In the latest episode of the Alternative Litigation Strategy Podcast, I had a fascinating discussion with Professor Tom Baker and Lecturer in Law, Will Marra, about their litigation finance course at the Penn Carey Law School. We explored the history, economics, business practice, law, and social implications of this burgeoning field. We discussed this new asset-class of investor backed litigation finance offered on a non-recourse basis which is transforming law firm behavior and client relationships. Tom and Will stressed the importance of how the course weaves in lessons and experiences of the financial pressures of practicing law and how lawyers must work to not only meet the legal objectives of their clients, but their business and financial objectives as well. Lastly, we discussed the importance of considering liability, damages and collectability when taking on a case and the critical importance of merging ones understanding of the business of law with the practice of law.
This transcript has been lightly edited for grammar and clarity.
Kevin Skrzysowki:
Welcome to the 28th episode of Certum Group’s podcast, Alternative Litigation Strategies, where I interview esteemed members of the bar from the top law firms, companies and academic institutions across the country. On this program, we discuss the latest litigation trends, strategies, technological and academic developments across the litigation marketplace. I’m your host, Kevin Skrzysowki, a Director with the litigation consulting firm, Certum Group, where we specialize in working with businesses and their outside counsel to mitigate cap and transfer litigation outcome risk through our suite of litigation finance and insurance solutions.
I would like to note that just last week, social media aggregator and ranking organization Feed Spot, named this program one of the top 10 must follow litigation podcasts of 2024, and that’s because we cover exciting topics with super smart guests, and that trend is certainly going to continue here today. Today we have a very interesting program because we’re going to discuss litigation finance from an academic perspective, specifically a course on litigation finance that is taught at the University of Pennsylvania Carey Law School, by my two guests.
Today I am honored to be joined by Tom Baker. Tom is the William Maul Measey Professor of Law and Health Sciences at the University of Pennsylvania, where he is on the faculty of both the Carey Law School and the Wharton School. Tom is a highly regarded insurance expert, a leading scholar of insurance law and policy, and a devoted law teacher. And for only the second time in 28 episodes, I’m joined by one of my trusted and devout colleagues, Will Marra. Will is a director at Certum Group, where he leads our litigation finance vertical and our overall litigation finance strategy. He is also a lecturer of law at the University of Pennsylvania Carey Law School, where he co-teaches the courts on litigation finance with Tom. Good morning, Tom and Will, and thank you for joining the program this morning.
Tom Baker:
Good Morning.
William Marra:
Good morning. Thanks for having us.
Kevin Skrzysowki:
Absolutely. So perhaps the best place to start this conversation, Tom, would be to have you tell us a little bit about your background. What interests you in the field and what led you to develop a law school course on litigation finance?
Tom Baker:
So I mean, I am an insurance expert and I found my way to litigation finance really, through two paths. One is, I built this database of insurance claims and I was contacted by a bunch of litigation funders asking me to help them figure out which of these claims were better and which ones were not as good, and that was super interesting to me.
And then I started reading in the field, came across Will Mara’s excellent Vanderbilt Law Review article, and realized that as a expert in the 150-year-old first third party litigation finance industry, known as liability insurance, I might have something to bring to the table. And the tried and true way that I extend my knowledge is by teaching a seminar about something and taking the students on a kind of guided tour through the unknown. And that’s how I met Will and that’s how I started teaching the seminar.
Kevin Skrzysowki:
I think that is very interesting, especially the repository of quantitative analytics that you compile because data drives decision making. And one of the reasons I believe that our underwriting team at Certum is first in class is because of the data that we have compiled on different types of settlement strategies and commercial litigation strategies over the past 10 years. So it’s very interesting.
You had mentioned that you came across Will’s Vanderbilt article, I’m assuming that’s why you married up, and now Will, everybody knows you’re the darling of the litigation funding marketplace for all of the incredible work that you’ve done over the past couple of years. But how exactly did you become involved with the course and work with Tom to structure the content of the course?
