'I see legal finance moving into ubiquity,' says litigation funding company co-COO
Ari Kaplan. Photo by Tori Soper.
Ari Kaplan recently spoke with David Perla, the co-chief operating officer at Burford Capital, a litigation funding company and a leading provider of legal finance.
Ari Kaplan: Tell us about your background and your role at Burford Capital.
David Perla: As the co-chief operating officer of Burford, I along with my business partner Aviva Will, oversee our origination, underwriting, marketing and global policy strategies. I also am charged with leading our innovation initiatives, which most notably include utilizing and enhancing our efforts around artificial intelligence. I spent the first 10 years of my career practicing in a law firm and in-house before moving to the business side of law. I co-founded Pangea3, which outsourced U.S. and European legal work to India, so I have expertise in both law and building innovative businesses, where law is the core of the business but the business itself is not in providing legal services.
Ari Kaplan: Over the past five years, during your tenure at Burford Capital, how has the impression of legal finance evolved?
David Perla: Since Burford’s founding 14 years ago, the impression of legal finance has moved from a niche offering for clients that were either suffering from fee fatigue or were working with law firms that wouldn’t or couldn’t offer contingency-fee-based work and, therefore, needed a partner in the capital world to being more mainstream and part of the conversation in the broader legal market. The other area in which the impression of legal finance has evolved and matured is the degree to which it engenders some level of controversy or concern. That has really dissipated, and legal finance has been embraced, not just in the U.S. but all over the world. We have a large team in Europe, with professionals all over Asia and Australasia, and obviously our foundation certainly is in the United States, although we are listed both in New York and in London. Overall, legal finance is now both more mainstream and significantly less controversial or contentious than it was.
Ari Kaplan: Are there business factors that are making legal finance more appealing?
David Perla: We think of legal finance as corporate finance for law. It is a way of using someone’s capital to enhance the business of a third party. There are various business factors that have enhanced its appeal. First, more people are aware of it. We are now nearly a decade-and-a-half old and are listed on both the New York Stock Exchange and the London Stock Exchange. That duration of the industry and the publicity it has received, mostly good but sometimes contentious, has led to more familiarity and understanding. Second, many corporations recognize that litigation is not their core business. So they are coming to Burford, not merely to provide capital but to help them quantify their claims, factor in the likely duration, and secure a trusted partner, the same way they have bankers and financial advisors. Of course, those individuals do not control their finances just as Burford does not control their claims. Still, we are close to our corporate clients helping them in their litigation and in pursuing redress for any wrongdoing. Third, today interest rates are significantly higher than they were even a year ago, and the average corporation is more interested in financing a lawsuit or monetizing a claim or award by using litigation assets to create liquidity and increase cash flow. CFOs are looking at this option more closely because relative to the cost of capital for corporations, it can be an efficient way to view a pool of assets.
Ari Kaplan: You were at the forefront of a new sector legal almost 20 years ago when you co-founded Pangea3. Do you see parallels to legal finance?
David Perla: I think [there are] a lot of parallels, but they are not intuitive. The first is that both industries were created by demand. Neither Burford in legal finance nor Pangea3 in legal outsourcing came about because people simply wanted to disrupt the market. There was demand first. My co-founder and I were both in-house and needed to get work done more efficiently, with few optimal choices. In addition, in both fields, the early growth happened behind the scenes. It was organic growth and expanded as the market began to understand the options. Both areas also experienced opposition from proponents of the status quo, who felt threatened by change. The penultimate development has been the mainstreaming of these sectors, which we are specifically seeing today with legal finance. It is behind outsourcing, which is now completely mainstream and not at all controversial. It is, in fact, ubiquitous, where many law firms have their own captive ALSPs. Despite its expansion, not every corporation has embraced legal finance or identified an appropriate use case.
Ari Kaplan: Burford recently released research on how the economy is affecting the way in-house lawyers view opportunities in affirmative litigation. What were your key takeaways from that new report?
