A Chicago-based firm which has grown in the past three years
to become one of the leading sources of financing in the U.S. for plaintiffs
lawyers seeking to bring a variety of lawsuits in civil courts across the country
has merged with its rival investment house to create the largest third-party
litigation financing company in the world.
On Dec. 14, Gerchen Keller, of Chicago, and New York-based
Burford Capital announced they had reached a deal to join forces, with Burford
acquiring GKC Holdings LLC, the parent corporate entity for the Gerchen Keller
Burford will pay as much as $175 million to complete the
deal, according to the companies’ release announcing the deal.
GKC will be absorbed into Burford, and its principals, who
will be bound by non-compete agreements for at least three years, will secure
leadership posts within the new organization, the release said.
The news drew widespread attention, as the market for
litigation financing continues to grow and mature in the U.S.
Estimates on the level of litigation financing activity in
the U.S. vary. But it is believed by many to be extensive, as more financiers
step forward to fund a variety of lawsuits and types of litigation, ranging
from personal injury cases and product liability class actions to intellectual
property litigation, among many others, seeking potentially large returns from
settlements and judgments awarded to plaintiffs.
Gerchen Keller, for instance, has found the field to be
Launched in 2013, Gerchen Keller – the product of the
partnership of its founders, lawyers Adam Gerchen and Ashley Keller – has grown
to now hold more than $1.3 billion in assets, according to the release
announcing Burford’s acquisition of GKC.
The release noted in 2016, GKC was expected to earn $15.4
million in income, and a $9.1 million operating profit, reaped largely from management
fees generating 1-2 percent annually and performance fees of 15-50 percent.
The release noted Gerchen Keller has more than $400 million
currently invested in various lawsuits, generating average returns of 52
However, where Gerchen Keller and Burford, and other
litigation financiers, have placed such investments remains a somewhat shrouded
subject, as current rules now in place in courts and jurisdictions across the
country allow such litigation financiers to operate largely behind the scenes.
Supporters of the third-party litigation financing system
say allowing the financing is essential to help those with less financial means
use the nation’s legal system to find some measure of justice or recompense
against large corporations and others with deeper pockets, against whom they
may have a claim.
Critics, however, have asserted such financing will only
allow outsiders to intervene in disputes that should not involve them, causing
more litigation or at least altering the natural course of lawsuits to maximize
settlements or judgments and create larger paydays for investors, and
potentially causing lawyers to work for litigation investors rather than their
To gain greater insight into the impact of such third-party
litigation financing, an effort, backed by the U.S. Chamber of Commerce and its
Institute for Legal Reform, has called on courts throughout the country to create
or strengthen rules requiring all litigants using financing to support their
cases to disclose their funding sources to the courts. The Cook County Record is owned by the U.S. Chamber Institute for Legal Reform.
In California, for instance, the federal district court
based in San Francisco may soon amend its rules to specifically require disclosure
of such outside financing, as financiers are believed to be backing a growing
number of lawsuits there.
In most other courts, however, such financing arrangements
generally remain out of sight, unless pushed forward by a judge’s order or
pulled into court amid a dispute among lawyers or litigants.
In Cook County court, for instance, a legal tiff erupted
recently among attorneys vying to represent a Bensenville businessman who is
suing a New Jersey-based maker of supermarket product displays, as well as Campbell’s
Soup Company and retailers Meijer and Kroger, in Chicago federal court for allegedly infringing on the
Chicago area business’ purportedly patented design for supermarket canned soup
In the Cook County case, attorney Joel Brodsky sued Chicago intellectual
property law firm Niro McAndrews LLC for allegedly conspiring to cut him out of
the case, after he had brought them in to lend assistance with the lawsuit.
In his complaint against Niro McAndrews, Brodsky called
attention to a purported litigation financing deal Niro McAndrews had landed
from Gerchen Keller. Under the alleged terms of that purported contract,
Gerchen Keller would have been guaranteed a 350 percent return on its loan,
plus 3 percent of any judgment awarded to the patent plaintiff. The lawsuit did
not specify how much Gerchen Keller may have loaned under the deal.
In the wake of the announcement, representatives of Gerchen
and Burford have each said they anticipate the merger will enhance their
ability to fund new litigation, particularly enabling them to prepare for what
they believe could be a surge in corporations and others with large resources
willing to bring more lawsuits if they believe the financiers will shoulder
more of litigation’s inherent financial risk.
In their release, GKC and Burford noted the merger will
enable them to further diversify their litigation portfolios and perhaps reach
into new markets, as their now combined resources “are expected to provide
expanded geographic coverage in the US and globally, resulting in increased
capital deployment for both public and private investors.”
Mark Behrens, partner with the firm of Shook Hardy & Bacon, in Washington, D.C., who has studied and written about the growth of third party litigation financing, said "only time will tell" what the impact of the merger deal will be on courts and litigation in the U.S.
"A bigger combined organization may give the companies a larger global footprint to pursue cases, generate economies of scale that free up resources to finance more cases, and allow higher risk / higher return cases to be pursued because the risk of a loss can be spread across a broader portfolio of cases," Behrens said.