So there’s an ice cream shop. This ice cream shop is used to serving quality ice cream to its customers, but recently their vendor has cheated them out of their usual delicious product. But since this is a small business, they can’t cover the cost of litigation even though they have a solid case. What do they do? In this episode of The Un-Billable Hour, recorded at ABA TECHSHOW 2017, host Christopher Anderson talks to Joshua Lenon and Eva Shang about Legalist, a form of litigation finance underwriting for commercial cases based on algorithms and data. Together they discuss why Legalist was created, how it works, and its integration with Clio.
Joshua Lenon is an attorney who currently serves as lawyer-in-residence for Clio, providing legal scholarship and research skills to the leading cloud-based practice management platform.
Eva Shang is the co-founder of Legalist, a service dedicated to finance underwriting for litigation.
Special thanks to our sponsor, Answer1 and Solo Practice University.
The Un-Billable Hour
How Algorithmic Data Finances Litigation
Intro: Managing your law practice can be challenging. Marketing, time management, attracting clients, and all the things besides the cases that you need to do that aren’t billable. Welcome to this edition of ‘The Un-Billable Hour’, the Law Practice Advisory Podcast. This is where you will get the information you need from expert guests and host Christopher Anderson here on Legal Talk Network.
Christopher Anderson: Welcome to ‘The Un-Billable Hour’, the Law Practice Advisory Podcast helping attorneys achieve more success. We’re glad you can listen today on the Legal Talk Network.
I am your host, Christopher Anderson. I am an attorney with a singular passion for helping other lawyers be more successful with their law firm businesses. My team at “How to Manage a Small Law Firm” and I work directly with lawyers across the country to help them achieve success as they define it.
In ‘The Un-Billable Hour’ each month, we explore an area important to growing revenues, giving you back more of your time and/or improving your professional satisfaction in one of the key areas of your business.
As an attorney, who has built and managed my own law firms in Georgia and New York City, I now get to work with hundreds of law firms to help them grow professionally and personally. I start with the fundamental premise that a law firm business exists primarily to provide for the financial, personal and professional needs of you, its owner.
In this program, I have a chance to speak to you, as I do in presentations across the country, about what it takes to build and operate your law firm like the business that it is. I have a chance to introduce you to a new guest each month to talk about how to make that business work for you instead of the other way around.
And before we get started, I do want to say a thank you to our sponsor Answer 1. Answer 1 is a leading virtual receptionist and answering services provider for lawyers. You can find out more by giving them a call at 800-answer1, or online at HYPERLINK “http://www.answer1.com” www.answer1.com.
Today’s episode of ‘The Un-Billable Hour’ is financing justice and I am really excited to be at the ABA Tech show today and having guest, Eva Shang, and Joshua Lenon from Clio. Eva has got a business that is working closely with clear to provide financing for litigation for law firms but not in the traditional sense that a lot of us have come to think about it for like this big dollar cases, but really looking to help small law firms, finance cases that otherwise their clients won’t be able to do. So, let me to start with that question if you don’t mind like what kind of cases are we talking about?
Eva Shang: Yeah thanks Chris so let me bring a picture to mind, which is probably very familiar to a lot of your listeners. You’re a small plaintiff shop. You have a small coming in. It is ice cream manufacture in Massachusetts and they have been cheated by their vendor, who has been selling them lower quality of ice cream than they are used to.
Now what do they do? You are a plaintiff shop. You’re taking the case on full contingency, but you don’t have money for the expert witnesses that it is going to take write that report and you pass that cost onto the client. Now the client, as it happens, doesn’t have money either. Where do you go?
Now, in usual instances this case will just be dropped or you know they would burrow money from somebody’s aunt or uncle and take their chances, but what Legalist does is we provide financing for those types of cases where the amount requested is under $500,000.00, usually small business, individual, small commercial disputes and hosted by small law firms.
