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Ed. note: Litigation finance is transforming the fields of both law and finance. To help our readers gain a better understanding of what litigation finance entails, we’ve partnered with Lake Whillans to present a new series so you can better understand how litigation funding works, its pros and cons, and its past, present, and future.

In its early days (not so long ago), litigation finance entailed a straightforward proposition.  A claimholder with a meritorious claim, but without the resources to litigate it, would seek funding from a litigation finance provider.  The funder would conduct due diligence on the claim and negotiate investment terms.  If the claim succeeded, the funder would recoup its principal, plus a return; if it failed, the claimholder would walk away with no liability.  Funder and claimholder had no particular expectation of any longer-term partnership.

This type of one-off, single-case funding is still going strong today.  But the field of litigation finance has expanded considerably, and funding now comes in a variety of flavors.  A growing proportion of funding deals involve neither a single case nor a poorly-resourced claimholder.  Today, entities seeking funding are often more concerned with managing risk than with acquiring sufficient resources to litigate.

This article will explore three growth areas in the current funding landscape: (1) deals involving funding for larger corporations, (2) law firm portfolio funding, and (3) acquisition of claims by litigation funders.  Lake Whillans has extensive experience investing in each of these structures.

Large corporate deals

At first glance, it may not be obvious why a well-resourced corporation would be interested in litigation funding.  Can’t a big company finance its own litigation?  Well, the fact that it likely could doesn’t mean that it should.  For any corporation, regardless of the strength of its balance sheet, there is an opportunity cost to paying litigation expenses: resources that could be spent on building the company’s core business are instead diverted to litigation.  Optimal resource allocation is particularly critical in this time of economic uncertainty, when most executives — including general counsel — are under pressure to trim their budgets, mitigate risk, and maximize resources.

Even in the most stable economy, large corporations find value in litigation finance as a risk management tool.  Every lawsuit, no matter how meritorious the underlying claim, is costly and to some degree unpredictable both in terms of outcome and timing.  Even if the decision to pursue the claim was entirely rational, skeptical corporate stakeholders may not see it that way in the wake of an unforeseen loss.  Litigation finance removes this risk because funding is structured as a non-recourse investment: if the claim fails unexpectedly, the company owes nothing.

Another risk/reward analysis that favors using litigation funding by corporations of any size arises from the accounting treatment given to litigation expenses and recoveries.  Expenses incurred in litigation directly reduce the corporation’s profits because they must be reported on the company’s statement of profits and losses.  The corporation cannot offset this profit hit by recognizing the expected future value of a favorable outcome.  Realizing the return on litigation expenses may take years.  And even when the company achieves a litigation victory, the value of the recovery must be reported as an “extraordinary event” that doesn’t improve the market’s view of its profitability or valuation.  By externally funding its litigation expenses, the company can improve profitability and ultimately its valuation in two ways: (i) remove the legal expense drain on its profits,which will directly improve its balance sheet and (ii) put capital that otherwise might have been used for legal costs towards uses that drive performance and revenue. (And in some cases, a litigation finance transaction may even increase the company’s available capital with an up-front monetization).

Litigation finance deals involving larger corporations often depart from the familiar single-case model.  A large company may have several current or potential litigation matters proceeding at any given time; often the company will be on the claimant side in some matters and the defense side in others.  Such a corporation has the option to negotiate funding for a portfolio of cases all at once.  This enables it to obtain funding at a lower cost than in a single-case scenario because a portfolio of distinct cases carries less risk for the funder than a single-case investment.  A portfolio funding agreement can also include infusing the company with capital that can be used to support defense-side cases, thereby reducing the legal department’s spending across the full range of cases involving the company.

Law firm portfolio funding

A growing number of funding agreements do not directly involve claimholders at all.  Rather, the funder enters into an agreement with a law firm that represents claimholders on contingency.  In a law firm portfolio deal, the funder provides capital to the firm in exchange for a portion of the future contingent fees that the firm will eventually recoup from the portfolio of cases.  The capital is generally used to support the cases in the portfolio and bridge the gap for the firm until the cases are monetized.  Contingent fee cases can be lucrative, but cash flow from these matters is often choppy and unpredictable both in terms of amount and timing.  As in standard claimholder funding, a law firm portfolio funding deal is a non-recourse investment; the funders’ recourse is limited to the fees achieved in the agreed-to portfolio.