William Marra:
Yeah, I object to your description, but otherwise appreciate the question. It’s been great, yeah, so-
Kevin Skrzysowki:
That was actually said, spoken, I never told you the story, by a litigation broker, a funding broker that we work with who will remain nameless prior to you joining Certum Group over a year ago.
William Marra:
And so Tom had invited me to speak, I think the first year that he did the course about the article that I wrote. And then afterwards said maybe offhand that I should co-teach it with him next year, and I took him seriously on that and we’ve been doing it for two years now and it’s been a blast. And I think there’s been a lot of things that I’ve appreciated about it and maybe three very quick ones.
The first is Tom is such a great educator and such a creative thinker and comes at it from a very interesting and unique perspective. It shouldn’t be a different perspective, but this insurance perspective, and you touched on that a little bit, about how insurance really is a third part of this, really is a form of litigation funding in many ways. So that’s one thing that I’ve appreciated about it. The second is the students are phenomenal. And having not yet practiced law, they’re able to come at the questions and the topics that we address from a very unique value-add standpoint.
And third is, what I really appreciate about the course is that it covers not simply legal doctrine but also legal practice. And I think if I look back in my own law school career, I learned a lot about the doctrine of law, not as much about the practice of law, and we try to weave in different lessons and experiences about what it’s like to actually go out there and practice law. What are some of the financial pressures that you and your clients will face? And I think it’s very rewarding to engage with the students at that level as well.
Kevin Skrzysowki:
That’s interesting, how you discussed the doctrine, but also the practical aspects as well. So, let’s discuss some of the specific structure around the course and the topics that you cover, but also from a practical perspective.
We meet with law firms and companies every day. I think in 2024 we’ve probably had 500 meetings so far. And one thing we’re always asked is, give me an example of how this would work. And they always like to throw out hypotheticals. And one thing that’s normally interesting when working with lawyers is that sometimes they have a myopic view of an individual matter and they’re normally approaching things from the legal perspective and how meritorious their arguments are. And you have to sort of do this diametrical shift of thinking so that they’re not only thinking about legal ramifications, but they’re thinking about the financial, the business, and the legal objectives of their client and how leveraging these solutions can help them obtain those objectives. And I think that’s really the important part. So again, tell us about the course, the structure, and how you marry doctrine with practical thought.
Tom Baker:
So let me just jump in because that, what you said, Kevin, reminded me of my very first encounter with the business side of law was when I was a young law professor and I decided I wanted to do a research project where I would be interviewing lawyers to understand how insurance affected their cases.
And so I spent a lot of time and talked to, I was in South Florida at the time teaching at the University of Miami and there’s really great plaintiffs bar down there. And so I interviewed some of the greats in the bar, and they all had this sort of mantra that like, “Hey, there’s three things that I think about when I’m deciding whether to take a case. Liability, damages, collectability.” And one of the guys said to me, “Liability, I’m a good lawyer. I’m going to prove liability damages. Okay, I can make them more or less depending on, but I’m kind of working with the situation but I have some control. Whereas collectability, I have no control.” And that just lit off, I don’t know, lights, action in my head because no one had ever said anything like that to me.
And then when I started meeting the litigation finance people, it’s the same thing. Right? And they also… and I worked, listen, it was a great law firm coming to the Burling, we were suing insurance companies and insurance companies are pretty collectible. So, but I’d never heard that way of thinking about it and I’ve tried to bring that into teaching generally. And I would say that with this class and really especially with Will’s help, it’s sort of like my peak experience of merging business and practice as a law teacher.
Kevin Skrzysowki:
So when you’re going through case studies in the course, I mean, take us through the elements of the case study and the degree to which the students grasp the concepts, because sometimes when we are working with veteran attorneys for 20 years experience, we give them the top-down explanation of how it works. And I have had experienced rain-making litigators at Am Law 50 shop say, “Okay, let’s rewind and talk to me like I’m in kindergarten and let’s go through it again.”
