The article describes a new trend where wealthy individuals and corporations are employing litigation finance, traditionally used by plaintiffs, to defend themselves against legal challenges, particularly from activist shareholders. This approach allows them to counter protracted and expensive legal battles without directly bearing the full cost upfront. This strategy is highlighted as a way for targets of litigation to turn the tables, creating a more balanced fight against well-funded activist campaigns.
Historically, litigation finance has been a significant growth area, with the industry doubling in size over the past decade to become a $20 billion industry. Firms like Burford Capital and Litigation Capital Management, which bankroll lawsuits, have seen substantial returns. For example, Burford's long-term return on invested capital is about 82 percent. Major cases, such as the action against Johnson & Johnson for allegedly carcinogenic talc, settled for approximately $14 billion over 25 years ($6.5 billion in present value terms), demonstrate the large sums involved and the potential for lucrative returns for funders.
However, the litigation finance market has recently faced headwinds, with a losing streak attracting hedge funds and other alternative investment managers to buy distressed assets at valuations as low as 10 cents on the dollar. Tougher regulations, protracted legal battles, and investor flight have stunted growth. A notable example is the $16.1 billion judgment against Argentina favoring YPF SA investors, which was overturned, causing Burford Capital's share price to plunge 47 percent in a single day. Despite these challenges, the ability to fund defensive litigation provides a powerful new tool for besieged billionaires and companies.
The article also touches upon the broader context of wealthy individuals escalating disputes, often beyond what seems rational. These cases, like the feud between Peter Nygård and Louis Bacon over a shared driveway that resulted in a $203 million defamation award, illustrate how personal stakes and egos can drive expensive and prolonged legal battles. The use of litigation finance in these high-stakes disputes further enables this trend, allowing the wealthy to sustain legal fights that might otherwise be financially prohibitive even for them.
Experts note that while the law doesn't typically deal with emotions, the availability of litigation finance allows parties to continue pursuing their convictions in court, converting emotional motivations into legal arguments. This dynamic is not unique to the wealthy, but their access to unlimited funds, now increasingly amplified by litigation finance, makes their disputes more visible and often more protracted than those of individuals with ordinary incomes.