Portfolio funding is especially useful for law firms that are expanding their volume of contingent fee cases, particularly where resolution of those cases is likely to take years.  A funding arrangement can support a case acquisition strategy where more funding is released as the firm acquires clients and files cases.  A portfolio funding agreement gives the firm the security of consistent, predictable short-run cash flow, in exchange for a somewhat reduced upside on its contingent fees.

Claim acquisition

In the traditional funding model, the funded claimholder continues to litigate its claim, and the funder acquires a minority stake in the anticipated proceeds from the claim.  However, in certain situations, it can be more sensible for the claimholder to sell its entire interest in the claim to a litigation funder.  This is especially attractive in the bankruptcy context: a bankruptcy estate is permitted to sell litigation claims in the same way that other assets are sold in the bankruptcy process.  It may be advantageous for the bankrupt entity (and its creditors) to monetize such claims immediately, rather than incurring the uncertainty and delay of a years-long litigation process.  A company’s monetizable claims may include both unique claims and claims arising as members of a class action.

A similar dynamic may prevail for a claimholder that, while not bankrupt, is experiencing severely constrained cash flow.  With a growing number of companies now finding themselves in this situation due to the economic effects of the pandemic, claim acquisition is becoming increasingly common.

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Litigation finance continues to evolve and be used in unique and complex ways.  Lake Whillans is well-positioned to discuss the individual circumstances of a company or law firm, drawing on its years of experience structuring similar deals.  The best way to determine if your company or firm could benefit from litigation finance is to contact us.

Some people just don’t get it. Whatever your liberal bona fides, when you start suing over so-called reverse discrimination, well, I certainly think your perspective on race relations is suspect.

Anyway, I bet faithful Above the Law readers remember law professor Paul Zwier. Zwier’s the Emory Law prof who used the n-word in class…. no, not that one, the other one.  Anyway, way back in 2018, in the very first week of classes, Zwier was teaching his torts class about offensive battery. Though the case under discussion does not use the actual n-word, Zwier, however, used that word when he called on a student — a Black woman to boot — to ask about the fact pattern in the case. In explaining the situation, Zwier initially said that while he doesn’t specifically recall using the racial slur, he may have gotten the facts of the case confused with the facts of a different case, next on the syllabus where the slur was used. He later justified the use of the word (from the report of the Emory Office of Equity and Inclusion): “in using the n-word, [Zwier] intended to suggest that the court record was sanitized and that the plaintiff had actually been called the inflammatory epithet.”

Later that semester, the school began an investigation into allegations Zwier used the n-word. Again. This second incident was not in class, but in office hours when he told a student he didn’t mean to disparage anyone, and said he’d been called an n-word lover in the past. Except, you know, he didn’t say “n-word” he actually used the term. Zwier was put on administrative leave and barred from returning to campus.

A Faculty Hearing Committee was convened to determine what should happen to Zwier. The professor launched a full-out defense of his behavior, calling in the American Association of University Professors and the Foundation for Individual Rights in Education making the case for his use of the n-word as academic freedom. Ultimately, Zwier kept his job, was allowed to return to campus and was barred from teaching mandatory 1L classes until the fall of 2021.

But that punishment, which I described at the time as “a wrist, being lightly tapped,” is now being characterized by Zwier as discriminatory. Last week, Zwier filed a lawsuit against Emory, as well as former dean James Hughes, alleging discrimination, retaliation, and libel. He argues that Black colleagues are able to use the n-word without consequences in and out of the classroom, therefore his experience must be discriminatory because he is white.

I’ll pause while you roll your eyes.

As reported by Law.com, the lawsuit characterizes the disciplinary process as problematic:

According to the suit, after Zwier was suspended, he complained to the chairman of the university’s Faculty Hearing Committee that the disciplinary action imposed was discriminatory. As a result, the suit claims that the law school’s then-interim dean, James Hughes, recommended the committee fire Zwier and strip him of his tenure.