Tom Baker:
Well, so you should, Will should talk about this because he prepared us an amazing case exercise that teaches the students what the levers are. And maybe what you should be doing against having them do the exercise.
William Marra:
Yeah, so I’m a big believer in learning by doing. And so what we did is we have the, I would say there, Tom, let me know if you think about it differently, but I would say there’s kind of three components to the course.
The first is the readings and class discussions, which is engaging with what has been written about the space so that the students can learn about the doctrines and engage with them intellectually. The second is, we have a group of speakers who come into the course who give their own experiences in the industry, but then also typically talk about their careers as well.
And then the third piece is we have this case study that we kind of layer in over the course of the semester. We assign the students roles as either lawyers seeking funding or funders evaluating a funding request. And so half of them put together in groups a litigation funding request memo, so they’re lawyers seeking funding. Then the other half of the class they receive the memo, review it, and write a memo as litigation funders to their investment committee, recommending whether they should or should not fund the case. Then they negotiate a term sheet as the third module, which is really great because most lawyers out there have never seen a litigation finance term sheet. And so these students will graduate having not only seen one but actually negotiated through one.
And then the fourth, maybe the most fun piece is a difficult moment negotiation, where the damages model’s cut down and the law firm has busted the budget, and they have to figure out a way to make it work. And so it’s a little bit of a negotiation class in there as well, which is what much of the business of law is too. And so I’ve found that I’ve learned a lot from the students as they’ve gone through that project, and I think that they’ve benefited a lot from it as well.
Kevin Skrzysowki:
That is a terrific exercise. So basically, instead of doing a mock trial, you take your students and you put them in the different chairs around the mock deal table and have them complete a transaction.
Tom Baker:
And I think the most significant part of it, I agree with Will on this, is really the difficult moments negotiation, because let’s be real, in life stuff happens. And people, you’re going to have to confront that reality, that you’re predicting what’s going to happen and of course something, maybe you’re great at predicting and everything goes smoothly, but lots of times stuff doesn’t. And the students’ experience, what we’ll call kind of pot-committed nature of the funder, that… and, but also the situation of the law firm that is not, things haven’t gone as smoothly as they were supposed to. And so at that point that people realize that it’s really about kind of maximizing joint value in that difficult negotiation and hopefully that fact that they did something like that in law school means that when out there in life when something real happens like that, that the emotions are a bit contained.
Kevin Skrzysowki:
Well, it’s enlightening and it’s memorable because you actually went through the exercise. I mean, the things I remember most about school were competing in mock trial competition, because you actually, you’re exercising everything that you’ve learned. And guest lecturers who were actual practitioners who came in, especially at some of the night courses and they told you real stories about trials they did that day. That’s super valuable.
So, how do students, why do students take the course? I mean, like I had mentioned earlier, we speak with lawyers every day about litigation finance and litigation insurance, and we have statistics on how many actually have heard about these before and how many have leveraged them. And it’s something like half have never heard of it or they’ve heard about it but they don’t understand it. So, how does a student know about this? Why are they interested when pursuing a career as kind of an alternative to practicing? Who takes the course, or this, I’m assuming it’s two L’s, three L’s? Or are these also Wharton business students who are learning about the economics of this from business school and then they come over to the law school to enhance their learning? Talk to me a little bit about that.
Tom Baker:
So the students take it for a couple reasons. That’s every year, and then we do the first class, we go around the room and ask, “Why are you taking this class?” And it’s a minority, but it’s not nothing. They took my torts class, they thought it was fun, and so they figured it’s going to be like, hey, professor Baker, he’ll be good.
There’s always a couple JD MBA students, but what’s interesting, it’s not because they’ve learned about this at Wharton. It’s because they are primed to see this case, whatever, a portfolio, as an asset. And so they want an opportunity to think about it in a financial way. And what those students are amazed at finding out is how little kind of research there is about this. We had one student do a terrific short paper this year on comparing VC to litigation finance, and she came to us and is like, “Wow, there’s all this literature about venture capital. There’s almost nothing about…” I mean, Will’s article is one of, I don’t know if there’s 10, maybe? There’s certainly not 20 articles and not many of them from a kind of more economic or financing perspective.
