The General Counsel of an American commercial enterprise has to be an exceptional multi-tasker to cost effectively manage a business unit that is typically perceived as an expense center. He or she first must manage the company’s legal compliance and risk management programs to prevent the company from running afoul of legal or regulatory obligations. In the current regulatory environment these are important expense items which are growing and recurrent. When the company is the target of a lawsuit or regulatory proceeding the general counsel will have to manage the process of defending and resolving those issues. While episodic, the defense and settlement costs of these actions are significant and often difficult to predict both as to amount and timing. Discharging these high stakes responsibilities effectively and managing a reasonable and predictable budget to fund their cost is a challenge.
Against this backdrop it is not surprising that, when presented with a decision of whether to incur the cost and risk of pursuing a large commercial case as the plaintiff, the General Counsel needs to be cautious in prioritizing the allocation of his budget, particularly if the dispute is not essential to the core business of the company. While the prosecution of such a case might have the potential to recover tens of millions of dollars several years into the future, it presents the risk of a possible loss and the certainty of annual expense of several million dollars until the case is resolved. The balance of the cost, time commitment and uncertainty often weigh against pursuing the litigation.
Claim Based Funding provided by Themis Legal Capital can dramatically change the General Counsel’s calculus about whether to pursue a commercial plaintiff case. First, when Themis is offered an opportunity to evaluate the potential case, it will conduct independent due diligence and provide an objective independent opinion on the merits, damages and collectability of the case. That second opinion relieves a significant burden from the General Counsel in the evaluation process. Second, if the due diligence establishes that the case is sufficiently strong on the merits to fund, Themis will collaborate with the company’s preferred litigation counsel to structure a financing package that will relieve the company, and the General Counsel’s budget, from bearing the on-going income statement expense to finance the prosecution of the case. Because Themis’ funding is non-recourse the company has no risk if the case is unsuccessful.
The real dividend for the General Counsel comes when the case is won and the company is able to negotiate a settlement resulting in a substantial case recovery. Without having borne the risk of loss or the current expense of the prosecution, the General Counsel will have generated significant revenue to the company and as a bonus will have enhanced the deterrent against future transgressions against the company with the win. One such victory will subsidize the General Counsel’s budget. A series of such wins has the potential to fully fund the General Counsel’s budget and return dividends to the company.
Once the benefit of claim based funding on a case by case basis is understood, the broader possibilities present themselves. For a company that already has a portfolio of plaintiff cases that it is self-funding or funding with contingent fee firms, Themis can provide funding in the form of an advance against the future recoveries from that portfolio. That advance can often fund more than the out of pocket costs of the on-going cases. Depending upon the strength of the cases in the portfolio and the size of the potential recovery pool, Claim Based Funding can potentially fund or subsidize the General Counsel’s budgets for defending other cases and regulatory proceedings and for general compliance work. With Themis’ funding, the General Counsel may be in a position to transform his or her office from an expense center to an internally-funded profit center for the company.
At Themis we understand that it may take some time before companies realize how powerful a tool Claim Based Funding can be to finance their legal budgets. But as awareness of the utility of Claim Based Funding grows we are confident that more of these opportunities will be identified.
