It was a poor showing, even for the after-lunch breakout session of a midweek conference. Exactly one lawyer wandered in and sat down for "Open Coffers," a discussion of litigation funding for legal executives at a downtown San Francisco hotel. Capital had arrived on little cat feet. The four panelists made the best of it, talking candidly to a handful of their colleagues and supporters in the room. Joseph Cheavens, a former Baker Botts attorney and senior advisor at Burford Capital in New York, began with a baseline assertion: "A legal claim is an asset. It's our client's asset - and what we do is to maximize the value of that claim." Burford, a Guernsey company listed on the London stock exchange, has more than $500 million in investment commitments and more than $200 million in recoveries. Last year, according to Cheavens, it floated an oversubscribed $150 million bond offering on the London market. From its New York headquarters, Burford's lawyers evaluate matters either as single cases or bundled in portfolios. By assisting clients who lack the means to pursue complex litigation, he said, "what we do is level the playing field." Typically, funders purchase an ownership interest in the potential proceeds of a claim. If there are no proceeds, the ownership is worthless. Burford, Cheavens said, also invests in international arbitral matters. "This is not a contingency-fee business," he emphasized. "Many of our attorney clients do no contingency work." He noted that funders may be especially valuable to in-house counsel by reducing litigation costs and thereby "improving the profit-and-loss statement - which is what investors care about." Cheavens was preaching to the choir - or in this case, a soloist. By all accounts third-party funding is good business, and it is spreading rapidly. But in the United States it has real enemies - the U.S. Chamber of Commerce, the American Tort Reform Association, the Product Liability Advisory Counsel, and the American Insurance Association - which all allege that litigation funding promotes frivolous lawsuits. The root cause, according to "Selling Lawsuits, Buying Trouble," a 2009 report by the Chamber's Institute for Legal Reform, is "introducing a stranger to the attorney-client relationship whose sole interest is a financial one." The common law offenses of maintenance and champerty - intermeddling with or supporting litigation by a stranger in return for a share of the proceeds - is still prohibited in 15 states, most of which declare funding contracts unenforceable. In Maine and Mississippi, champerty is a crime. But some 28 states and the District of Columbia permit litigation funding with some limitations. California courts have repeatedly observed that no prohibition exists because the state never adopted the champerty doctrine. (See Martin v. Freeman, 216 Cal. App. 2d 639, 641-42 (1963).) And as the Ninth Circuit has noted, "The consistent trend across the country is toward limiting, not expanding, champerty's reach." (Del Webb Communities, Inc. v. Partington, 652 F.3d 1145, 1156 (9th Cir. 2011).) Maybe. But Travis D. Lenkner, a managing director of Chicago-based Gerchen Keller Capital - a three-partner private investment firm that manages more than $800 million in assets - said confidentiality is still paramount. Case evaluation at Gerchen begins with a nondisclosure agreement. The second step is a full analysis involving in-house claims experts, and third is a nonbinding term sheet to establish exclusivity. If a matter survives, the final steps are approval by Gerchen's partners, signatures on "a dense document," and funding. Oh, yes - and one more nondisclosure agreement. Gerchen purchases legal fee, judgment, and settlement receivables in matters that are largely resolved. Lenkner and the others emphasized they do not attempt to direct or control litigation. That, Cheavens said, was for both ethical and liability reasons, "in case a legal strategy blows up." Allison K. Chock, investment manager and legal counsel in Los Angeles for Bentham IMF, said her Australian company has invested nearly $2 billion in litigation matters, and carries $150 million in cash for new opportunities. "IMF," she noted, stands for insolvency management funding, a reference to Bentham's origins backing bankruptcy cases in the "loser pays" system of Australia, the UK, and Canada. Chock then listed the many benefits of selling off risk: "You can afford expensive experts," she said. "You can get faster returns in areas of high technology turnover, and you can have more fun doing it because your interests are aligned with the client's." At this point, the dialogue between funders got really interesting. William P. Farrell Jr. - managing director of Longford Capital Management, a Chicago-based private investment company specializing in litigation funding - called traditional law firms "a nongrowth industry" built on the billable hour model. "Discounting and blended rates just aren't getting it done," Farrell said. "But law firms