According to the suit, after an October 2019 private hearing that lasted two days, the faculty committee issued a decision finding that neither the interim dean nor Emory had demonstrated adequate cause to revoke Zwier’s tenure and directed that Zwier be reinstated.

But according to the suit, the committee withheld its determination for several months “because of unfounded fears pressed upon it by the law school that a favorable decision in Zwier’s favor would cause a wave of antipathy and negative publicity for the law school and Emory.”

Zwier also takes issue with letters Hughes wrote to the Emory community that paint Zwier’s use of the n-word as a result of white supremacy.

A Emory spokesperson said the school “disagrees with the characterization of what occurred, and will vigorously defend itself against this lawsuit.”

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Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).

This past weekend, Donald Trump visited the Trump National Golf Club in Bedminster, New Jersey, marking his 285th documented visit to a golf course during his term as president. The White House stays fairly quiet about what Trump’s actually doing at all these trips to the golf course, given how much he excoriated his predecessor for playing golf (Obama played an estimated 333 rounds of golf over the eight years of his term, compared to Trump’s 285 often multiday visits to various golf courses during his first three-and-a-half years).

We do know that Trump spent some of his time at his New Jersey club speaking to his golf cronies, all of whom reportedly paid a six-figure initiation fee for the right to be there. While social distancing and other COVID-19 preventative measures did not seem to be prioritized among the crowd of more than 100 gathered at the golf club on Friday, when reporters asked whether any of the assembled Trump fans had been tested for coronavirus before coming to see Trump speak, no one in the crowd responded.

Every litigator knows that when a witness is nonresponsive to the question, it’s almost as good as a direct admission. Given the rigorous coronavirus testing that everyone even remotely close to Trump’s inner circle is consistently subjected to, it would be a deviation from protocol if the White House hadn’t required some kind of testing among attendees in advance of the relatively intimate event. People from Trump’s national security advisor down to a cafeteria worker at two eateries frequented by West Wing staffers have tested positive for COVID-19, as a result of the frequent tests performed on everyone the president might have contact with, and on the people they might have contact with.

But, while Trump sure seems to think it is a good idea for those around him to get repeatedly tested for coronavirus, he sure doesn’t seem to think it is a good idea for anyone around you to get tested. The White House sought to block billions of dollars in funding for COVID-19 testing and contact tracing in any new economic stimulus bill, and Trump himself has repeatedly claimed that the United States is doing too much testing.

“I said to my people, ‘Slow the testing down please,’” Trump said at a campaign rally in June. He later said that this comment was “semi-tongue in cheek,” which it wasn’t. Trump went on to say, at pretty much every chance he’s had since June, that we are doing too much testing, and we wouldn’t have so many coronavirus cases if we weren’t doing so much testing.

Most recently, Trump has downplayed the seriousness of children getting sick from the virus, and urged schools to reopen for in-person instruction in the fall. This is despite there being no comprehensive structure in place for testing or contact tracing in schools, despite a study that found nearly 100,000 U.S. children were infected with coronavirus in just the last two weeks of July, and despite evidence that children carry high amounts of the virus once infected and could serve as significant spreaders of the disease when placed within the confines of a classroom environment.

A few weeks ago, my girlfriend called the local clinic to ask about getting a coronavirus test. She was told it would take a week to schedule the appointment for the test, and then another week after that to get her results. The CDC says you can be around others 10 days after first having symptoms, as long as symptoms have abated, or 10 days after a positive COVID-19 test if you have no symptoms. Meaning a test result that takes 14 days to get is essentially useless. These sorts of testing delays seem to be fairly widespread.

Trump keeps saying that we don’t need to be testing as much as we are and that more and better coronavirus testing is not necessary to proceed with reopening schools and businesses. But actions speak louder than words. Trump’s political cronies get quickly and constantly tested. For the rest of us though, Trump thinks a test result two weeks out (when it’s too late to be of much use to us or our loved ones), or maybe even no test at all, is good enough.

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Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

We’ve talked a lot about the applicants getting jobbed by states refusing to step back from the insanity of in-person bar exams and the flimsy support behind the argument that bar exams protect the public. But what about the argument that bar exams affirmatively hurt the public?

