Cook County Record

Saturday, February 22, 2020

Gerchen Keller, Burford merge, form largest litigation finance firm, point to expansion

By Jonathan Bilyk | Dec 15, 2016

Chicago thompson center

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 firm.

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 fruitful.

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 percent.

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 clients.

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 dispensers.

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.

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Organizations in this Story

U.S. Chamber Institute for Legal Reform (ILR)Gerchen KellerBurford Capital