are not ready to accept all the risk associated with a contingency arrangement. So we are the transition." Lenkner said partnership and capital structures at large law firms are limiting factors. "What is a law firm's proper rate of return?" he asked. "What are the metrics of a rate of return? The big law firms are just beginning to see the world that way." OK, so where was the audience for these golden opportunities? The lone practitioner in the room had left, but the panelists seemed undeterred. "Awareness is the most significant issue for us at this point," Farrell said. Cheavens - asked by moderator Vera M. Elson of Wilson Sonsini Goodrich & Rosati why lawyers who billed by the hour still resisted third-party funding - responded with a grin: "Greed." When the laughter subsided, he said more diplomatically that many contingent-fee lawyers finance their own cases and don't want to share the results with a funder. Private Deals In Jonathan Harr's 1995 book A Civil Action - an account of a toxic tort suit in Woburn, Massachusetts-attorney Jan Schlichtmann makes repeated visits to "Uncle Pete," a private banker who extended credit to finance the plaintiffs' case. Schlichtmann was suing W.R. Grace, which had unlimited resources for discovery, water testing, and preparation of expert witnesses. W.R. Grace ultimately settled with regulators, but Schlichtmann and his firm were ruined. Third-party funders aren't lenders like Uncle Pete. First, as Cheavens pointed out, "A line of credit is a recourse loan; we do nonrecourse financing. That shifts the investment risk to us." And the screening committees are very selective. As Farrell made clear, "All four of us on this panel deal only in business-to-business disputes. We do no consumer class actions, and no securities litigation." Five years ago, Burford co-founder and CEO Christopher P. Bogart made an exception - and wound up leaving his money on the table. Bogart provided $4 million to New York attorney Steven R. Donziger to help fund a decades-long quest to hold Chevron Inc. liable for oil pollution in Ecuador. Burford received a 1.5 percent stake in any class recovery, which was to rise to a 5.5 percent stake upon full funding of $15 million. In 2011 the plaintiffs won a $9.5 billion judgment in an Ecuadorian court, upheld on appeal. But Chevron's lawyers alleged in a civil RICO suit filed in New York that the plaintiffs had orchestrated a massive fraud to secure the foreign judgment. In the course of a bench trial by Judge Lewis A. Kaplan, Bogart filed a declaration accusing Donziger of repeatedly misleading him and stating that Burford had terminated its funding agreement for material breaches. Last year Kaplan determined that Donziger and others had violated the federal racketeering statute. He issued an injunction to prevent the plaintiffs and their counsel from "profiting in any way from the egregious fraud that occurred here." (Chevron Corp. v. Donziger, 974 F. Supp. 2d 362, 552 (S.D.N.Y. 2014).) Donziger appealed; at oral argument in April, a panel of the Second Circuit questioned Kaplan's basis for granting such extensive relief. "The Chevron case has drawn a great deal of attention," says Donald E. Vinson, CEO of Vinson Resolution Management, a litigation funder in El Segundo. "I have a great deal of respect for Chris at Burford. Chevron's pursuit of the funders carried a message to a certain segment of our industry. But it doesn't relate to us - we would never have considered the Chevron case because of its inordinate risk." To avoid such messy results, the panelists in San Francisco said, commercial funders stick to contracts, antitrust, and IP disputes. Beyond that, the speakers offered few specifics. As Cheavens of Burford Capital cautioned, "We don't disclose the identity of our clients, and we don't disclose our deals." Defendants in funded cases, however, have a keen interest in discovering those particulars. In 2010 a federal court in Delaware compelled production of documents shared with funders in a patent infringement case, even though no financing deal was ever consummated. A magistrate judge ruled that no common interest privilege existed between the plaintiff and the financial companies. The district court overruled objections to that holding, finding that for a communication to be protected, the parties' interests must be "identical, not similar, and ... be legal, not solely commercial." (Leader Technologies, Inc. v. Facebook, Inc., 719 F. Supp. 2d 373 (D. Del. 2010).) Last year a federal court in Illinois addressed similar issues in a trade secrets lawsuit brought by Miller U.K. Ltd. against Caterpillar, Inc. Miller had sought funding for the litigation, eventually reaching a deal with Juris Capital. As part of its defense, Caterpillar claimed that Miller had engaged in prohibited maintenance and champerty. Its lawyers demanded production of the deal document and materials sent to prospective funders, claiming they were relevant to determining who is the real party in interest: