In the unforgettable “Coming to America,” Eddie Murphy’s barbershop character Saul tells the timeless joke about the man who asks the waiter to taste his soup. Addressing each of the waiter’s questions about what’s wrong with the soup with “taste it,” the waiter finally relents and says, “OK — where’s the spoon?” “Aha!!!” says Saul, in probably the best retelling ever of this classic Borscht-belt joke.
It’s a great scene, reminding us that what we seek is often right in front of us, hiding in plain sight. Many pages here and in other publications are devoted to innovation and transformation, with contributors (present company included) agonizing over how to improve the legal industry. But we were recently reminded of how much is happening, for the better, in often overlooked ways, because they are less sexy, and aren’t associated with current buzzwords like artificial intelligence, blockchain, analytics, and the like.
Recently, we attended an event at Gerson Lehrman Group (GLG), where David serves as Senior Advisor to GLG’s expert witness group. The event was focused on litigation finance and highlighted three ways in which our industry is improving, but which are little discussed in tech and innovation circles: litigation finance, “alternative” dispute resolution (we’ll explain the quotes a bit later), and online dispute resolution.
People don’t necessarily associate litigation finance with legal innovation. But the GLG event, co-hosted by legal tech startup Priori Legal, highlighted how litigation finance offers litigants and law firms opportunities to enforce and defend their rights or those of their clients in ways that didn’t exist a decade ago. Litigation finance allows an underfunded plaintiff to enforce its rights, either in court or through another form of dispute resolution using the lawyer of its choice. Likewise, even for well-funded companies and individuals, litigation finance allows them to turn the pure uncertainty of litigation into manageable risk, and allows experts (i.e., the funders) to bear the costs and risks, freeing up litigants’ balance sheets. And because litigation financiers are themselves often experts at litigation, their advice can lead to better, faster, and cheaper outcomes for the litigants.
Litigation finance also allows litigants access to the best and most appropriate lawyers and firms, many of which are unable to take cases on contingency. In this way, it helps smaller parties access the best counsel, and allows firms to compete for cases where they can improve the outcome, but previously weren’t able to represent the client. Financing can also be utilized by defendants, although the process is somewhat more complicated than financing plaintiffs. Use of litigation finance is big and growing fast. Burford Capital, the largest specialty finance firm dedicated to the legal industry, has a market cap of over $3 billion, and committed over $1.3 billion to new investments in 2017. According to Aviva Will, Senior Managing Director in charge of Burford’s investment team, “Burford’s extraordinary growth over the nine years since our founding reflects significant pent-up demand for outside capital in the business of law, but it’s also built on our ongoing commitment to innovating products and solutions that address the real business needs of law firms and legal departments.”
Litigation finance also facilitates global recourse. We spoke with Dilip Massand of SAS Asset Recovery, based in Dubai. He noted: “In a global economy, litigation finance has served to allow parties in one jurisdiction to pursue their rights and remedies in other jurisdictions where they may not have confidence in the rule of law, or transparency into the legal process — not only in terms of finance, but also in terms of enforcement and collection of foreign judgments and arbitration awards. Ironically, this often leads to a negotiated settlement between the parties.”
Arbitration and mediation, aka “alternative” dispute resolution or ADR, are also dramatically improving both access to justice and outcomes. ADR offers various benefits, many of which are truly innovative. For one, it’s much faster than the court system. In law, time is money — so ADR is a cheaper way to settle disputes. It also offers the parties control because the parties pick the trier of fact — the “neutral.” In court, the parties end up with a randomly selected judge or unpredictable jury. As much we are delighted by the value provided by the various litigation analytics tools in the market today, they exist largely because of the disparity in outcome among judges and fora. Likewise, ADR facilitates risk management. Litigants can determine the parameters — including options such as high/low outcomes, in which each side agrees to a minimum and maximum award. This avoids runaway juries and eliminates uncertainty.
And it works. Litigants are voting with their feet and their wallets. According to Thomson Reuters’s Peer Monitor Index, litigation demand has been flat over the past decade. But ADR has grown by leaps and bounds over that same period. At NAM, one of the three largest ADR providers (along with AAA and JAMS), growth has been well into the double digits annually every year for the past decade, said Roy Israel, Founder, President and CEO.
We use quotes above because our good friend and fellow Above the Law columnist, Joe Borstein (now CRO at NAM), highlighted the absurdity of calling private forms of resolution “alternative.” He noted that in a capitalist society, the idea that running to courts (slow and getting slower, untrained in new technologies, and run by the government) is the expectation, and that going to trained industry experts to help resolve a dispute as an alternative is ridiculous.
Finally, online dispute resolution (ODR) takes ADR to the masses, offering technology-assisted resolution for consumers and small business disputes. We spoke with Colin Rule, founder of Modria, which began as eBay’s online dispute resolution platform, spun out into a legaltech startup, and was acquired by Tyler Technologies, a provider of tech systems to courts around the United States. ODR is now offered in many court systems for lower dollar value cases, usually under $25,000 — for things like property tax assessment disputes, landlord-tenant matters, etc. It’s often voluntary, but a growing number of courts are now requiring ODR prior to proceeding to a hearing on eligible civil cases.
ODR is usually a four-step process:
- Diagnosis: Software guides litigants through a series of structured questions, much like TurboTax.
- Negotiation: Software assists the parties in trying to negotiate a resolution. Many disputes end here, saving the courts (and taxpayers) money.
- Mediation: A third party helps facilitate a solution, expedited by technology that helps guide the mediator and parties towards market-tested resolution
- Evaluation: A third-party decision maker, likewise expedited by technology, renders a judgment, much like an arbitrator. Moreover, the technology can help draft the settlement agreement, and even the judgment. It’s cheaper, faster, and guides the parties to a market-benchmarked outcome. And for lovers of big data, the more cases that utilize ODR, the more the system can determine the appropriate outcome for common cases.
While it’s still early days using ODR in the courts, Rule believes that ODR can resolve 60-80% of eligible civil cases, in half the time of litigating in court. When Modria was independent, resolution time was radically lower than that: with e-commerce disputes reaching resolution in a week or less; property tax assessment appeals in 120 days (versus 13 months in the courts), and ADR disputes in three-to-five months (versus upwards of three years in the courts).
Obviously, these solutions aren’t universally applicable, or panaceas, but the scale and number of people already helped seems so far to deliver value that outweighs the newer, hotter technologies that we seem never to tire of writing about.
See Nate Silver’s excellent book, “The Signal and the Noise,” for a remarkably simple explanation of the difference between risk and uncertainty. Simply put, risk is calculable and manageable; uncertainty is not.
David Perla and Sanjay Kamlani are co-founders and managing directors of 1991 Group.