The In-House View -- Crunching the Numbers: Using In-House Data Analytics to Prepare the Company’s Litigation Funding Request

The In-House View -- Crunching the Numbers: Using In-House Data Analytics to Prepare the Company’s Litigation Funding Request
Matt Leland
Investment Manager and Legal Counsel - United States
Carrie B. Freed
Investment Manager and Legal Counsel - United States

‘The In-House View’ is a series by former in-house counsel, Carrie Freed, and commercial litigator, Matt Leland, discussing strategies for how legal departments can leverage litigation finance to create budget certainty, generate revenue, and manage litigation risk.

Companies with affirmative claims increasingly are using litigation finance to pursue meritorious cases, reduce legal expenses, and manage financial risk. But not all funding requests are approved, and an application can be handicapped by an overly optimistic opinion about the potential recovery in a case or a casually prepared litigation budget.

When seeking litigation funding from a reputable litigation finance provider, it is imperative to assess the economics of a case with clear eyes. Fortunately, many in-house counsel seeking to manage expenses with litigation finance are already well-positioned to prepare credible and compelling funding proposals by partnering with their business analytics colleagues.

This is most evident in matters concerning quantum. Whether the possible recovery derives from unpaid invoices, lost profits, royalties, or some other form of remuneration, a proposal based on careful analysis of reliable data will likely be compelling. Many companies can generate evidence-based damages estimates from their own data resources with assistance from their in-house analytics professionals (and with protection against disclosure from the attorney work-product doctrine).

Businesses accumulate copious amounts of data. Professional staff analyze the information to inform decisionmakers, improve operational efficiency, measure business risks, and increase profit margins. Equipped with historical financial information stored in data warehouses – including price, sales, and location, among other records – analysts can quantify losses already incurred and reliably forecast economic harm caused by a defendant’s conduct. Based on various factors, which might include the quality of recordkeeping and age of the data, companies also can model several different damage scenarios to identify likely outcomes. Even if the analysis shows that some amount of recovery remains uncertain, the company can better demonstrate to a litigation funder where the recovery risks lie and what resources might be necessary to strengthen the business’s litigation position.

This may appear to add burden to litigation that is already expected to be costly and time consuming. But this collaboration offers several efficiencies when preparing the litigation funding proposal.

Pressure-test damages evidence: The potential for billions of dollars in recoveries may very well appear realistic at the outset of a case. But it is far better to understand early on – including before litigation is initiated – that the claim value is only a few million dollars, than after months of incurring more legal fees than the litigation is worth. This early self-inventory of identifying, extracting, and analyzing data can add critical long-term benefits to the litigation. In fact, it could alter the decision of whether to initiate a complex, protracted litigation campaign altogether. Through this process, the company can reconcile conflicting information, spot holes in recordkeeping, pressure test assumptions in damages models, determine a reasonable budget for the value of the case, and contemplate reasonable settlement proposals. The preparation also will help the company and its litigation team identify the root causes of concerning trends among the data.

Avoid discovery emergencies: Litigation hold notices. Initial disclosures. Discovery requests. Custodian interviews. Whether a plaintiff or defendant, litigation triggers a frenzy of discovery activity among counsel and key personnel. By engaging in the analysis of damages and other data-driven aspects of a case early, companies can help avoid disruption and minimize impact of the litigation on the company’s core business. This includes identifying many key individuals early in the litigation and locating discoverable information before the complaint is filed (and on a more reasonable timetable).

Familiarize personnel with the litigation: A frequent concern among in-house counsel managing litigation is that company personnel (their clients) experience numerous disruptions throughout the litigation process, such as invasive document collection and discovery responses, time-consuming deposition preparation and attendance, fact investigation to support claims, and more. Employees often receive a “crash-course” about the litigation from outside counsel only after deposition notices are served. But through the process of analyzing data in the pre- or early stages of litigation, knowledgeable personnel will have more time to learn about the litigation process, the legal claims the company is asserting, and overall theory of the case.

Foster collaboration with colleagues: Regardless of whether they serve as witnesses in the litigation, business analytics personnel are likely to play a key role in your damages case. They have familiarity with the company’s IT systems and data warehouses and are skilled with the “data literacy” necessary to navigate its information. Your outside lawyers and damages expert will work closely with these individuals as they prepare expert disclosures on quantum and help bridge the gap between experts and counsel, who likely have less familiarity with technical processes and jargon. Finally, by involving analytics personnel in the case early on with damages, the company will reduce costs by avoiding experts starting their analyses from scratch.

Generate reliable budget forecasting: Data analytics personnel can assist in areas besides damages. When submitting a litigation funding proposal, it also is important to have a realistic budget and case timeline.  Litigation finance companies scrutinize proposed legal fees and costs estimated for the case, so questions about inflated (or, conversely, anemic) budgets will add time to the diligence process and delay approval. Sophisticated companies with legal operations departments[1] collect data on their portfolio of cases, which provides information about case durations and the legal expenses charged by outside counsel among a range of different court cases. Business analytics personnel are in a strong position to analyze this data against their lawyers’ proposed legal fees for the case to help ensure budgets will not need to be revised during the case.

These are just a few ways in which data analytics can add value. If you would like to learn more about how to coordinate these efforts for your litigation funding proposal, please contact us here at Omni Bridgeway.

[1] See "The In-House View -- More than a Lever: Partnering Litigation Finance with Legal Operations Divisions," Omni Bridgeway, 14 November 2023