place for us to take a break. We will be right back with stranger than legal fiction.

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(00:35:00)

Jon Amarilio: So, before we wrap up today, we’re going to play a little game our listeners are familiar with, that we like to call Stranger Than Legal Fiction. The rules are simple. Jack and I both spent some time, stalking, dark, dusty, abandoned law school libraries or really just poking around Google for a little bit and State Legislative websites to confirm what we were reading is true, and we found some of the strangest laws that are still on the books in the US, and we also just made another law up completely.

Each of us is going to read one of those real but strange laws to our guests and to each other. Read the fake one out loud, and we’re going to quiz each other, and I guess, to see if we can guess which law is real and which isn’t.

Is everybody ready to play?

Travis Lenkner: Let’s do it. I hope one of them is 35:40.

Jack Sanker: That would have been appropriate, but you guys have been —

Jon Amarilio: Oh, right, yeah, we are talking to experts here.

Jack Sanker: Wouldn’t that be embarrassing we got that wrong though?

Travis Lenkner: Affection, right?

Jon Amarilio: Yeah, right. Jack, why don’t you lead us off?

Jack Sanker: All right, so two laws, one is real, one is fake. Option number one, in Arkansas a pinball machine cannot give more than 25 free games to a player who continues to win. So that’s option one, and option two, in Illinois it is a crime to possess more than 70 salamanders; more than 70 salamanders is a crime. So, let’s start with — let’s start with Travis.

Travis Lenkner: I feel like I am in such an advantage because I live in Illinois and as do you guys obviously such a great sensible salamander —

Jack Sanker: Big time salamander lawyer, yeah.

Travis Lenkner: Boy, I mean, they are both very strange, but I think I am going to lean on just an old sort of conservative state gambling and anti-pinball 36:53 that people had —

Jon Amarilio: I think you are underestimating the big pinball market —

Jack Sanker: Big pinball, yeah.

Jon Amarilio: And big pinball has a lot of lobbying power.

Travis Lenkner: And also I am clearly underestimating the anti-salamander lobbying but I think I am — I am going to say Arkansas is real and Illinois is not.

Jack Sanker: Okay, Ajit what do you think?

Ajit Singh: I go the opposite, I mean, it’s great salamander scare of 1842 in Illinois —

Jon Amarilio: Everyone remembers that.

Ajit Singh: Yeah, and that guy has 71 salamanders, I mean, he really —

Jack Sanker: Major a hard-line at 70?

Jon Amarilio: Yeah, I think one of the stars in the Chicago flag is a reference to that salamander scare, there’s like the great fire, the world’s exposition, the salamander scare.

Ajit Singh: I never remember the fourth one.

Jack Sanker: Right.

Jon Amarilio: Salamanders, yeah. Alright, I think I am going to go with Ajit on this one and say the Illinois law is real.

Jack Sanker: Okay. So for the record Travis is option one which is Arkansas. Ajit, option two, which is the Illinois law and same with Jon. The correct answer here, the real law is the Arkansas law. A pinball machine cannot give more than 25 free games to a player that continues to win; interestingly enough, some restaurant gaming chains like Chuck E. Cheese actually are exempt from some of these statutes because they award games or toys or things like that which don’t constitute an exchange of “valuable things”. So, there’s an exemption in the Arkansas code there.

And then in Illinois is a caveat that law is sort of an urban myth for some reason there’s actually a —

Travis Lenkner: Come on.

Jack Sanker: When I was looking this up there was like a lot of people were like, no, 70 salamander is just definitely legal and I was like this — I actually almost put that down as the real one but fact-checked it, CBA @theBar is not fake news and it turns out in reality it’s illegal to keep any variety of aquatic life that’s worth more than $600, if it was captured or killed in violation of the State’s law and where the salamander, a figure comes from is roughly 70 salamanders at the market value per salamander adds up to about $600; so not quite.

Jon Amarilio: Wow, good research salamander.

Jack Sanker: I make sure that we are thorough here.

Jon Amarilio: Kind of big pinball strikes again, wow.