David Perla: First, economic pressures are impacting how in-house counsel manage their costs, and many prefer cost-sharing solutions over cost-elimination options. A majority said that they [are] looking to closely collaborate with their outside counsel, including as partners to legal finance providers, to mitigate the impact of what is currently a very challenging and unpredictable economic environment. Second, while many reported that they are likely to implement cost-saving measures, more are looking to alleviate some of the risks, whether through a legal finance provider or contingency relationship with their law firms. Third, corporate legal teams are increasingly focused on earning a return from unenforced awards and judgments, which remain a substantial problem for businesses since they are claims they have litigated or arbitrated. After all, winning an award does not necessarily mean you get paid, which results in a massive amount of loss. As a result, early-stage decisions, such as jurisdiction and recovery potential, are major considerations. Cash is a crucial benefit for in-house lawyers, so our ability to support the enforcement and recovery of judgments has become much more important.
Ari Kaplan: Burford Capital funded long-standing claims against the government of Argentina, which resulted in a recent victory in the Southern District of New York. What aspects of that matter stood out?
David Perla: The results in the Petersen and Eton Park cases reflect a remarkable victory. The sheer quality of the team that litigated this on our behalf over the last eight years was exceptional, and several were honored as Litigators of the Week. This reinforces what we often say, which is that we support high-merit claims with the right team to pursue them. We really focus on putting together the right team at all phases of the case and augmenting the lead litigators. It was somewhat unique to this particular matter that we controlled the litigation as the owners of the claims, which we purchased out of a Spanish bankruptcy. It was such a comprehensive effort that nearly every division within our business was involved in this because of the degree to which the government of Argentina opposed the claims. The case took eight years and faced numerous obstacles, including whether it should be litigated in U.S. courts, and jurisdiction itself was litigated long before the merits, including a denial of cert by the Supreme Court years ago. It was also a complete victory against the Republic of Argentina, which you rarely see. In fact, the judge awarded the highest amount of money for which we asked, which is also uncommon. The entire case highlights that even when you are right and confident, with a talented team pursuing an excellent strategy, it takes a very long time.
Ari Kaplan: How important was the judge’s specific acknowledgment of Burford’s support of its clients in the decision?
David Perla: The judge’s acknowledgment was critical in two ways. First, she emphasized that we were simply providing corporate finance for law and highlighted that the need to fund such a complex matter justified giving the plaintiffs the full measure of their damages. It also confirmed that those seeking financing need to align with a partner who can go the distance, both in terms of capital and expertise. Burford never tired or wavered in its financial commitment, which was critical since the judge observed that the government of Argentina opposed every single element of each claim, with all of the means at the disposal of a sovereign. It is also important to note that Burford’s presence was always disclosed in this case and was a directing participant.
Ari Kaplan: How does your success in this matter highlight the manner in which Burford evaluates the cases in which it invests?
David Perla: Merit matters. There is a false narrative in the marketplace that some types of legal finance increase frivolous or low-merit litigation. This was one of the biggest cases in the history of the industry and resulted in what we believe to be the largest judgment ever rendered in a federal court. In addition, we won on every single issue against the Republic of Argentina. When we analyze a case, we evaluate the merits first because the matters to which Burford is uniquely suited tend to be extremely complicated.
Ari Kaplan: How do you see the use of legal finance evolving?
David Perla: We think of ourselves as an enabler for GCs and law firms engaged in litigation. I see legal finance moving into ubiquity, where CFOs, GCs and heads of litigation in any case that is complex and expensive will consider the use of financing. In addition, law firms, whether they are taking the case on a contingency basis or an hourly basis, will also be more likely to suggest financing or recommend that their clients consider it, particularly for complicated, long-duration, high-stakes matters.
Listen to the complete interview at Reinventing Professionals.
Ari Kaplan regularly interviews leaders in the legal industry and in the broader professional services community to share perspective, highlight transformative change and introduce new technology at his blog and on iTunes.
This column reflects the opinions of the author and not necessarily the views of the ABA Journal—or the American Bar Association.