Non-Recourse Mass Tort Financing
Hello everyone. Thank you for joining another Case Works stream. Today, we are excited. We have a special guest and that is Max Volsky. Max is, he is the co-founder, chief investment officer, and general counsel at LexShares and happens to be an author. He authored his first book about litigation financing. And Max, what I thought would be great is if you could give us a little bit of background. You cover a ton of areas as being a co-founder and the chief investment officer and general counsel at LexShares but if you could just give us a little bit of background about yourself and about LexShares, that would be great.
Max Volsky (00:47):
Sure, Susan. Thank you for the introduction and thank you very much for having me on your show. As you mentioned, I’m the co-founder and chief investment officer of LexShares. LexShares is a FinTech platform that allows accredited investors to invest in lawsuits. Just to give you an example, if you are a business owner and you are suing a large competitor, for example, for a breach of contract, that lawsuit is likely very expensive for you to bring. And LexShares can help you finance the costs associated with that litigation. This includes financing the attorney’s fees, expert witnesses, and really all of the costs that are associated with that lawsuit. And we can also provide some money for working capital. And if you win your case, we get a portion of that recovery and if you lose, you don’t need to pay us back anything. In the mass tort context if you are a mass tort practitioner, we provide financing to your firm using your existing portfolio of mass tort cases. You can use the funds really for any purpose but most of our recipients use it to acquire additional mass tort cases.
Max, if I could just jump in real quick, thank you so much for that in intro and explanation obviously. You mentioned obviously, funding for mass tort. Can you just walk us through what that process looks like from start to finish from funding to resolution based off your experience?
Max Volsky (02:29):
Sure. The process for funding mass torts is a little different from our typical funding process which is very involved. This example really is only for mass torque firms because mass tort cases are kind of known in the market. Everyone knows what everyone else is pursuing. There’s not as much diligence done on the actual case types. Initially we collect some basic information sorry, from the lawyer about which mass tort claims they are pursuing. How many cases they have for each case type, how much capital they need the use of funds and we’d like to get a better sense of what their needs are as a firm. Are they looking to acquire more cases? Do they need the funding for marketing expenses? And I would say that’s probably the most common use of our financing. Or do they need some funds to keep the lights on basically while they wait for their cases to resolve. This is also very common.
Max Volsky (03:44):
And then we will ask some basic information about their firm and their plans for the future. All of this is collected on a half hour phone call with one of our underwriters. And after that call, we are generally able to and if it fits our funding criteria, we can send them a term sheet. And after that term sheet is signed, we will negotiate a funding agreement. And after the funding agreement is signed, we will have a period to do a bit of a deeper dive into the cases and into their portfolio, into the firm. And after that is concluded, we have the right to either ratify the making of the investment or reject the making of the investment typically for engagements where we get to the funding agreement stage and we sign it so the majority of those cases are approved. And then funds are typically available in just a few weeks after that.
Excellent. What is the most common stage during the mass tort cycle that a lot of law firms sort of reach out based on your experience and based on your client base? When do they generally reach out? [inaudible 00:05:05] marketing but also obviously also there’s a lot of case workup costs and things of that nature.
Max Volsky (05:10):
Sure. That’s a good question. We are generally stage agnostic so the cases may be really at any stage of litigation so long as the mass tort itself is a recognized case type or something that we can objectively verify as being a legitimate case type. All the known mass torts and MDLs out there that’s something that would qualify.
And you’re talking about the mass tort any mass toward cases stand out that your company’s been heavily involved in?
Max Volsky (05:50):
We’ve been very active in Roundup litigation in the last couple of years. We’ve also done quite a bit of talc, hernia mesh, opioids, CPAP, Zantac, Paragard, Truvada, and many others.
Roundup, never heard of that one before. That’s great. That’s absolutely great.
And what would you say the distribution or the difference between mass tort and personal injury? Do you work with more personal injury or more mass tort focused firms?
Max Volsky (06:21):
We work less with personal injury and more with mass tort but if we’re funding the law firm, it doesn’t really matter to us if their portfolio is comprised of mass tort cases or personal injury cases or a combination of the two.
And part of that you talked about this initial call that you do to really understand the firm and their needs and how LexShares could really support the firm. Do you get in the nitty gritty to understand like who they’re going to use for case development or who are they going to use to acquire the cases and what’s that process and then case development and what’s the infrastructure that they have to be able to work the cases up?
Max Volsky (07:04):
We do. That’s definitely part of our diligence process. These are all questions that we would ask. Yeah, that’s exactly right.
Yeah, because I know. I’ve talked with funders in the past about… I know recently we attended Mass Tort Made Perfect and the meetings that I had folks were saying okay, well, who are the best lead acquisition groups? Because of course, you want to work with more so business partners than just vendors that are just trying to sell the leads or the signed retainers. And there’s so much that goes into it after they’ve signed the retainer and making sure that the cases get worked up. Let’s talk a little bit… Yeah, go ahead.
