In Erin Brockovich, trial lawyer Ed Masry has a crisis of confidence as he considers the risks involved in the massive toxic tort case at the heart of the film. “I don’t know if I can pull this off,” Masry tells Brockovich. “This is a monster case. … It’s taking time, manpower; money’s going out, nothing’s coming in. I’m going to have to take a second mortgage on the house.”
While Bentham IMF funds complex commercial litigation and not toxic torts like the one depicted in the movie, Masry’s complaint illustrates a problem that frequently arises in large, affirmative cases: running out of the capital needed to adequately pursue the claims. Discovery, motion practice, and myriad other uncertainties inherent in litigation invariably stretch the timeline and financially hobble the participants – especially on the plaintiff side. When the resources are depleted, the claimant may be forced to accept a settlement that is not tied to the merits, and thus, far less than they anticipated. In some instances, they may be forced to drop the case altogether.
This is where litigation finance proves useful. It provides litigants and lawyers access to capital to pursue meritorious litigation where there is a substantial chance of a positive outcome. In exchange, the funder receives a return, usually via a multiple of its investment or a percentage of the recovery. Financing is non-recourse, which means that the funder receives a return on its investment only in the event the litigation is successful (by settlement or otherwise).
Bentham also allows firms and enterprises with several meritorious claims to bundle them into portfolios, a solution that can accelerate the receipt of capital based on the pool of expected recoveries. Like bank financing (albeit non-recourse), a portfolio scenario allows a law firm or company to immediately leverage their litigation assets to help cover operating expenses or add resources to take on other profit-generating matters.
Take, for instance, Raymond Boucher, a trial lawyer best known for his role in securing a $660 million settlement on behalf of California clergy-abuse victims. After Bentham invested several million dollars in a portfolio of cases he was litigating, Boucher used the funding to start up his own litigation boutique, Boucher LLP, as well as to finance the litigation.
Law firms aren’t the only ones who can use an investment from a funder to finance operations. Bentham has provided working capital to companies during the course of litigation. Such funding creates the breathing room necessary to stabilize a business while a case is pending—often for many years.
Funding also allows larger, well-capitalized enterprises to pursue claims without the financial drawbacks that accompany litigation. Accounting rules force companies to recognize litigation expenses as soon as they occur, while proceeds from a recovery are non-recurring, exceptional items that are recorded below the EBITDA line (the “line” being gross profits). Litigation financing allows the company to excise legal expenses from its income statement and to record a portion of its expected litigation proceeds as regular revenue far in advance of any potential recovery.
In all cases, an influx of capital from a funder like Bentham IMF allows claimants to retain the best-possible attorneys and experts for their case – a move that can further help to maximize a potential recovery. Low settlement offers can be resisted, as the funder provides the wherewithal to absorb legal expenses throughout the litigation so that the case can be tried on its merits. For smaller companies, the ability to level the playing field can also serve to deter delay tactics by opponents and may provide incentives for those opponents to come to the table with reasonable settlement offers.
Complex commercial litigation is inherently unpredictable and risky, and Bentham cannot guarantee any result. But the value proposition of providing the financial resources needed to help companies maximize litigation recoveries is compelling. It’s just the kind of happy ending one might see on the big screen.