Dan Fisher discusses how Ecuadorean villagers financed a pollution lawsuit against Chevron with money from a hedge fund, Burford Group.
This is yet another example of how lawyers are capitalizing and packaging their skills rather than just selling it by the hour to clients. Fisher discusses how the plaintiffs’ lawyer had gone through $6 million in financing from another lawyer when that deal blew up, sending the lawyer to a Cayman Islands firm associated with Burford. As Fisher notes, Burford is
a publicly traded company that specializes in financing corporate litigation. Burford is run by experienced corporate attorneys with blue-chip resumes — the chief executive Chris Bogart, is the former general counsel of Time Warner and directors include Geoffrey Hazard of the University of Pennsylvania Law School, considered the dean of U.S. legal ethics and civil procedure.
Plaintiffs get “up to $15 million” in financing. Burford gets 5.545% if the suit settles for a billion, and $55.5 million (less some payouts the original financier and other lawyers) before the villagers get anything. The client makes the final call on settlement, as the law requires, but the financier makes sure the villagers have a financial incentive not to give the lawsuit away. And the agreement has other agency cost controls: the client must cooperate with Burford’s lawyers, and, according to Fisher, “a lawyer from Patton Boggs, a Washington law firm with close ties to Burford, must remain in charge of the cash.”
Fisher has some interesting analysis of the agreement. He also discusses the controversy over litigation finance, and how common it is, from lawyer contingency fees to insurers taking over lawsuits after they’ve paid the claims.
My main interest here is not the contract or the controversy but seeing lawyers (or as I prefer to call them, legal information experts) all over the place. Not just in court, but as the original financier, then working for the hedge fund to analyze the case, then watching over the hedge fund’s agreement with the client.
Update: See also Roger Parloff’s “Have you got a piece of this lawsuit” in the (June 13) Fortune, p. 69. This article focuses on the problems of litigation funding illustrated by this case. Again, not my focus in this post.