This is something we’ve broached indirectly in discussions of California’s cut score changes. Extensive research of the cut score question revealed that the state’s insistence on one of the highest cut scores in the country had contributed to a massive access to justice gap in the state. But across the country, even more reasonable states are still picking cut scores based not on “minimum competency” but on reaching benchmark failure rates so they can report back that the exam failed 25 percent of takers and, circularly, “did its job.”

And the people that tends to hurt are the most vulnerable clients.

Each year, more than 24,000 law school graduates begin jobs that require bar admission. Approximately half of these graduates serve the needs of low- and middle- income communities and small businesses. Disrupting the flow of new lawyers into direct-service providers, government offices, and other public interest legal positions will further undermine access to justice for under-resourced communities that already struggle to obtain legal assistance. The threats our marginalized communities face are especially grave at this moment: a wave of mass evictions appears imminent, workers continue to face unsafe working conditions, and voter suppression foreshadows “a potentially disastrous November election.” We need licensed law graduates to meet the needs of these communities right away.

That’s from an open letter from public interest organizations put together by the Public Rights Project seeking signatures this week. The signatories argue that some form of diploma privilege would be in the interests of the public they serve.

And it makes sense because while one can perform upwards of 99 percent of first-year duties in a Biglaw firm without a license, leaner staffed public interest organizations — not to mention small firms serving lower- and middle-income clients — depend on folks ready to perform all the tasks of a licensed attorney from jump. We’ve mocked the “practice waiver” idea as mostly useless but there is some short-term value in this space. But it’s still a joke of a solution because those same employers are also depending on not having that applicant go MIA for three months when they need to actually take the exam down the road as most practice waiver regimes contemplate.

The people making these bar exam decisions are, for the most part, incredibly lazy about addressing concerns brought to their attention, but we can’t just give up because they try to gloss over the issue. Every time someone says the bar exam is about protecting the public, challenge them to define the public they’re talking about. Bar examiners and state supreme court justices keep cooking up hypos about poor widows and orphans swindled by shoddy attorneys but the people actually serving those communities are calling for diploma privilege while those imaginative critics remain cloistered in layers of privilege.

If you’re in the public interest game, let your organization know about this letter and sign on. The signature period lasts until Friday.

An Open Letter from Public Interest Legal Organizations Supporting Diploma Privilege [Medium]

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Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

The ongoing COVID-19 pandemic has had a massive impact on the legal industry. As detailed at length on this website and others, many law firms and in-house departments have been forced to furlough or terminate employees due to economic issues caused by the pandemic. The amount of job losses within the legal profession may even rival the losses experienced during the Great Recession. Since the job market is competitive right now, and the ongoing pandemic does not appear like it will subside anytime soon, many jobless lawyers may be contemplating starting their own law firms as a solution for unemployment. Indeed, numerous people have been asking me recently about hanging out a shingle, since I myself took this step about a year and a half ago. However, starting a law firm is not an easy solution for unemployment, and many individuals should not hang out a shingle just because there are fewer job openings in the present environment.

One of the main reasons why people should not rush into starting a law firm if they find themselves out of work is because opening your own practice takes substantial planning and saving. It takes a long time to make money after starting a law firm, and people need to save and think about how they will pay for all of the expenses associated with starting their own practice. I personally planned on starting a law firm nearly a year before I gave my notice to my employer so that I could think about all of the practicalities associated with launching my own shop. I also took that time to save up money that I could rely upon when starting a law firm. It takes a substantial nest egg to secure the malpractice insurance, office space, technology, and other resources needed to launch a successful law firm, and it may be difficult to save this sum if you start a law firm shortly after losing your job.

Another reason why it rarely makes sense to consider starting a law firm as a solution to unemployment is because it takes time to build a law practice. Indeed, it took me months to build my book of business, begin effective advertising, and see cash flow increase from invoicing. Luckily, I was fully committed to my practice, and I wanted to start a law firm not because I did not have other options but because I wanted the lifestyle of being my own boss.

