Reimagining the Partnership Track with Litigation Finance

litigation finance

The start of the year means a new crop of partners must now adjust to life on the inside of their law firm partnership. As a junior partner at an AmLaw 10 firm once quipped to me before embarking on my own legal career, “You make less money and you work more hours,” when you transition from associate to partner. It is not exactly the bargain most associates signed up for when joining the partnership track. Breaking that cycle requires new partners to do something not required of associates: build a book of business and generate revenue for the firm.

For law firms, the pandemic has made more urgent the need to support not only junior partners but also associates and counsel in business development. Associate unhappiness and attrition are at record levels. More money is not solving the turnover crisis. Instead, younger lawyers want greater control over their time and career. One of the most effective ways to achieve that is to build a book of business and have your own clients. This is a lesson mid-sized firms learned long ago and are highlighting as a tactic to recruit lawyers from Big Law.

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The Challenge for New Partners

Strategies abound for engaging in successful business development:

  • Participate in state and local bar associations.
  • Keep up with college and law school classmates, who may go in-house or start a business.
  • Become a thought leader in your practice area.
  • Work closely with a senior partner who will pass down existing clients to you.

Regardless of strategy, one recurring challenge is finding clients willing and able to afford a law firm’s rates. Most clients do not start out as Fortune 100 companies. They are more likely to be mid-market, small, and startup companies or entrepreneurs or investors. Such would-be clients may suffer sticker shock from a junior partner’s rate or be unwilling or unable to pay what it costs to see litigation through to the end.

Relatedly, a firm may not be willing to take a case on pure contingency. While Big Law may be slowly opening to taking matters on contingency, resistance to full contingency arrangements remains. Small or medium-sized matters can be difficult to get through a firm’s contingency committee because the upside is not worth the risk for the firm. Even if a matter is on full contingency, a client may be unable to pay for out-of-pocket costs like experts, depositions or travel.

Smith-Alsobrook & Associates

All of this leaves junior partners in an unenviable position. They need to build a book of business but the structural dynamics of law firms and cost of litigation can make that process difficult. One tool that can help break this logjam is commercial litigation finance.

How Litigation Finance Can Help

In a typical financing arrangement, the law firm will partially discount its fees in exchange for a success fee at the end of the litigation, dispelling (some) sticker shock. The funder pays the attorneys fees’ and costs, making the junior partner affordable for the would-be client. The financing is non-recourse, so the would-be client only repays the funder (and pays the success fee to the law firm) if the litigation resolves favorably. The junior partner, in turn, immediately brings in business with no collections risk because the funder is paying the bills. And, if the junior partners achieve a successful outcome, the success fee will exceed her full rack-rate fees, entitling her to more origination credit and generating enhanced revenue for the partnership.

Commercial litigation finance continues to gain acceptance in the United States. There is now more than $11 billon invested in the U.S. commercial litigation finance market. A recent Bloomberg survey found that lawyers who have used or are interested in using litigation finance are developing more positive opinions about funding. And courts continue to conclude that litigation funding agreements and associated materials are not subject to discovery.

Re-thinking How Law Firms Do Business

If the pandemic has taught law firms one thing, it is the value of an open mind. Before the pandemic, it was hard to imagine law firms moving away from an in-office culture. Now, 74 of the top 100 law firms in the United States are permitting associates to work from home. Partners have adopted and adapted to new technologies that make law firms more efficient, from videoconferencing to online collaboration tools. These changes have been accompanied by record revenue and profits for law firms.

All of this makes now an opportune moment for junior partners and law firms to experiment with using commercial litigation finance as a business development — and associate retention — tool. It is not a silver bullet by any means. Some disputes are not a good fit for litigation financing, for example, if the cost of litigating is too high relative to the likely resolution value. But litigation funding can be an important tool to help lawyers build a book of business and thereby take control of their schedules, provide new revenue streams for their firms, and make law firm partnership a more attractive career path for more lawyers.

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