And then the third category of students are just that they’re hungry to think about law firm as a business and then this is an opportunity for them to do that.
Kevin Skrzysowki:
Well, I think, I mean, this is a growing, I sometimes say burgeoning industry, and I know that’s a misnomer because as you discussed in your course, this concept has been in practice for over 150 years. It’s been leveraged by law firms on a regular basis for decades. But given the unfamiliarity with the concept by so many lawyers, I still say that it’s new and it’s grown. But that being said, I think the next generation of lawyers coming from school who already know this are the ones that are really going to push this and leverage these litigation exchange marketplaces going on into the future. Not just finance, but actually insurance, which takes me to my next question.
So I mean, Tom, you’re an expert in insurance and we’re seeing a massive convergence of litigation funding and litigation insurance in the marketplace right now. In fact, some people predict that in the next couple of years, litigation insurance might overtake litigation funding. And basically as we explain to lawyers, I mean, the reason is they can take advantage of traditional non-course litigation funding, but if they marry the two with litigation finance and they actually hit the insurance markets first, and they procure insurance to give them backend protection, and then they’re seeking litigation funding on the front end. They can then borrow at the most efficient costs of capital that are available in the marketplace because what was once non-recourse is now recourse because the insurance on the backend is now the collateral. So I’m very curious to hear your thoughts on the convergence of the litigation funding with the insurance world and where do you think it might be going?
Tom Baker:
Well, so here’s the thing. I mean, as Will knows, I mean, like I called it, right? I saw this and I said, “Wow, this is going to be like what happened in marine insurance.” Where the original marine insurance was a form of non-recourse loan essentially, and if you think about it, some of my legal friends hate when I use the term loan because they say, “It’s not a loan, [inaudible 00:19:12].” So, but forgive me, when I start talking about loan, I’m talking about borrowing. I’m not meaning in any kind of technical legal sense right here.
But what is a non-recourse loan? It’s actually a loan bundled with a little bit of insurance at the end. And what we discovered with shipping funding and insurance is that it’s more efficient to separate the two portions of that. Namely, some people will specialize in providing that if the bad thing happens, we’ll repay the loan part of the transaction, and other people specialize in the, hey, we’ll give you the money up front and charge you interest, kind of part of the transaction, which seems to be the direction that the litigation funding market is, or a direction it’s heading. And I mean, I don’t know the future, but, and personally I see Will Marra’s move to Certum as evidence of that.
William Marra:
And sometimes I feel like we almost need to update the name of the course. Right? I mean, it’s litigation finance, and we do cover insurance pretty significantly. And a lot of what Tom talks about, in terms of this convergence and frankly similarity, I think also bears not only on the practice, but on a lot of the policy debates around litigation finance too. Because it really points to the fact that the practice of actual or prospective litigants bearing litigation risk with third parties is nothing new at all. It is centuries or maybe Tom, millennial, right? There is a new kind of it now, in a sense. In a sense it’s not particularly new, third party litigation funding. But I think it also bears on some of these policy debates where some folks are trying to regulate a very narrow slice of the litigation risk transfer market, knowing that things like liability insurance are a bedrock feature not only of our legal system, but frankly, of our economy writ large.
Kevin Skrzysowki:
So, how will the course evolve? So you’ve been teaching for three years. Okay, how is the course going to evolve over the next three years? How will the syllabus change? Are there any other schools offering courses like this and do you think they’re going to start?
Tom Baker:
So there’s actually, I mean, so Tony Sebok, Anthony Sebok who teaches at Cardozo, has actually now a casebook out. It’s probably a little more doctrinal than our focus, in part because that’s my… but so I think more places are going to start using it. Brian Fitzpatrick, I think, has taught a seminar on it. There’s a group of, I’m not going to mention names because I’ll leave someone out, but there’s a group of less than 10 people, but 10 people who are serious academic legal scholars who’ve written about it, who certainly could teach a class in it.
