Litigation Finance Firm Burford Eyes Ownership of Law Firms

Non-lawyers are largely forbidden from owning law firms in the United States.

Financial services firm Burford Capital wants to change that, the Financial Times (FT) reported Sunday (Aug. 17).

The company, which specializes in “litigation finance,” hopes to purchase stakes in American law practices, banking on a change in ownership rules.

Burford Co-Founder Jonathan Molot told the FT his company was in discussions with several US law firms about picking up minority stakes in them.

As the report noted, most U.S. states forbid non-lawyers from owning firms due to ethics rules designed to keep legal advice separate from profit considerations.

However, Burford hopes a new structure could change this system. The practice of dividing firms into two legal entities has already been used to let outside parties invest in accounting and medical practices.

“It’s a crazy thing that the capital markets and the market for legal services have had no interaction historically, when law has grown up to be a multitrillion-dollar industry and there are U.S. firms that are multibillion-dollar revenue businesses,” Molot said.

“We have talked to boutique firms that broke off [from] other firms, and we have talked to some of the largest firms in the U.S.,” he said, though he declined to specify which firms. Molot added that he was “confident that in the years ahead this will become a bigger part of our business and of the market.”

Founded in 2009, Burford offers to fund litigation costs for clients who can’t or won’t pay hourly rates, and has dispensed $8.5 billion since its conception.

According to its website, companies use legal finance to fund litigation and arbitration claims and recoveries, and “accelerate expected entitlements to unlock cash flows from pending claims and awards.”

Molot said selling a stake to Burford would allow law firms to invest in artificial intelligence (AI) and give them the financial freedom to shift away from hourly billing.

“The introduction of that AI is going to require capital. It’s going to require some revamping, and it’s going to require an adjustment in the business model,” he said.

As noted here last week, PYMNTS Intelligence research has found that cost considerations are one of the main factors holding back businesses from introducing AI, cited by nearly 47% of all companies surveyed.

For every dollar spent on AI models, businesses are spending five to 10 times as much to make the models “production-ready and enterprise-compliant,” Muath Juady , founder of SearchQ.AI , said in an interview with PYMNTS.