Christopher Anderson: Yeah and I mean the truth is right that in fact they might go to their aunt, they might go to their, they might go to a bank, they might go to other resources running but the truth is that a lot of these people end up not being able to bring their case and Joshua before we were starting this show, you were talking about some information that you have gotten about access to justice and how that might be a problem and how the access to justice is actually improving with alternative sources of funding.
Joshua Lenon: Yeah! Absolutely, so the American Bar Association did a study on how often can the middle class access to justice through traditional legal means and what they found were that a lot of options are now becoming open to them that hadn’t existed in the past, but most clients out there do not know about them or know how to take advantage of them.
So, I had a great discussion with Will Hornsby, the staff counsel for the American Bar Association and the author of this report and he walked through all of the different types of B shifting that happens within a lot of different types of litigation right now, contingency fees, and now litigation financing and these are newer alternatives for accessing justice.
The problem with them is that while lawyers may be familiar with them, clients aren’t. So, we’re actually reliant upon lawyers to go out and drum up money on behalf of their clients and it is quite a challenge especially when most of these alternatives tend to think very large scale, that the everyday business owner like the ice cream shop just cannot find the financing that they are looking for to push their successful case.
Christopher Anderson: Right because I mean Eva what we were talking about like the financing for let’s take your ice cream case, we’re probably talking about needing the fund what $5, 10, 20,000 for experts but not a $100,000.00 $200,000.00, does that —
Eva Shang: So actually just to give you a sense of how crazy the space is right now, your average commercial litigation financier will not consider a case unless he is looking for at least a million dollars for financing.
Christopher Anderson: Wow! You said you are doing under 500?
Eva Shang: We’re doing under 500 and believe it or not that’s already significantly smaller than every other financier in the market right now. And I will tell you why they are not looking at those kinds of cases just because these have big hedge funds and they are evaluating cases on a one of basis. They have to look though the evidence every single time and when you’re doing that you’re turned to deploy several millions dollars and make sense to do it all at once in one case.
Christopher Anderson: You got to do the due diligence which we actually leads me to what I wanted to find out about because obviously you’re not – like you have investors too, this money is not coming out of thin air and they want to know their risk is covered, they want to know that there is a return coming on this money right? So, how do you get the underwriting done on the smaller cases where you cannot do that deep due diligence on every single case?
Eva Shang: One word, computers.
Christopher Anderson: Computers so the robots are figuring this all out but it seems — where is the information coming from and how they are getting it figured out?
Eva Shang: Yeah! So we actually have an underrating mechanism and this is why we’re a legal tech company, not just traditional litigation financier. We have an underwriting mechanism that relies on 15 million past court records and uses machine learning on all these records to determine the likelihood of a case winning.
Now, it sounds fancy, but keep in mind that people have done studies saying that they can predict Supreme Court decisions with 70% accuracy. So, the fact that we can do this with a high-degree of accuracy, shouldn’t be all that surprising.
Christopher Anderson: Let us hope — I mean I guess the common phraseology is big data. You’re leveraging big data but so if I understand what you just said, you’re going back or your bots, your algorithms, your machine learning is going back over thousands and thousands of cases that might have something similar to this case to evaluate the likelihood of recovery and the size of recovery?
Eva Shang: Well, not the size of the recovery. So I can tell you about how the algorithm works. So, you know, picture your average litigation financier. They’re coming and looking at a case and they’re saying, “Oh! Look, the case has already passed the motion to dismiss. That must mean that it is already doing pretty well. The judge looks favorably on it and look the plaintiff’s attorney has three motions that have all been granted and discovery and the defense attorney is just having his motions denies left and right. That would be a good sign in any event, but your average litigation financier wouldn’t know what weight to assign to each of those events.
Christopher Anderson: Right.
Eva Shang: And honestly I don’t know either, but I will tell you something my algorithm knows.
Christopher Anderson: I got it. So you’re not only looking at the case and the merits of the case, but your actually taking the stature of the case like where are we now, what has happened so far, does that increase or decrease the risk?
Eva Shang: Exactly, that is exactly what we look at.
