Developments: Cash-Flow Woes
Plaintiffs firms feel the pinch — and try to borrow more.
The American Lawyer
By Claire Zillman
November 01, 2009
Lots of people are short on cash these days — and plaintiffs lawyers are no exception. Increasingly, they're turning to litigation finance firms to fund costly class actions.
"There's less access to traditional credit, so more people are pursuing legal funding," says Gary Chodes, chief executive officer of Oasis Legal Finance, LLC, a Northbrook, Illinois – based litigation finance firm. Applications for Oasis loans have jumped in the past year, Chodes says. In August 2008, the firm received 5,200 requests for funding; in August 2009, 6,100 requests.
Increased interest in legal funding has produced 10 percent year over year growth in lending at Advocate Capital, Inc., a financing firm in Nashville that caters to high-profit plaintiffs firms, says CEO Michael Swanson. A similar surge in applications has occurred over the last year at LawFinance Group, Inc., in San Francisco, says CEO Michael Blum.
But more requests for funding hasn't meant an increase in loans. All three litigation finance companies say they haven't altered their lending practices and, in fact, are rejecting a higher proportion of firms seeking to borrow. "As a percentage of applicants, the number of qualified firms has dropped," says LawFinance's Blum.
How is the cash squeeze affecting torts practice, the bread and butter of plaintiffs firms? Defense lawyers say that in general, plaintiffs firms are filing fewer cases. "There has not been the same number of mass torts filings that we experienced before the recession," says Dechert partner Diane Sullivan. (Statistics on new tort filings are hard to come by, but The Securities Class Action Clearinghouse at Stanford Law School reports that, through September 18, 129 securities fraud class actions had been filed in 2009, compared to a total of 177 in 2007 and 222 in 2008. The Joint Panel on Multidistrict Litigation received 11 product liability transfer proposals through August 2009, compared to 19 in 2008, and 15 in both 2007 and 2006.)
Sullivan also asserts that plaintiffs attorneys "have been more willing to settle at lower dollar amounts," although she declined to cite specific examples because of confidentiality agreements. "They're choosing cash now over investing in prolonged litigation," she says.
Plaintiffs attorneys dispute those claims, and say that the defense side is feeling the pinch too. "Cases are not settling at the logical point where they historically would have settled," says John "Sean" Coffey of Bernstein Litowitz Berger & Grossman. (He declined to give examples, citing attorney-client privilege.) Defendants and their insurers want to hold on to their cash, and some defense firms are trying to up their billable hours by delaying settlements, Coffey asserts.
Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein says she's noticed more "busywork phenomena" from defense firms over the past year. In several cases, Cabraser says, defense counsel used formal motions to raise minor discovery issues that were formerly resolved through stipulation. Some defense firms are "double- and triple-teaming" cases to keep their lawyers occupied, she adds.
Times are tough all over.
