Litigation Finance and Your Career

On this 26 ^th  episode of Alternative Litigation Strategies, Kevin speaks with one of Certum’s Legal Directors, W. Tyler Perry, about leveraging litigation to advance your career – Here’s a summary: back when law was a profession and not a business, landing a job at an established firm reasonably set you up for a long and fruitful career.  Firms had institutional clients.  Lateral moves among stable firms were rare.  And partners cared about mentoring the next generation because the next generation would pay for their retirement.  Those halcyon days are long gone.  Today, even the most profitable and prestigious firms suffer defections as partners search for the highest guaranteed dollar.  The corollary effects of this reality are legion, but one of the more interesting ones is that it has substantively increased the need for associates to take ownership of their careers at an increasingly early stage.  In this changing ecosystem, if you want to succeed, you need to be an entrepreneur.  And litigation finance can help. 

This transcript has been lightly edited for grammar and clarity.

Kevin Skrzysowki:

Welcome to the 26th episode of Certum Group’s podcast, Alternative Litigation Strategies, where I interview with team members of the bar from top law firms, companies, and legal institutions across the country.

On this program, we discuss the latest legal trends and strategies across a wide spectrum of commercial litigation. I’m your host, Kevin Skrzysowki, a director with the litigation consulting firm Certum Group, where we specialize in working with businesses their outside counsel to mitigate cap and transfer litigation outcome risk.

Today is a first for the program because instead of interviewing someone from outside of the organization, I’ll be speaking with my colleague, Tyler Perry, who serves as one of our legal directors.

Hi, Tyler, and thank you so much for joining the program.

Tyler Perry:

Thanks so much for having me. Glad to be on the pod.

Kevin Skrzysowki:

Absolutely. By way of background for the audience, Tyler did his undergraduate studies at NYU, where he was president of his class. He then attended school, law school, at Northwestern’s Pritzker School of Law, where he was their law review notes editor.

Tyler went on to serve as a judicial clerk for the United States Court of Appeals for the Seventh Circuit. And then he worked as an attorney at Simpson Thacher & Bartlett and Reid Collins & Tsai, before joining Certum Group.

Tyler, as one of Certum Group’s legal directors, can you tell the audience what your job entails and what type of matters that you work on?

Tyler Perry:

Yeah, of course. So again, thank you for having me. I’m really glad to be here.

So as a legal director at Certum Group, I’m basically a part of the four person, or five person now, underwriting team. At 30,000 feet, that means I review cases to assess their merits and general value across all of our investment and insurance products. As a practical matter, that process looks like I read the briefs, I read the opinions, I review the law, and I analyze the facts.

For litigators, the best way to think of what I do is kind of like a clerkship. The key difference is instead of providing a recommendation to a judge, I provide a recommendation to our investment committee. If they like the risk, then we move forward with the term sheet and further diligence.

In areas that require kind of specialized knowledge like IP, I tend to work with outside counsel to assess the merits. But otherwise, I mostly shepherd cases through the underwriting process internally.

I also spend a little bit of time sourcing litigation within my network, but that’s a much smaller portion of my work.

About a year into the job, I can say it’s my favorite job I ever had because I get to spend all day thinking about the law without actually having to practice it.

Kevin Skrzysowki:

I think everybody here, the conventional wisdom would be that this is an outstanding alternative path for former litigators. I have to say, the underwriting team is a tremendous value to the infrastructure of the organization. I think our underwriting team is really second to none.

So you certainly have a very big job. But in addition to all of those responsibilities, you’re also a frequent author of blogs and articles for the organization. And today what I really wanted to focus on was your latest piece, which was Litigation Finance and Your Career. So what was it that prompted you to write this article?

Tyler Perry:

I’m at the stage of my career where everyone I know is either just about to make partner or has just made partner. And both groups of people are pretty focused on trying to build out a book of business and really justify their economic case to kind of rise up the ladder internally at their firms. I’m one of the few people from my graduating class who’s working in litigation finance, and as a result, people call me pretty frequently to spitball ideas.

And so the genesis of the article was really just a high-level summary of the conversations I’ve had with my friends about ways that litigation finance and insurance can help them in their careers.

Kevin Skrzysowki:

Yeah, I think that’s right. The same thing happens to me. I’ve had basically three different legal careers over the past 23 years, and I’m often sought out on LinkedIn and my old friends and friends of colleagues about how do you make the jump? What is the next great thing that somebody could do for an alternative legal career? So I can completely understand.

Now, you open your article by writing then that, “Back when the law was a profession and not a business, landing a job in an established law firm sets you up for a very long and fruitful career. But those halcyon days are long gone.”

Just curious what exactly you mean by that. And what have you observed as the practice of law, or more importantly perhaps I should say, the business of the practice of law has changed over the years?