If you start a law firm because there are few other employment opportunities, you might not have the commitment and drive needed to weather the storm in order to build a successful practice. Indeed, I have friends who started their own law firms, but their practices failed because they were not totally committed to running their own shop. Other friends of mine failed to launch a successful firm because they just did not give their practices enough time to grow and develop. It is extremely difficult to start a law firm, and if you do it out of necessity, you might have a lower chance at being successful.

Another reason why starting a law firm is not a good solution for unemployment is because launching a firm could actually hurt your future prospects of landing a job at an established firm or in-house department. Many employers like to see applicants who have experience working at respected shops with which they are familiar. However, if a manager sees that a candidate opened his or her own shop, it might reflect poorly on the candidate and seem like they had no other option but to run their own firm. In addition, working for certain types of clients could make it difficult for you to abandon your practice for other gigs. For instance, if you make an appearance in court on behalf of a client, it might be difficult to leave the client hanging, unless you have another lawyer lined up who could continue the case or you can bring the case to a new firm. As such, operating your own law firm could limit your options should you wish to make a career change.

Furthermore, right now is likely one of the most difficult climates to open a law firm in recent memory. The demand for legal work has dried up in many practice areas, and competition for legal services is very high. In addition, lawyers looking to make new connections cannot do in-person pitches, attend networking events, or pursue many of the other strategies lawyers use to develop new business. Even if you wanted to begin your own law firm for years, it might make sense to hold off on your plans until the economy improves.

It is difficult to predict the future, but there are some signs that the job market will improve relatively soon. Some firms are retracting their earlier pay cuts, and I have anecdotally heard of hiring picking up in some sectors of the legal industry. In addition, I do not want to imply that starting a law firm is always a bad choice, since I have truly enjoyed my experience running my own law firm, and you can make a good living with your own practice. However, I launched my firm over a year before the pandemic hit, and the economic climate is different now than it was then.

All told, unemployment is tough, and it can be frustrating to search for jobs in a down economy with little to show for the effort. Although starting a law firm can be an enriching experience, the decision to open a shop should not be made lightly, and starting a law firm should not be viewed as an easy solution for unemployment.

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Of all of the desperate, inspired, cockamamie ideas proffered by companies in dire straits to pump up stock prices or otherwise stave off disaster and demise in this fetid, pandemic-infested world, none was quite so brazen as that offered by Hertz. After the better part of a decade of bad decisions and pivots that ultimately went nowhere, the bankrupt car-rental company at last came up with a stroke of pure genius: Why not sell a half-billion dollars’ worth of stock, and we use the term “worth” loosely, as in the very regulatory filing making that offer, Hertz conceded that those shares would prove almost certainly worthless? If the stock-market Stoolies couldn’t get enough of the stuff, why not indeed?

* An Atlanta attorney has surrendered her law license after she placed a judge’s initials on a court order. Those little letters were extremely costly… [Daily Report]

* Instagram is facing a lawsuit over allegations that it illicitly harvests biometric data of users. [Bloomberg]

* Will Smith and Warner Brothers have settled a lawsuit about an upcoming biopic on the father of Venus and Serena Williams. [Fox Business]

* Attorneys for Ghislaine Maxwell are asking for more time for documents to be unsealed due to “critical new information” that has been uncovered in the case. [Hill]

* A California attorney is fighting disciplinary proceedings related to colorful comments he made to disparage a judge. [Bloomberg Law]

* The New York Attorney General has filed a lawsuit over price gouging regarding eggs. This is the third time I have covered egg price gouging since the start of the pandemic, hope I don’t look like I have egg on my face… [New York Law Journal]

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Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.

America’s bar examination authorities have turned to threatening Character & Fitness repercussions for their critics marking a new, darker phase of the bar exam drama. How in the world did it come to this? Also, we talk about Kanye’s double agent attorney and PACER gets a slap from the federal courts.

Ed. Note: Welcome to our daily feature Trivia Question of the Day!

According to data collected by Law.com for the A-List law firms ranking, which top 20 firm has the highest diversity score?

Hint: The Biglaw firm received 95.5 (out of 100) score on diversity, and is ranked 13th on the list.

See the answer on the next page.