William P. Farrell, Jr. ’93 J.D.
Over the course of his 20 years in commercial litigation, William P. Farrell, Jr. repeatedly heard the same questions from his corporate clients. How much would it cost to bring this case and how would they be billed?
Farrell’s law firms operated under the typical billable hour model, but he understood that his clients wanted alternatives. As a savvy businessman he also knew that it would be in his firm’s best interest to satisfy the client’s desire for options to the billable hour model; options that created a better alignment of interest between a corporate client and its law firm.
“Many times I encountered situations where companies were considering more than one law firm to pursue an affirmative legal claim and clearly cost was one of the considerations,” says Farrell.
Following a specific client request during a 2009 case, Farrell was introduced to the idea of litigation financing. After studying the concept and analyzing its business model, he realized it was not only a sound idea for his client, it was where commercial litigation was headed.
“I first learned about this financing concept from some companies that were based in the United Kingdom,” Farrell explains. “The model enables a corporate plaintiff to utilize nonrecourse financing from a third party to fund the costs associated with bringing a meritorious legal claim. It allows a client to avoid the high costs of litigation without forgoing a meritorious legal claim – something every general counsel would prefer. I found the concept to be very attractive and was convinced that I could use such an option both with existing clients and in business development.”
Farrell became so enamored of the idea of litigation finance that he began discussing it as a business venture with the colleagues who now serve as his partners. In January 2013, they began operations as Longford Capital, a private equity-style litigation finance company.
Litigation financing companies provide capital to pay for a corporate plaintiff’s legal fees and associated expenses. These are not loans but equity financing. If the case is resolved successfully Longford recovers its investment and a portion of the settlement or judgment as its fee. If the case is unsuccessful however, the clients do not have to repay them.
Such a system may cause one to ponder how Longford can afford such risk. But Farrell is enthusiastic about discussing the merits of litigation finance.
“Litigation finance is a winning proposition for corporate plaintiffs, the law firms that represent them, and the investors that back them,” Farrell explains. “Companies transfer the costs of pursuing a meritorious legal claim and law firms satisfy client demands while working on winning cases. We also studied the rationale behind the investors that back these funds. Investors look for products that are uncorrelated to other investment opportunities. For example, when the stock market fluctuates up and down, most every stock follows that trend to some degree. But the outcomes of litigation are unaffected by stock market volatility. Similarly, a financial crisis in the Middle East doesn’t really affect the outcome of commercial litigation pending in the District Court in Chicago.”
To ensure the best possible return on investment, Farrell and his partners have developed a complicated underwriting process. They bring a combined 35 years of experience in commercial litigation to bear when studying the various aspects of a case in order to determine the probability of success.
“As Notre Dame lawyers we are taught that justice should be achieved based upon the merits of the case and not the economic wherewithal of the litigants,” Farrell says. “Litigation finance levels the playing field for all litigants by removing economic ability from the equation. A small company or one strapped by a tight budget doesn’t have to succumb to a larger or better-financed company. I’m proud of the fact that we are able to help in that way.”