Tyler Perry:

I appreciate you flagging that particular opening sentence. I was pretty proud of it. It’s basically a reference to a pre-2008 world of high-end litigation services that was honestly before my time, but still kind of exists in the general memory of the industry as a whole.

In practical terms, it refers to a period of time when you could really just focus on being a hardworking and competent lawyer, and reasonably expect that you would progress through the ranks of your firm from associate to junior partner to senior partner without really having to kind of take the reins and really guide your own career yourself. You could reasonably expect that eventually one of the senior partners would retire and you would step up and assume their book of business, and things would kind of move along that path in the way it had for generations.

At least in litigation, those days are pretty much gone. Today we see lawyers command 20 plus million a year. And they have a real clear financial incentive to chase the highest guaranteed dollar by changing firms whenever the opportunity arises.

So has naturally increased the number of lateral moves. The increase in lateral moves has caused massive changes in law firm culture, as the top firms move from general lockstep firms to more eat-what-you-kill models. And the deep and long-term mentoring relationships that used to last generations are increasingly replaced by more transactional relationships.

At the same time, there have been shifts on the clients are becoming increasingly sensitive to costs, and are willing to farm out work to a wider array of firms, particularly for less sensitive work like third-party subpoenas and things of that nature.

The effect of this is really fascinating and the effects are really numerous. But the long and the short of it is that today you can’t just be a good, hardworking lawyer and expect to succeed. You need an edge. And having clients and a consistent revenue stream is really the best edge you can have.

Kevin Skrzysowki:

I think you make a lot of really valid points, and I think that 2008 was exactly the year where we saw a diametrical shift in the practice of law, especially in big law. I think the Great Recession caused a new normal, a tightening of the belt from in-house counsel on the buy side, and a much more competitive cutthroat environment on the sell side, especially among the large Am Law 200 firms.

And so I think that is a lot of the impetus for folks trying to pursue alternative litigation careers, like you and I or our colleagues have, in litigation insurance and litigation funding.

Now, in your article you went on to state that, you mentioned that the ever-changing ecosystem requires young lawyers to be entrepreneurs. And litigation finance can help in three specific ways that you identified, and I’d like to go through them.

You start by saying that, “It can help assist early stage companies in pursuing meritorious litigation they cannot independently afford.” I mean, how litigation finance can help these companies seems very obvious to somebody who practices in this area, if you will, every day. But for the audience who is unfamiliar or for the younger audience or perhaps some of our listeners who are still at law school and are thinking about practice of law or an alternative to the practice of law, can you explain what you mean by that, and maybe take us through perhaps a brief overview of litigation finance 101?

Tyler Perry:

Yeah, happy to. So at its core, litigation finance is predicated on the idea that litigation is an asset and it has a predictable value. While that might sound like a bit of an odd concept to lawyers who are used to billing by the hour, it’s pretty well accepted in the plaintiff space, which is where I was first exposed to it.

And as you mentioned in the introduction, I started my career in private practice as a defense lawyer at Simpson Thacher, but I quickly moved to the plaintiff space, initially at Pierce Bainbridge, and then later at Reed Collins. At both firms, I saw how senior lawyers decided whether or not to take a case out of contingency. I saw what worked. And more importantly and somewhat more dramatically, I saw what did not work.

And basically through that process, I learned what to look for in deciding whether a particular case has value. And those things really boil down to three things. One, our damage is high. Two, is liability strong? And three, can we collect on any judgment?

So kind of taking a step back and turning to your initial question, the short answer is that I can look at a lawyer’s book of cases, particularly on the plaintiff’s side, and determine its expected value, and then loan money against that expected value. In terms of kind of a practical understanding, it’s no different than a commercial bank making a loan to a small business based on future receivables. We’re just dealing with a more specialized and niche product.

Kevin Skrzysowki:

And then how specifically, what are the opportunities exactly when you’re working with startup companies? Explain some of the challenges they face where they might have affirmative claims against other businesses, but they’re in their infancy stages or in their capital raising stages. And how does litigation finance help them, could you give us an example, help them to pursue that? What would an example of a model look like?

Tyler Perry:

Yeah, sure. So one of the more interesting models that we see with a certain degree of regularity is in the IP space with early stage venture companies. So basically we see companies that come along that own a very valuable piece of IP, but they haven’t created an operating business yet that generates money on a regular basis that could be used to pay for lawyers.

So what we tend to see is that those companies have their patents violated by a lot of the big players. And the big players basically just make economic… or they conduct an economic analysis and determine that they’re not going to pay for any of the licensing that they would otherwise pay for because they can reasonably assume that the people who own the patents aren’t going to come after them.

Litigation finance kind of can level that playing field. We can assess the value of a patent, come up with an understanding of what the licensing might look like and what damages might look like if we pursue the case to trial. So that kind of an asset is the kind of thing that can drive litigation, particularly for early-stage venture-backed companies.