Christopher Anderson: Fascinating. So, what I would like to do is come back and talk about how this is working since Josh Lenon here with us, how this is working with Clio and that helps to bring it to the lawyers and makes it more accessible to them.
Before we do that, I want to step out and go to a spot and hear a word from our sponsors, just give us a second, we’ll hear from our sponsor and we’ll come back to Josh Lenon and understand the little bit about the integration. Then I want to hear more from you about how the clients risk is evaluated and how you work with the clients directly?
Advertiser: Is your firm experiencing missed calls, empty voicemail boxes and potential clients you will never hear from again, enter Answer 1, Virtual Receptionists. They are more than just an answering service. Answer 1 is available 24×7. They can even schedule appointments, respond to e-mails, integrate with Clio, and much more. Answer 1 helps make sure your clients have the experience they deserve. Give them a call at 1-800-answer 1 or visit them at HYPERLINK “http://www.answer1.com/podcast” answer1.com/podcast for a special offer. That is HYPERLINK “http://www.answer1.com/podcast” answer1.com/podcast.
Ready to create and build your own solo or small firm practice, need a nuts-and-bolts education on the 360 degree experience of starting a business, there is only one online destination dedicated to helping you achieve your goals, Solo Practice University, the only online educational and professional networking community dedicated to lawyers and law students, who want to go into practice for themselves, more than 1,000 classes, 58 faculty and mentors. What are you waiting for? Check out solopracticeuniversity.com today.
Christopher Anderson: And we’re back from break. We are here with Eva Shang of the Legalist and Josh Lennon from Cleo and we are talking about financing justice. We’re talking about finding funds to help litigants in smaller value cases under $500,000.00 need to be able to finance the needs for expert, witnesses and other litigation costs, so they can bring their cases and get access to the courts.
When we left, I said we were going to talk about, Eva has been talking about getting the data necessary, she’s got algorithms that help decide the risk and whether or not this is a case that can get the investment and one of things we were talking about beforehand was that there’s a way that users of Clio. law firms that are using Clio can use an integration between Clio and Legalist to help make this happen, can you talk a little bit about that?
Joshua Lenon: Yeah thanks Chris. So I’m Joshua Lenon the lawyer-in-residence at Clio and what most people don’t realize is our motto, “Changing the practice of law for good” doesn’t just relate to the software that we do but also how we can help improve the justice system as a whole.
And so one of the interesting things about litigation finance as we mentioned earlier is how much it relies upon lawyers, taking advantage of it for their clients, recommending that this is the appropriate avenue for moving their cases forward. And so while Legalist has a great algorithm and some really good support financially, they needed access to lawyers. So that’s one of the things I can bring to the table.
So with the 40,000 lawyers that we have across the United States all of whom dealing with mostly everyday litigation, this is an opportunity for them to start carrying cases forward that they’ve had to walk away from in the past.
So for the last couple of months, we’ve been communicating. I just randomly reached out to Eva and she very graciously took my email and we’ve had conversations and we’ve come up what we think is exciting integration where you can take the case information that you already have stored in Clio and give Legalist permission to review that case and decide if it’s appropriate for litigation financing.
So it’s actually a really quick application process. It’s almost what three four clicks on the mouse and your case information is securely transmitted to Legalist for review and then they’ll get back to you as quickly as possible with the decision on appropriate financing.
Christopher Anderson: And so Legalist is basically getting permission from the lawyer?
Joshua Lenon: Yes.
Christopher Anderson: To look at this one case that the lawyers giving permission on. Obviously the lawyer is getting permission from their client to share with Legalist ahead of time and then you’re being able — at Legalist Eva is able to then use that data in connection with your historic data to rate if you will or grade the case for investment.
Eva Shang: Exactly, I mean while we have a really quick process normally, it only usually takes one to two weeks to get back to somebody once they’ve applied. It is a little bit of a process. You have to fill out your name, the client’s name, everything that’s happened on the case, provide the case details, your retainer agreement and those kinds of things that are all stored in Clio already. So, there’s no reason for you to fill it out twice.