And my sense is that more and more of them will, in part because no one’s going to have to start from scratch now. And frankly, when I put the syllabus together for the first time, I didn’t start from scratch either. I called Tony and said, “Hey, can I get your syllabus?” So the person who really started from scratch was Tony Sebok, who from certainly, I mean, I was saying I wasn’t going to name names, but he’s certainly a giant in the field and someone who knows the practical stuff as well as the ethics and other legal aspects of it.
William Marra:
I remember when I first started doing litigation funding over five years ago, we had contacted one of the largest bar associations in the country to do a CLE on litigation finance. And their response was, “We don’t talk about litigation finance. This isn’t something that we talk about.” And obviously that’s changed very significantly at the bar association level and at the law school level, we are starting to see them drop up. And I fully expect that that trend will continue to accelerate. And part of it is, I think the students are very interested in it. It has a flavor of being new and different, and it’s certainly very interesting and is multidisciplinary in a lot of ways, which I think appeals to a lot of students.
Tom Baker:
Yeah, one thing that we teach at Penn Carey Law School to the students is that you want to be constantly learning about things that other people don’t know about. And so the students who take Will’s and my class are going to go to their law firms. Most of our students at least start at law firms, and they’re going to know more about litigation finance and law as an asset class than most of the partners at the law firm. And that that’s something interesting to talk about in interviews, it’s something that shows to the partners you’re thinking about the business of law yourself. So I think the students see it as a career enhancing, even if as they come to realize that there’s not that many jobs in the field compared to big law or other, but. And I say the students, all of them say they emerge from the class with a better understanding of the business side of law, and they’re just very grateful for that. So, that feels good.
William Marra:
Yeah, the example I like to give there is, we were doing a transaction with an Am Law, a 200 firm, and the people in the room on the law firm side were the chair of the firm, one of the deputy chairs, and an associate who was super interested in this topic and she had learned a ton about it. And she had all of the face time with two of the top people at the firm, which I’m sure only apart from the transaction was going to be very good for her career.
Kevin Skrzysowki:
Yeah, I couldn’t agree with you more. I know that ever since the economic collapse of 2008 and the Great Recession, there has been definitely a new normal in the litigation industry, especially among the larger law firms and being able to, like I always say, if you work for an Am Law 100 or you work for a tall building law firm, everybody there is a good lawyer. But being able to practice law is just now as important as understanding the business of law. And if your students are equipped with understanding litigation finance and litigation insurance, that is a distinctive asset that they will have in their professional toolkit that will help them with the business of law aspect of being successful in a legal career.
So gentlemen, I can’t believe it. We’re up against 30 minutes already, which I try to limit the program to that timeframe to stay within the commuter window, since my marketing consultant tells me that most of my 2,000 listeners are probably commuters.
So Tom and Will, I just really want to thank you for your time today in appearing on the program. I think that all of your comments and our discussion and your insights were terrific, and I think they will definitely have great appeal, especially with the younger members of our listening audience. So, thank you.
Tom Baker:
Thank you. It’s my pleasure.
Kevin Skrzysowki:
And of course-
William Marra:
Thank you. Thanks, Kevin. Thanks, Tom.
Kevin Skrzysowki:
Yeah, and of course, I have to thank the audience for listening, and if you’d like to hear more, please be sure to follow us on Apple, Spotify, Stitcher or anywhere you listen to your favorite podcasts. And if you would like to learn about any of the litigation insurance or finance solutions that Certum Group provides, please visit our website at www.certumgroup.com. You can always reach out to me directly at [email protected], and if anybody would like to learn more about the University of Pennsylvania Law School or the Wharton School of Business, or any of their course offerings, you can always visit their website at u.penn.edu. Thank you all, and until next time.