Max Volsky (07:47):
Yeah. No, that’s a fair point. I think what makes things a little easier for us is that the firms that we actually engage with that request funding already have a portfolio of existing mass tort cases that they were able to originate and they kind of want to do the same thing. Right? They want to take some money out from us and then expand their portfolio of cases and generally do the same thing.
Yeah. They have a proven track record?
Max Volsky (08:16):
Being able to successfully work up those cases. Okay. You’re past that initial call, you’re past the term sheet. It looks like things are moving forward. The due diligent side of things, what does that look like and entail for a law firm?
Max Volsky (08:34):
The diligence process is pretty straightforward. I would say that probably we would have another two calls with the attorney and we would ask some of the questions that you just raised. That’s part of our diligence process but the focus is on actually validating that the firm has the portfolio of mass tort cases in place. And so what they need to do is they need to send us some of their records to confirm that for example, they have engagement agreements with the plaintiffs. Those engagement agreements are signed. There’s a name attached to it and if there’s any supporting documentation, we don’t necessarily request medical records for confidentiality reasons, right. But we need to make sure that they’re actually being collected that they’re there and that the workup of the case is there.
Yeah. For sure. One of the attorney interest in non-recourse loans has grown significantly in the last few years. Why do you think that is?
Max Volsky (09:44):
That’s a great question. I think there’s several reasons for that. First, I think litigation finance firms really understand how law firms work and how lawyers think. And the financing products that are available are designed specifically for law firms in mind. Most people who work for litigation finances companies and this is true of LexShares as well, former litigators. I think lawyers have a certain comfort level when working with their peers. I think that’s one of the reasons that has driven growth in this area. The other reason I think is of course the non-recourse nature of the product, right? Law firms are able to shift some of the risk inherent in these cases to a funder and the funders pay only after the cases are solved. And I think that provides peace of mind for the law firm and its principles.
Max Volsky (10:44):
And I think that’s also a major reason why litigation finance has become more and more popular. And still another reason I think is the relative ease of working with a litigation finance firm or firm like LexShares compared with working with a bank, for example, or any traditional finance company. I think, as your problem know banks will typically not provide financing against lawsuits. That’s just not what they do. They’re unable to evaluate the collateral. They’re unable to evaluate the risk of lawsuits and they generally just don’t accept them as collateral. And even if you do end up working with a bank or a traditional finance company, there are just too many hoops to jump through. They’re like 10 agreements that you need to sign and that becomes a bit of a chore for a lot of firms. With LexShares it’s just one agreement, a fast and efficient underwriting process and the funds are typically available in just 30 days, sometimes faster. I think these are the top three reasons.
That’s great. I think with so many new entrants to the litigation finance world especially in the mass tort space, I think it’s great that you have such a structure and so many years of experience handling that. That’s definitely very helpful to the extent you’re able to share or what percentage of LexShares’ loans are nonrecourse?
Max Volsky (12:14):
All of them.
All of them. Okay. That’s freedom, yeah. That’s definitely very helpful for our audience.
Thanks. How do the experts at LexShares evaluate and select the cases that you believe are worthwhile to invest in?
Max Volsky (12:32):
As I mentioned, all of our underwriters are former litigators. They’re big law firm litigators. And so it really depends on what kind of case or what kind of arrangement that we are evaluating. In the mass tort space, it’s a little different. It’s a little more streamlined. It’s less case specific, right? There’s less focus on the individual merits of the case, right? Let’s say you have your round up a talc, everyone knows what this is and what’s happening with it. There’s a lot of firms who are handling these types of cases. They are the leadership firms that drive these cases forward but when we do a single case, traditional, commercial underwriting, it’s a little more involved and it’s a little different. And I’m happy to go through that process if that interests you.
Yeah. I mean, I guess another thing you mentioned earlier that LexShares isn’t just… I have funders come to us and they’re like well, we want to work with your clients that are on leadership and only on the mature tours. Well, that’s what everybody wants to work on. That’s what they want to fund. Just to clarify, so LexShares is also open to funding and working with firms that are wanting to obtain funding to go acquire cases let’s say that are new to the horizon like the net cases, or?
Max Volsky (14:06):
Absolutely. If there is a good story and if we think the merits are compelling. We’ve seen quite a bit of mass tort litigation. I think we have a good feel for these things. Sure. We’d be happy to entertain such a request and if it’s an interesting mass tort, we can potentially fund that for sure.
And do you… Yeah, go ahead, Dan.
No, I was just going to say that for a lot of our audience has our spread throughout the mass tort industry where some of them are new entrants, some of them are trying to grow their practice. Some of them are very experienced. For our newer mass tort audience, what is the road to success for seeking, getting funding for marketing campaigns? What are some of the things that would set them apart if they don’t have an established mass tort experience?
Max Volsky (14:56):
Right. The process is not complicated at all. As I mentioned, it’s a half hour preliminary call with one of our underwriters can get you a quick term sheet. If you have an interesting story or are pursuing an interesting mass tort case type after that, as I mentioned, we would sign a funding agreement that gives us a 30 day window to review the case. Often we can do it even faster. We would ask for some confirmation of any existing cases that they already originated or it doesn’t have to be a written business plan but sort of for them to explain how they plan to originate these deals. And if everything checks out there would be a funding commitment that’s provided. The funds would be available shortly thereafter. I think it’s important to understand that let’s say if it’s a two million dollar funding facility right, we’re not going to hand over the two million dollars to the firm right away.