Christopher Anderson: That shortens the process and makes it a lot more streamlined and a lot more ability to get to the answer a lot more quickly.
Eva Shang: Exactly.
Christopher Anderson: And to Joshua to your point what I was hearing what you were saying is like you said that a lot of clients wouldn’t be able to bring the case, a lot of lawyers would have to walk away from it but basically what you’re really telling is a lot of lawyers were having to say you’ve got a case, I could help you, but we can’t and basically letting them know that because they didn’t have the money, the doors to the courtroom were closed.
Joshua Lenon: I’ve been totally slammed shut and it harms everybody involved in that conversation right? So the business owner or the plaintiff loses their chance for access to justice. The lawyer as a business owner, has to turn away business and so on the courthouse itself doesn’t actually get a chance to fulfill their constitutional role of adjudication so all along the way, we’re actually harming ourselves by not having this opportunity and so we’re very excited to bring this integration to work with Legalist.
Christopher Anderson: That is exciting, so Eva there’s one question that comes immediately to mind when I’m thinking about this because I’ve talked with other investors who fund litigation usually on the higher level and one of the hang ups, one of the difficulties is that there’s often recourse which means that if the client doesn’t pay back the loan hmm they come after the lawyer. How does it work with Legalist?
Eva Shang: It is non-recourse which means that we’re in it together. If you win the case then we all win from the damages but if you lose the case then we don’t get our money back and you don’t owe us anything.
Christopher Anderson: So, you don’t have recourse against the lawyer or the client?
Eva Shang: No.
Christopher Anderson: Okay
Eva Shang: Our contracts are purely with the client.
Christopher Anderson: So you are aligning your risk level with everybody else in the case.
Eva Shang: Exactly. We want to be benefitting at everybody else’s expense.
Christopher Anderson: That is pretty phenomenal. And you were explaining to me but I want to make sure everybody’s clear because I know the lawyers that are listening to show, they’re all jumping to a lot of conclusions right now about whether is this ethical, can we do this in my state, can we do this in rural Nebraska and I want to be really clear, how does Legalist make money?
Eva Shang: We make money by charging a premium on our investment, so you know say you have a case and the lawyer is taking 30% contingency we will invest money, say we’ll invest money for the costs and then we will take a percentage from the client’s share on top of that. So essentially raising the contingency but covering the cost that your lawyer as a law firm, you know you guys don’t have the kind of money in the bank to cover.
Christopher Anderson: So if I’m listening to you right, you’re saying is you basically make an agreement with the lawyer introduces you.
Eva Shang: Right.
Christopher Anderson: And you’re making agreement though with the clients, you and the client.
Eva Shang: Yes.
Christopher Anderson: Okay and then so if the client wins, you take a percentage much like the lawyer does, but you’re not.
Eva Shang: Exactly.
Christopher Anderson: You’re not, the key word is you’re not splitting fees in anyway.
Eva Shang: We are not fee splitting.
Christopher Anderson: Okay and Joshua when we were talking about this like, I was raising these concerns because I know my listeners are going to about also the duty that the lawyer has to not involve someone who would act to the detriment of the client into the case?
Joshua Lenon: Absolutely.
Christopher Anderson: And what’s your experience with this? How do you feel like that should be addressed or is addressed?
Joshua Lenon: So we take a look at state ethics opinions around litigation financing. They do have a couple of points that they want lawyers to be aware of and one of which is making sure that the financing doesn’t impact their independent professional judgment on behalf of their client.And that’s one of the great things about Legalist is that they are willing to finance access to justice but they trust the lawyers with that.
The second issue that these ethics opinions do discuss is making sure that the client has all of the information they need to make an educated decision about whether or not to bring financing.
So it can’t just be that a lawyer says we’re going to get finance and everything will be fine done deal but they do need to take the time to educate their client on what the financing involves, how it may impact any damages or settlement that comes and making sure the client enters the agreement with open eyes. Once they do that, it’s ethical in every state to my best of my knowledge.