Kevin Skrzysowki:

So in essence, basically we’re financing the litigation, helping them monetize their affirmative litigation asset, in exchange for a payout on the backend that would come back to the litigation firm.

Tyler Perry:

That’s exactly right. And that can really be anything from a breach of contract claim to an eminent domain claim to IP. It really runs the gamut. But we tend to see it primarily in the IP space, although we are hopeful that we’ll see more in kind of a more broad array of places.

Kevin Skrzysowki:

And of course, to the overarching thesis of the article, that really assists with younger lawyers. Because the older lawyers have the established books of business, they have their institutional clients. So really what you’re saying is, you’re imploring the younger generation, “Look for the smaller businesses. Look for the startups that don’t have established institutional counsel.” And you can also recommend litigation funding as a river in your litigation toolkit to help to bring in business and to help the client.

Tyler Perry:

That’s exactly right. You’re much more likely to know the founder of a small business than you are to know someone who can pay $1,500 an hour for you in terms of your [inaudible 00:11:01].

Kevin Skrzysowki:

Yeah. Excellent point. Second point you make is to work to, “Assist your clients to identify and pursue meritorious claims.” I find this interesting because mostly if you’re working at a large law firm, you’re only doing defense-side work. So explain how practice has evolved at defense firms to possibly develop these contingent fee firms, and how you can look to identify and pursue meritorious claims when you’re working with very established clients.

Tyler Perry:

Yeah. So your question kind of touches on a really interesting change that’s happened in the industry over the last 20, but really in the last 10 years where it’s really, really taken off. So in short, the firms that used to look down on plaintiff work now recognize that contingency practices can be set up in a way that provides relatively predictable returns with huge potential upside. Quinn, Susman, and Boies Schiller were early adopters in the space, but increasingly we’re seeing blue chip Wall Street firms getting into this space as well.

But getting back to your initial question, assuming your firm has embraced contingent fee litigation, you have a unique opportunity to kind of utilize firm researchers to be an entrepreneur. As I mentioned in the article, the best way to do this is to think like a plaintiff lawyer. In their best form, plaintiff lawyers are people who seek to remedy clear and concrete legal harms in their communities through the courts. But they do it through a pretty routinized, straightforward process that can be recreated by most lawyers.

So first, they start by being a concerted active citizen. They basically read the news, they follow the developments of the law, and they look for emergent issues in our society. Second, once they found a concrete harm, they analyze whether that harm is compensable, whether those damages justify pursuing the case, and whether the defendant can pay. And finally and most importantly, they determine whether a judge or jury is likely to find that liability attaches to the defendant in the case.

But regardless of the actual process, good plaintiff lawyers are basically focusing on doing good while doing well. And if you try to live by that motto, you can find cases. And I think one of the cases that my old firm Collins brought kind of lays this out in a really helpful way. So the case I’m thinking about is in re Renren, which was in the commercial division of the New York Supreme Court, and basically it was resolved a couple of years ago.

But at a high level, the genesis of the case was pretty simple. The firm noticed that a Facebook clone called Renren had gone public in the United States. Following its IPO, its operating business dried up. But it successfully shifted into being, in essence, a venture capital firm. As part of that transition, it developed a significant position in a loan refinancing business called SoFi.

Over time, that stake became incredibly valuable. And Renren’s management decided they wanted to capture that value without adequately compensating the average investor in Renren by spinning off the business at a fraction of its actual value. Long story short, that litigation led to a $300 million direct pay settlement.

But the key thing to note is that the genesis of the litigation was simple. The firm and its partners saw a concrete risk in which retail investors were damages. Were damaged, rather. And they sought to rectify that harm. There was obviously legal risk throughout the process and some really tricky legal issues, particularly relating to jurisdiction. But the firm had a strong legal and factual basis to pursue the claim. They saw harm, and they thought of a way to redress it.

That’s really how I would think about this. I would look for concrete societal harms, and then kind of work backwards from there. And that’s how plaintiff lawyers think, and that’s how people who are at defense firms who want to do contingency fee work should think as well.

Kevin Skrzysowki:

I think that is really great and insightful guidance and advice really to just be alert, be aware, stay informed, be vigilant.

Tyler Perry:

Yeah. That’s exactly right. And don’t underestimate the value of the news. There is tons and tons of investigative journalism out there that leads to new cases all the time, and it’s really great when someone else does the work for you.

Kevin Skrzysowki:

Yeah. Then there certainly is no shortage of a 24-hour news cycle days. So there’s plenty of valuable golden nuggets and information that lawyers could latch onto to be entrepreneurial to try to execute a plaintiff’s or a contingent fee strategy.

Now, the last point that you make in your article, and I think this is really the ultimate entrepreneurial endeavor for a young person to possibly consider, would be starting your own law firm.