Max Volsky (15:58):
There’s going to be a segregated account that’s set up. The two million dollars are deposited into that account and then the firm can bill against these proceeds can charge their marketing expenses, their overhead expenses. And we need to see that they are actually successful in originating these cases. And as they do originate these cases, they become a part of that portfolio and that unlocks their ability to draw down even more funds from the available facility. But in order to be successful and sort of to minimize, I guess, your chance of rejection in the mass tort context, I would say the most important thing would be to make sure that the documents are there. Right? That for example, show the engagement agreement that the firm needs to sign with the client is fully filled out for every client, signed by the client and is in good order. That’s I would say the most important part of dealing with a mass tort practice.
That’s very helpful. Thank you.
Outside of those reasons, any common reasons why firms or LexShares just makes the decision that it’s not a good partnership to be able to work with the firm?
Max Volsky (17:22):
Sure. Yes. I would say probably one of the most common reasons is there are obviously a lot of attorneys and attorneys like everyone else they try different things. I’m not sure that someone who has focused on patent litigation for 30 years can make a quick transition to mass tort practice. I’ve seen it done and I think there are very talented people out there that can do it. But I think we would be concerned if there’s a radical change from what someone has been doing for a very long time.
Yeah. No, that makes sense. What about attorneys and the… Do attorneys typically work directly with LexShares or do you see that there’s a lot of… I know there’s a lot of brokers in the space but who typically engages with LexShares first, so the firms or brokers?
Max Volsky (18:23):
Law firms and clients typically work directly with us. They reach out directly to us or we reach out to them. We can potentially find them and think we could just based on their profile, we may approach them if we think they can benefit from litigation finance but it’s typically direct.
Mm-hmm. Okay. Outside of litigation, what else is LexShares’ focus?
Max Volsky (18:56):
Litigation is, this is all we do and this is all we really know. This is the only thing I really know how to do. And I think litigation finances is where LexShares focus will remain for the foreseeable-
Well, a good space to be in that’s for sure. You got to be growing. When I first joined the Case Works team, being able to talk to Susan about all the different mass tort she’s worked on over the years, you can feel the passion. And it’s definitely something that made me enthusiastic about joining the team. What are any projects or any sort of funding, any sort of litigation that sticks out in your mind that you have fond memory of and that maybe didn’t quite come together like you thought it was but it ended up being a success?
Max Volsky (19:47):
Oh boy, that’s a hard question to answer. I’ve been doing this for 22 years now and I’ve funded collectively probably close to 20,000 cases. I can’t really discuss specific cases but we funded professional athletes, football players, hockey players. We’ve done famous patent cases that have been on the front page of the Wall Street Journal. We’ve funded a number of very high profile mass tort cases over the past two years. We’ve funded corporate whistleblower, celebrities, politicians, and even cases with a foreign litigation component. And we’re proud of all of them.
You sure you don’t want to tell any stories about the athletes or [inaudible 00:20:35].
Max Volsky (20:37):
Unfortunately I cannot.
Well, and I mentioned Max, at the very beginning that outside of all the hats you’ve worn, you have worn the author hat. Maybe just tell us a little bit about the book that you’ve written because I’m sure people would be interested in reading that.
Max Volsky (20:52):
I appreciate you asking. It’s called Investing in Justice and it is a pretty basic overview of the litigation finance marketplace. It spends some time discussing the history of litigation finance, the history of litigation finance in the UK, in Australia, in the United States, some of the regulatory issues that practitioners need to understand if engaging in litigation finance. It breaks down a typical litigation finance deal and examines basically, what’s under the hood and how to go about structuring a deal in the litigation finance space. And makes some projections about where the litigation finance market is going. I will say that I wrote the book in 2013 so a lot of it is outdated by now but I do plan to refresh the book.
You’re going to write a sequel?
Max Volsky (21:49):
Yes, in the coming months.
Oh, good. Awesome. Well, Max, this has been great. Just for those that are listening and would want to get in touch with you, how can they reach out to you? Or at least reach out to LexShares to learn more should they be in a position of needing some financing now?
Max Volsky (22:10):
They can go on to lexshares.com and they can reach out to LexShares or they can send me an email directly to email@example.com.
Yeah. Perfect. And when we send this out, we’ll make sure that we include your email so folks can reach out to you directly if they have questions or if they’re interested in learning a little bit more. Because I know right now we have a lot of firms come to us asking us who we think are great partners for them in the financing space. And of course we have you on because we think that you would be a great partner for the law firms. And so Dan and I both just really appreciate you taking time on a Friday afternoon to connect with us, share more about LexShares and kind of give the background and history of really the focus of LexShares and how you guys best support law firms and in their growth.
Max Volsky (23:03):
Thank you very much for having me.
Yeah, absolutely. Well, have a great rest of your day and we certainly appreciate it.
Max Volsky (23:09):
Max Volsky (23:09):