Christopher Anderson: Yeah, so basically you’re opening the doors to justice for the client. You’re giving the lawyer the ability to say yes where they’d otherwise have to say no and you’re aligning yourself with both so that there’s no conflict of interest going on.
Eva Shang: Exactly.
Christopher Anderson: Makes total sense to me, so let’s get really crisp then on like who should actually think about applying for financing through Legalist?
Eva Shang: Every small firm or a large firm attorney who has a case where they need investment of less than $500,000.00 whether you’re on full contingency or partial contingency, whether you need the money for an expert witness for some kind of mediation costs or for just to subsidize you know your own firm when you’re on a partial contingency basis. That’s all something that we can take care of and we’d love to hear from you.
Christopher Anderson: Okay so the key is the amount of financing is under half a million dollars, under $500,000.00 US.
Eva Shang: Exactly.
Christopher Anderson: Okay and the types of case isn’t kind of agnostic as to what the area of law is or anything of that nature?
Eva Shang: We don’t generally fund personal injury cases.
Christopher Anderson: Okay, so not personal injury but you’d like the example you gave was a commercial litigation case.
Eva Shang: Exactly.
Christopher Anderson: Can you give a couple other examples of cases that you’ve been interested in financing?
Eva Shang: Yeah, so one of the cases that is my favorite is a case where it was an employee and she was unfairly let go by a multinational corporation and she didn’t have the money as a result of not getting her severance payment to actually pursue litigation and so this is the case where the employment lawyer took it on a contingency basis and needed $30,000.00 to cover cost. And this is a case that exactly fits our profile.
So employment cases, breach of contract cases, whether you’re small business or an individual if you need access to the justice system and don’t have the money to do so, litigation finance might be a good bet for you.
Christopher Anderson: Okay and so how would a lawyer get to know you? I’ll ask Joshua first, if a lawyer is already using Clio, how would they access or get the connection between Clio and Legalists?
Joshua Lenon: So we have our own little app store built into Clio. it’s actually you just click right at the top for apps and you can pick Legalist and create a Legalist account and start right away with them but I also recommend reading up on a Legalist and Eva has all the information for that.
Christopher Anderson: And so Eva how would lawyers who’d be interested in doing this for their clients get more information and learn more from you?
Eva Shang: Our website is legalist.us. We have white papers there. We have all the ethics opinions you could want. Just to be clear we don’t actually have a sign-up process. You can apply or you can not apply, you can just browse the site everything is accessible to you without having to sign up.
Christopher Anderson: Fantastic and Eva shared with us, do you mind if I shared your twitter with our listeners?
Eva Shang: Go right ahead.
Christopher Anderson: Right so she shared if you want to learn more information also you can check her out and send her a message at eva_shang or @legalist_us and again the website was www at legalist.us. If you want to learn more from Joshua about Clio and Clio’s connection to Legalist, Joshua can be reached @joshualennon on twitter and he will be able to get you more information as well.
So that wraps up this edition of the Un-Billable Hour, the law business advisory podcast. My guest today have been absolutely awesome, Eva Shang and Joshua Lennon. When we’re here at ABA Tech Show knocking the show out right here on the trade show floor and we’re really, really excited to be able to bring you this show today.
My name of course is still Christopher Anderson. I look forward to seeing you next month with another great guest as we learn more about topics that help us build the law firm business that works for you. Remember you can subscribe to all editions of this podcast at legaltalknetwork.com or on iTunes. Thanks for joining us and we’ll see you again soon
Outro: The views expressed by the participants of this program are their own and do not represent the views of nor they endorsed by Legal Talk Network, its officers, directors, employees, agents, representatives, share holders and subsidiaries. None of the content should be considered legal advice. As always consult a lawyer. Thanks for listening to the Un-Billable Hour, the law practice advisory podcasts. Join us again for the next edition right here with Legal Talk Network.