What trends are we seeing in terms of senior associates, and not equity partners, leaving their law firms? And also just what are you seeing in terms of younger lawyers forming their own firms very early in their careers?

Tyler Perry:

So this question really gets back to some of the big structural changes that we talked about at the beginning of our conversation. Lots of firms are extending the runway to equity partner by huge periods of time. 10 years is not uncommon. 15 years is something that I’ve heard with a disturbing level of frequency.

Kevin Skrzysowki:

I mean, we never used to have that. I mean, normally it was if you don’t make partner in five to seven years, it’s time to move on.

Tyler Perry:

Yeah. It was eight years. And the eight years was like, if you made it, you made it, and if you didn’t, well, too bad, you’ve got to go someplace else. Now people just stick around for very long periods of time being led along, promised partnership, but it doesn’t really materialize with the level of frequency that is promised.

And so what this does is essentially creates an artificial ceiling on the career of young lawyers, and it really frustrates the next generation of litigators. And so what we’ve seen is that ambitious and smart lawyers have decided to take the ultimate risk and hang up their own shinball.

And the logic behind the decision is extremely simple. Big law is no longer a guarantee of stability, and there is huge upside, both personally and professionally if executed successfully. You can make really good money and be your own boss, which at least to me is significantly more appealing than billing anonymously by the hour.

Kevin Skrzysowki:

Very risky, but it could be the ultimate risk-reward opportunity that a young lawyer does actually embrace.

So let me ask you, we’ve been talking about litigation funding and how to embrace litigation funding to go to a practice. And normally around case centric matters. How can litigation funding be leveraged to help a young lawyer build out a new law firm?

Tyler Perry:

So this gets back to my earlier point about litigation being an asset against which loans can be made. If a lawyer has a book of business, whether in the form of hourly clients, contingent cases, or a mix of the two, we can basically predict those cash flows and lend money accordingly.

As a practical matter, I think the most desirable model is something like 70% billable and 30% contingent, which is what some of the really successful firms like Quinn Emanuel have generally tried to do over time. But I’ve seen extremely successful firms that are a hundred percent contingent. So the ultimate mix of business is not particularly determinative of the ability to loan.

One of the more interesting types ventures that I’ve seen recently is the idea of a thesis driven plaintiff shop. The basic deal structure is pretty simple. Certum comes in as a venture funder, providing seed capital in exchange a share of future returns. In terms of specifics, we’ve seen situations in which a single high-value litigation has served as collateral for a new law firm, but that’s increasingly disfavored.

What we’re generally seeing now is basically a situation in which a lawyer has a thesis that that has been tested by basically surviving a motion to dismiss, and then can be recreated against additional defendants over a number of cases and jurisdictions. And that’s a really interesting kind of fascinating new immersion thing that we’re seeing.

But at the end of the day, these campaigns can be individual suits, class actions, or MDLs. They really run the gamut. The key thing is that we need to see of a meritorious case with large damages.

Kevin Skrzysowki:

So for new law firms out there or people thinking of leaving their firm to start a new law firm and they’re bringing a book of business with them, if you have a solid thesis that has been successful, or if you have a diversified non-correlated book of business, by all means reach out to Certum Group. We’re interested in having a conversation with you about providing that seed capital to grow that firm.

This has all been really great, Tyler. Before we wrap up, just generally speaking, any guidance or advice you would give to a young lawyer these days or a student in law school looking to pursue a career in law?

Tyler Perry:

Yeah, there are a couple of things that my judge told me when I was clerking that have kind of really stuck with me.

First, be a generalist and learn as much as you can as quickly as you can. Don’t be afraid to take on assignments that are outside of your comfort zone because it’s those assignments that are really going to teach you the most, and where you’re going to grow and become the best lawyer you possibly can be.

And second and kind of more importantly, don’t forget that law is fundamentally a people business. After your third or fourth year, your network is how you’re going to get work. So go to reunions, meet former colleagues for coffee and stay in touch. You really have no idea who’s going to send you work down the road.

Kevin Skrzysowki:

Your network is where you’re going to get work. I love that. I haven’t heard that one before.

Well, Tyler, thank you so much for being on the program. I think you provided some really great guidance and advice that should be of great interest to all of our younger listeners and all of our listeners who are still in law school. And I just really want to thank you for being on the program.

Tyler Perry:

Well, thank you for making the time. Really love to talk to you.

Kevin Skrzysowki:

Yeah. Absolutely.

And of course, as always, I want to thank the audience for listening. If you’d like to hear more, please be sure to follow us on Apple, Spotify, Stitcher, or anywhere you listen to your favorite podcast. And if you would like to learn more about any of the litigation insurance and funding solutions that Certum Group provides, please visit our website at www.certumgroup.com, and you can always reach me at kevins@certumgroup.com.

Thanks again, and until next time.

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