December 23, 2021
By Wendie Childress
December 23, 2021
It will take time and patience for judges to dig out of backlogs and for in-person jury trials to resume at normal levels. David Slayton, director of administration for the Texas courts, estimates that addressing the backlog will take "anywhere from three to five years."
What You Need to Know
- Pre-COVID, jury trials totaled over 10,000 annually; in 2020, there were only 222.
- In 2021, the energy market has bounced back, but our troubles are far from over.
- As we enter into 2022 and continue to navigate uncertainty, litigation funding offers a low-risk, high-upside solution to benefit both law firms and their clients.
Last year, as the world reeled from the COVID pandemic, we discussed the Texas economy and how its key industries were faring. In June 2020, things were bleak. Unemployment was at 13%, the price of oil had crashed below the zero mark, and the health care system was suffering immense revenue losses amid a 56% decline in patient volume. When we checked back a few months later, businesses were still struggling, particularly in the energy sector, and companies were declaring bankruptcy at an extraordinary rate. The court system was at a virtual standstill: while Texas courts oversaw an average of 186 jury trials per week in 2019, during the period of March to December 2020, that number dropped to an astounding four trials per week. Pre-COVID, jury trials totaled over 10,000 annually; in 2020, there were only 222.
In 2021, the energy market has bounced back, but our troubles are far from over. COVID has continued to affect the global economy long past expectations, causing uncertainty and economic strain. The World Bank reports that “despite this year’s pickup, the level of global GDP in 2021 is expected to be 3.2% below pre-pandemic projections, and per capita GDP among many emerging market and developing economies is anticipated to remain below pre-COVID-19 peaks for an extended period.” The spread of new virus variants has increased uncertainty, and the disruption to supply chains continues. Piling on, February’s unprecedented storm was potentially the costliest weather disaster in Texas history, with Austin-Travis County officials estimating the damage at upward of $195 billion. In September, Hurricane Nicholas wrought over $1 billion in property damage and left over 180,000 people without power.
Notably, one sector that has thrived during the pandemic is legal services. After a brief reduction in collections and billable hours, law firms have found themselves overwhelmed with work, reaching never-before-seen revenues, hourly rates, and profits per partner. Texas’ difficult financial and environmental circumstances brought about an unusually high number of bankruptcies and litigations in 2020, including insurance recovery and contract disputes. Data published by the American Bankruptcy Institute placed Texas in first place for commercial bankruptcies caused by COVID-19, doubling numbers from the preceding year. As the state continues its recovery, we can expect the demand for legal services to remain strong.
Courts have now reopened but they face an enormous backlog of cases. The Annual Statistical Report from the Texas Judiciary warned that “the impact of COVID-19 on the judiciary will be long-lasting. It will take time and patience for judges to dig out of backlogs and for in-person jury trials to resume at normal levels.” David Slayton, director of administration for the Texas courts, estimates that addressing the backlog will take “anywhere from three to five years.”
As delays drag cases out and legal fees mount accordingly, clients are asking firms to be innovative in their fee structures and assume risk where feasible, often asking for reduced hourly rates or alternative fee arrangements. Moreover, many companies with meritorious claims are reluctant to bring them, despite real economic injury or business harm, because of constrained litigation budgets and company cost cutting. Indeed, clients looking to reduce spending amid an economic downturn rarely have an appetite for litigation.
In this uncertain environment, law firms and clients are turning to litigation finance to ease the burden of costly litigation, alleviate risk, and create revenue by providing a path for clients to litigate good claims. Clients with single or multiple cases (including defense cases) can use litigation funding as a source of working capital to invest in their company and to pay legal fees and costs. Litigation funding has obvious benefits to clients: they can engage the counsel of their choice, take litigation costs off the P&L, and unlock the potential of valuable cases they might be reluctant to bring because of lack of capital or concern about risk.
Litigation finance also benefits firms, who can offer the alternative fee arrangements their clients need, converting existing hourly matters to hybrid or full contingency. Firms can access funding for a portfolio of cases, including defense cases, tapping a reliable source of capital that can be allocated to any firm purpose, including increasing head count and attorney compensation in an environment of fierce competition for talent. Funding allows law firms to take a case on contingency with reduced risk—even if the client loses their case, the firm keeps the revenues provided by the funder. Firms also see a substantial upside in taking funded contingency cases—by sharing in the judgment or settlement of a successful litigation, firms may realize much greater net income than through a traditional hourly billing engagement.
As we enter into 2022 and continue to navigate uncertainty, litigation funding offers a low-risk, high-upside solution to benefit both law firms and their clients. Using a trusted funder to weather the storm, clients can reduce costs, increase revenues, and focus on rebuilding for what we hope to be a stronger Texas market in the year to come.
Reprinted with permission from the December 23, 2021 issue of Texas Lawyer.© American Lawyer ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.