Travis Lenkner: Some of that time you are never going to get back, but I appreciate you.

Jack Sanker: You know what, instead of come up and trivia one night and I’m going to crush it.

Jon Amarilio: Oh, you are going to rob it, you are going to be hero of the bar.

Jack Sanker: Yeah.

Ajit Singh: Good time to shot, good time to shot.

Jon Amarilio: Alright, round two. In Nebraska drivers on mountain highways are required to stay as close to the right hand edge of the road as possible. Or option two, in Oklahoma it’s illegal to lasso an ostrich, violation of which law can result in a thousand dollar fine and up to a year in jail. Ajit, why don’t you start this off?

Ajit Singh: I am glad to — I think you said that if mountains in Nebraska I don’t think is real, so I would say though lassoing the ostrich is — it sounds fun so the 40:07 that one being real.

Jon Amarilio: Travis, what do you think?

Travis Lenkner: Yeah, I mean, so I grew up in Kansas again I feel like I have an unfair advantage where I am so deep in the living scene locally, and now I am from the State between the two states you just think. But I don’t know, staying on the right-hand side of the road, I grew up on a farm, dirt roads, you want to do that even if you’re on the hills, but I feel — I am not sure about the mountains, maybe the sand hills of Nebraska, but not the mountains of Nebraska, and like Ajit, I think I totally believe that someone from Oklahoma might have tried to rope an ostrich. So I have to go — I have to go — I have to go with B.

Jon Amarilio: Jack?

Travis Lenkner: I would say ostrich is real.

Jon Amarilio: The ostrich is real, alright. Jack, what do you think?

Jack Sanker: I guess, are there ostrich in Oklahoma? I didn’t know. I thought they were — I don’t maybe —

Jon Amarilio: Haven’t you ever heard an ostrich burger?

Jack Sanker: I suppose, but I thought it was from like — I don’t know Madagascar or something. I have no idea where ostrich is from.

Jon Amarilio: It’s a grazing animal.

Jack Sanker: Yeah, I guess. I am going to go with option one, driving on the right-hand side of a mountain in Nebraska but I have doubts as to whether there are mountains in Nebraska as well, but I am going to pick option one.

Jon Amarilio: And you would actually be right, and to the point Ajit was making that is the great irony of the law because there are no mountains in Nebraska. The doing my due diligence the highest point is Panorama Point which stands at 5,429 feet above sea level, but it’s considered merely a low rise on the high plane. So it’s just — I really like to find out the story behind this law, I couldn’t find anything on it but I’m sure it would be a good story.

Jack Sanker: Someone just overreacted to the panorama, it sounds like.

Travis Lenkner: Yeah. Did you come up with the ostrich bit yourself?

Jon Amarilio: Yep, that was all me.

Travis Lenkner: Wow, it’s compelling.

Jon Amarilio: Thank you.

Travis Lenkner: If you want to protect their necks because they are so long.

Jon Amarilio: That’s what I was thinking, I mean they are so fragile.

Travis Lenkner: Yeah.

Jon Amarilio: Right?

Jack Sanker: They should ban that though. I am firmly on this new law, Jon.

Jon Amarilio: We have to make that the law here in Illinois. We’ll start a letter-writing campaign, and on that flattering note, that’s going to be our show for today.

I want to thank our guests Ajit Singh of the Law Finance Group and Travis Lenkner of Burford Capital for joining us here today and giving us a valuable insight into this increasingly important sector of the legal industry. It was both fun and informative.

I also want to thank everyone here at the CBA who makes this machine run, including my co-host today Jack Sanker, our Executive Producer Jennifer Byrne and our sound crew Ricardo Islas and Steve Weirich. Remember you can follow us and send us comments, questions, episode ideas or just troll us on Facebook, Instagram and Twitter at @CBAatthebar. Please rate us and leave us your feedback on iTunes, Apple podcast, Google Play or wherever you download the podcast, that helps us get the word out.

Until next time for everyone here at the CBA, thank you for joining us and we will see you soon.

[Music]

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