Litigation Funders Flex Muscles in Washington, Keeping Lobbyists in Demand
U.S. Capitol building in Washington, D.C. Feb. 2019. Photo: Diego M. Radzinschi/ALM
As they amass ever-greater capital and legal market expertise, third-party litigation funders are facing a well-financed, heavily lawyered adversary of their own: the U.S. Chamber of Commerce, which wants to force disclosure of funding agreements in civil actions.
"The transparency argument is, frankly, a red herring," said Allison Chock, Bentham IMF's chief investment officer for the U.S. "Their true motivation, as stated in other venues, is to deter the use of litigation finance and gain an advantage for their largest donor-type clients."
While the Chamber of Commerce, through its U.S. Chamber Institute of Legal Reform, is advocating for changes to federal rules of civil procedure as well as federal legislation, the biggest players in the litigation finance industry are pushing back. Among their weapons are Washington, D.C., lobbyists working to make sure their voices are being heard on Capitol Hill.
Bentham IMF and Burford Capital, the two publicly traded litigation funders at the apex of the industry, are also at the lead when it comes to federal lobbying activity, likely because they have the most at stake.
Bentham started its Washington spending in 2015. The beneficiaries have been Wilmer Cutler Pickering Hale and Dorr, led by Jonathan Yarowsky, co-chair of the firm's public policy and legislative affairs practice, and lobbyist Ken Cunningham, former chief of staff and general counsel to Senate Judiciary Chair Charles Grassley.
Bentham spent $210,000 on federal lobbying in 2018, a decline from the last two years that's explained by the end of its engagement with Cunningham, who received just $10,000 in the first quarter. (While Cunningham's site is still active, he showed no other lobbying clients in 2018, and didn't respond to a request for comment.) The company has paid Wilmer at least $800,000 for federal lobbying efforts, records show.
"The goal is to educate congresspeople about what we do, how we do it and why the cute, pithy phrases about why we're terrible don't make sense," Chock said.
In February, Grassley joined several other Republican senators in introducing the Litigation Funding Transparency Act for the second year in a row. The measure, backed by the Chamber, would require disclosure of third-party litigation funding for class actions and multidistrict litigation within 10 days of a case being filed, or 10 days after the closure of a funding deal.
Burford started its own lobbying push in 2017, splitting $50,000 between the now-defunct Podesta Group and the Klein/Johnson Group. The latter entity, which received $200,000 from Burford in 2018, is a bipartisan operation whose Republican principal came from the Podesta Group and was previously Sen. John Cornyn's top aide. Cornyn is another sponsor of the LTFA.
Even though the bill has been introduced in two separate sessions, Chock at Bentham said that little is expected of it this year, with supporters unlikely to expend political capital in advancing the measure.
But the industry's lobbyists are also keeping an ear to the ground, making sure that the provisions sought by the chamber are not quietly attached as a rider to any other measure. And the funders are also finding other strategies to bolster their influence in Washington.
Earlier this year, Burford hired Danielle Cutrona, the former senior counselor to former U.S. Attorney General Jeff Sessions, as its director of global public policy. Cutrona, a former Skadden, Arps, Slate, Meagher & Flom lawyer who has also served as a senior lawyer for the Senate Judiciary Committee and the New Jersey legislature, is leading the firm's lobbying efforts at the federal and state levels, as well as around the globe. She registered as a lobbyist in Washington in January.
“While we always have been attuned to legislative or regulatory proposals that might affect our business model, the company has experienced extraordinary growth since its founding a decade ago and is now more akin to an investment bank for the business of law rather than a 'litigation funder,'" a Burford spokesperson said in a statement. "Given this exceptional track record, it is only natural that we would devote more resources to areas like public policy and others in anticipation of our continued expansion.”
Still, on a strictly dollars-and-cents level, both funders are substantially outgunned by the Chamber, which has spent no less than $21.5 million on federal lobbying for each of the last four years. That money does get spread on a wider array of issues, like opposing legislation aimed at curbing arbitration agreements and supporting measures aimed at making it harder for plaintiffs to bring civil claims. A spokesperson for the Chamber did not respond to a request for comment.
"We don’t have anywhere near the lobbying budget the Chamber has, but we feel that we have logic and righteousness on our side," Chock said, noting that Bentham is also investing in lobbying at the state level.
A Larger Battle
Another part of the fight is in the federal judiciary, where a group of 30 current and former top lawyers at major companies including Google, Verizon Wireless and AT&T Inc. have joined the Chamber in pushing a proposed amendment to Federal Rules of Civil Procedure 26(a)(1)(A) that would require the full disclosure of third-party funding agreements in civil actions.
They have argued that defendants and courts have a right to know who has a stake in a lawsuit and whether anyone is using unethical or illegal means to move the case forward.
Bentham and Burford, along with Therium Capital Management—another long-established litigation funder—have staked out a position on the opposite side. In a February joint letter to the Administrative Office of the United States Courts, which is considering the proposed changes, Chock, Cutrona and Therium U.S. CEO Eric Blinderman called the move a "PR stunt" by the chamber.
Like Chock, Blinderman asserts that the Chamber's efforts—both in the courts and at the federal level—are built on a number of false premises.
U.S. Chamber Institute for Legal Reform president Lisa Rickard has argued that litigation funding leads to more lawsuits and unnecessarily prolongs litigation, noting that a major funder told The Wall Street Journal in 2019, “We make it harder and more expensive to settle cases.”
"As a general rule, nobody is going to quarrel with reasoned and rational regulation that is designed to solve a real problem," Blinderman said, arguing that there's no evidence that litigation funding leads to an increase in frivolous claims.
"We underwrite on the fundamentals," he said, ticking off the likelihood of success on the merits, timing of recovery, quantum of recovery, and the judgment of the attorneys involved in funded matters.
"The moment you veer from that, you lose cases, you lose your investors' money, and you will no longer be able to survive as a funder," he added.
Blinderman also pushed back at the argument that undisclosed funders could take control over the litigation process, noting that this is prohibited by existing ethics rules and common law at the state level.
"That’s important, because it means that if we've violated these rules, anyone could challenge contacts, void those contracts and put us out of business," he said.
Blinderman and Chock both argue that the Chamber has different, unstated goals in pushing for disclosure: corporate defendants want to know how they can outlast their adversaries in court.
"If you are a deep-pocketed defendant and you know that litigation funding is on the other side, you can immediately engage in secondary and tertiary discovery requests," Blinderman said. "First you can increase costs, second, increase timing, and third, provide the defendant with an absolutely critical tactical advantage."
And the advantage goes two ways, Chock emphasized. In the event of a rules change, defendants would also gain from learning who doesn't have outside help from a third-party funder.
"If this smaller, midsized company doesn't have funder backing," she said, "I can make certain assumptions in how I can conduct myself in this litigation."
All cases are financed in some way or another, Chock added.
"Why it is relevant when it is a dedicated litigation finance company?" she asked. "Whether it's a bank loan, Uncle Joe or a contingency fee lawyer, it doesn’t make any sense logically why it would be any different."
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