Enter the Litigation Portfolio Broker

In the UK, based on the Legal Services Act, investors can buy lawsuits from clients being sued. They then turn around and hire lawyers to handled the suit, typically on some sort of discount / success fee arrangement. This allows them to spread the risk of losing the law suit (and investment) partially to the law firms while generating strong returns on the cases they win.
Something similar, but on a grander scale, has emerged in the US. This new middle man is looking to buy complete portfolios of litigation from clients, then turn around and sell the management of these in whole or in large segments to law firms. This style of vendor is essentially forcing the hand of both clients and their outside counsel. Why wait for clients or law firms to figure the AFA / cost reduction thing out? Instead, turn it into an investment, hedge on your money and turn a profit as the new middle man.
In this scenario, the clients can more easily quantify savings for their CEO/CFOs and outsource the worry of an entire segment of legal needs in one fell swoop. So the value proposition is strong and clear.
But what about the law firms? The Good News: If they are able to win the work from the broker, they will see a serious volume of work come in. The Bad News: Pricing moves further from their control (and/or participation) and they are now moved one step further away from the client relationship.
So … who is this vendor? DryStone Capital. From their web site (which needs serious marketing attention) it appears they are backed by strong capital and an institutional player. So they have the makings of being a real player in the market.
They present clients with a very simple proposition:
Five Steps in Engaging DryStone Capital

  1. Your corporation works with DryStone to select a litigation portfolio for outsourcing and to project the total cost – defense and liability – your corporation expects to spend.
  2. DryStone purchases excess insurance that protects your corporation from adverse development.
  3. DryStone retains a leading law firm, approved by your corporation, to manage the litigation portfolio.
  4. Your corporation outsources the portfolio to DryStone Capital at a fixed price 10% less than your projected total cost.
  5. DryStone collateralizes the 10% discount with a dedicated capital reserve.
It’s probably too early to call this one, but the concept is VERY interesting. DryStone saw a market need and developed a novel approach to meeting it.

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Scott Preston said...

This will be an interesting one to watch.

Thank Toby.


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