David Sergenian, left, and John Pierce, right, of Pierce Sergenian. (Courtesy photo)
In what may be the first public example of a litigation funder investing in a law firm’s portfolio of contingent fee cases, Los Angeles-based litigation boutique Pierce Sergenian unveiled Wednesday a tie-up with Scottsdale, Arizona-based litigation financier Pravati Capital.
The move by Pierce Sergenian, formed in January by two former Quinn Emanuel Urquhart & Sullivan litigators, will see Pravati fund a spate of current and future contingency fee cases that the upstart firm has against some of the largest companies—and their high-powered defense lawyers—in the country.
In return, Pierce Sergenian will send to Pravati a cut of any potential damages awards it obtains for its clients. The litigation finance industry has talked much about its desire to do such deals, and Burford Capital LLC, the world’s largest litigation funder, has said that it provided $100 million and $50 million, respectively, to two unnamed firms.
The deal is also an example of how litigation finance may change the prevailing law firm business model by lowering the cost and risk associated with launching a new firm to take plaintiff-side cases on contingency, or to entice traditional defense firms to take more cases on the other side of the “v.”
Pierce Sergenian and Pravati Capital did not announce the size of the investment, but John Pierce, a co-founder of the firm, said the deal was backed by the firm’s current contingent fee cases and could be expanded in “tranches” to include future matters. Pravati Capital will provide money on an as-needed basis, the firm’s announcement said.
“As a young firm, a deal like this is great because it ensures that we can take the biggest litigations on the plaintiff side all the way through trial against the biggest law firms in the world and win,” said Pierce, a former partner at Quinn Emanuel and Latham & Watkins who has sought to quickly expand his new firm. Pierce also briefly served as the co-head of litigation at K&L Gates, leaving that firm last year.
Pierce Sergenian has made bold claims in its few months of existence. Pierce said he “intends to be the next global litigation force in the spirit of our alma mater, Quinn Emanuel.” That vision may be a long way off, considering the firm’s current roster contains just seven lawyers, but Pierce Sergenian has nonetheless made headlines breaking out of the gate.
In March, the firm hired Darin Beffa, a litigation partner at Kirkland & Ellis, and Joseph Ashby, previously of counsel at Quinn Emanuel. Pierce Sergenian states that it is currently litigating a number of “nine-figure” contingent fee cases. The firm is currently battling Snap Inc., the parent of popular social media app Snapchat, in a suit brought by a former employee who claims the Venice, California-based company misled investors about user metrics in an effort to inflate its valuation before going public.
Pierce Sergenian is also handling a trade secrets case, Calendar Research v. Michael Hunter Gray, in Los Angeles Superior Court. And it has brought a federal trademark infringement suit on behalf of 3D-printer manufacturer NextEngine Inc. against Bigfoot Ventures Ltd., a Hong Kong-based investment company.
Pierce said Pravati Capital approached his firm after its founding to discuss the potential of funding. Alexander Chucri, Pravati’s CEO, said his firm typically does not fund “early-stage firms,” but he was impressed by the lawyers at Pierce Sergenian.
“A lot of times when you meet law firms, you don’t fully understand the nature of the firm,” Chucri said. “But this firm was fresh, new and you could see the clear direction they were going. And we wanted to be part of that firm because of its leading-edge approach.”
Investing in a law firm on the basis of seeking a return from a portfolio of cases continues to grow in popularity, said Chucri, who has been in the litigation funding industry for more than 15 years. He said the cost of capital is lower for law firms and clients when a funder invests in a portfolio of cases rather than a one-off case. And funders are attracted by it as a way to mitigate the high level of risk involved in typical litigation finance—the chance that a funder will be out all of the money it puts into a case.
Large defense-side firms may also approach a case differently when it is brought by a firm known to be financially backed by a litigation funder. That was one consideration Pierce said he did not consider when doing the deal.
“We like to think if we show up on the other side of a pleading, the defense side will be sufficiently concerned regardless,” Pierce said. “From our standpoint, this is good from a client development standpoint. This will leave no doubt that we’re able to handle any commercial claim no matter how big it is or how long it will take and take it to the finish line.”
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