Miller or the funders. U.S. Magistrate Judge Jeffrey Cole wasn't buying it. "Over the centuries, maintenance and champerty have been narrowed to a filament," he observed in a January 2014 opinion. Indeed, Cole wrote, quoting from a 19th-century opinion, "they have been so pruned away and exceptions so grafted upon [them], that there is nothing of substance left of [them] in this State, and [they] have been wholly abandoned in others." (Citing Dunne v. Herrick, 37 Ill. App. 180, 182 (1st Dist. 1890).) Miller had asserted the attorney-client privilege and work product protection, which it argued were not waived by disclosure to Juris and the prospective funders under the common interest doctrine. Cole ruled that the deal document was irrelevant under rule 26 of the Federal Rules of Civil Procedure, and he refused to order disclosure of work product papers that Miller had protected under confidentiality agreements. As for the common interest doctrine, Cole ruled it would only apply with respect to a common legal interest. "A shared rooting interest in the 'successful outcome of a case' - and that is what Miller explicitly alleges here - is not a common legal interest," the magistrate wrote. (Miller U.K. Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, 732 (N.D. Ill. 2014).) As a result, Cole ordered Miller to produce "all damage estimates, summaries, or worksheets" not otherwise covered by confidentiality agreements, such as those shared with other potential funders. A more recent ruling, this one in Delaware chancery court, provided funders with additional cheer. "No persuasive reason has been advanced in this case why litigants should lose work product protection simply because they lack the financial means to press their claims on their own dime," wrote Vice Chancellor Donald F. Parsons. (Carlyle Inv. Mgmt. L.L.C. v. Moonmouth Co. S.A., 2015 WL 778846, *8 (Del. Ch. Feb. 24, 2015).) The "Ick" Factor Despite these rulings, third-party funders' obsession with confidentiality still makes their business model vaguely suspect. In a recent article, Professor W. Bradley Wendel of Cornell University School of Law called reputational risk in funding deals "the ick factor." (See 63 DEPAUL L. REV. 655, 657 (2014).) Much of that opprobrium, evoking the common law prohibitions, is generated by business groups. The American Tort Reform Association sent a letter to the ABA Commission on Ethics 20/20 in 2011 asserting that claims funding would "transform courtrooms into a stock exchange and litigation into a commodity." The potential ethics issues for attorneys contemplating selling off risk aren't trivial - including fee-sharing with nonlawyers, permitting outsiders to affect a lawyer's judgment, and conflicts of interest. But neither have they slowed the funding industry's growth. On the contrary: One prominent legal ethics committee has called nonrecourse funding "a valuable means for paying the costs of pursuing a legal claim, or even sustaining basic living expenses until a settlement or judgment is obtained." (New York City Bar Ass'n Formal Op. 2011-2.) The American Legal Finance Association, an industry trade group, now promotes its professional code of ethics. Last year Bentham adopted a code of best practices. And Burford has even retained high-profile regular ethics counsel: Geoffrey C. Hazard Jr., a law professor emeritus at UC Hastings College of the Law, and Anthony J. Sebok of the Benjamin Cardozo School of Law in New York. Last year several hedge funds on the East Coast announced their own litigation funding divisions. RD Legal Capital, based in Cresskill, New Jersey, invested in a $1.8 billion uncollected judgment against the Iranian central bank, after Iran was found liable for the bombing of Marine barracks in Beirut, Lebanon, in 1983. New York-based Elliott Management Corp. helped bankroll Stan Lee Media Inc.'s case against Walt Disney Co. over profits made from popular comic-book characters Stan Lee created. And in March, hedge-fund manager Emanuel J. Friedman announced that Virginia-based EJF Capital would soon lend to law firms pursuing injury-related class actions. Third-party financing also exists at the lower end of the market - for personal injury and product liability cases. Often called presettlement funding or lawsuit loans, the business frequently involves solo practitioners and unsophisticated clients desperate for anticipated compensation. "It's like the wild, wild West," says Ronald Sinai, founder of Nova Legal Funding in Santa Monica. "Interest rates are commonly about 3.5 percent, compounded monthly." In addition, he says, many lenders operate through brokers who find and refer cases for a 15 percent commission. With application fees, that can generate a return of 70 to 80 percent a year. "There's no transparency to these deals," Sinai says, "and clients are getting screwed like crazy." So why would hedge funds and pre-settlement funders of personal injury cases be so attracted to lawsuits as an investment? Greed, maybe.