Ralph Sutton worked for nearly two decades as a trial lawyer before becoming a leader and an innovator in the litigation finance industry, first at Credit Suisse and later as Chief Investment Officer at Bentham IMF. Today he is the founder and CEO of Validity Finance, a litigation finance company focused on the U.S. market. He is a graduate of New York University School of Law.
Lawdragon: Can you describe for our readers the type of service that your firm provides?
Ralph Sutton: Validity is a provider of legal finance. We offer companies and law firms the financial resources they need to pay legal fees and keep their businesses operating smoothly during lengthy legal battles. Clients use the capital to pay for some or all of the cost of the litigation, such as attorneys’ fees, discovery expenses, expert-witness fees, and court costs—or even to keep the lights on and the business running as they litigate their case.
LD: What first drew you to this type of work?
RS: The legal finance industry in the US is about 13 years old, and I was fortunate to be involved right from the start. I clerked for a federal judge after I graduated from law school, and then I spent 18 years as a trial lawyer. That experience showed me what a significant role money played in the outcome of disputes. The better-resourced party had an enormous advantage, regardless of the actual merits of the case. That’s not how our system is supposed to work. The market began to realize that litigants were ready to share risk. In 2006, I left my practice to co-found Credit Suisse’s Litigation Risk Strategies Group, one of the first dispute funding entities in the US. It has been a labor of love ever since.
LD: What do you find professionally satisfying about providing legal financing?
RS: Access to the courts is imperative in a democratic society, and I believe funding has an increasing role to play in providing that access. I founded Validity to make sure clients can hire the best lawyers to take on the best cases, and help fix a broken legal system. Beyond that, I am a former trial lawyer and my team consists of almost entirely trial lawyers. Many have been law clerks to federal judges. We enjoy the rigor of legal analysis and our ability to bring strategic thinking to a dispute. We still help lawyers and clients, but now the legal analysis is enhanced by our understanding of the business aspects of a case. The combination of litigation and business is refreshing and challenging.
LD: It’s still a young industry, but are you seeing any trends in legal financing these days?
RS: Definitely. First, demand for legal finance is growing quickly. Both law firms and clients are beginning to realize that it can be a great way to fund expensive legal fees, stabilize cash flows and share some of the risk inherent in the litigation process. We have seen growth in the types of cases and in the size of cases in the past couple years. At the moment, most of the cases the industry funds are plaintiff-side. However, we are definitely seeing tremendous interest in funding of defense cases. At Validity we offer a number of defense-side solutions, and we expect that demand for them will continue to grow.
LD: How would you describe your style or philosophy with this type of service?
RS: We always put clients first. At Validity, we understand a funding relationship needs to start with trust so we consistently aim to be open, transparent and accountable to our clients at every stage of the process. We only hire people who are dedicated to delivering that kind of bespoke client service, and we are building trust with our clients and their counsel day by day, case by case.
LD: What advice would you give potential clients in terms of how to most productively work with a litigation finance firm?
RS: First of all, it’s essential to be comfortable with your choice of funder. You will never be able to work productively with someone if you doubt their expertise, ethics or commitment to providing you with top-notch service. We have found that clients generally prioritize a sense of trust and ease of transaction over price. A litigation finance deal isn’t — and shouldn’t be — a race to the bottom.
But there are basic things you need to look for when choosing a funder. First, the funder needs to be sufficiently well-capitalized to provide the money you need.
Second, they need to have experience both as litigators and as funders. Understanding how to finance cases is a different skill set than understanding how to litigate cases, and in my opinion you need both.
Third, you should look at their funding documents to ensure they are written in plain English, and that the funder doesn’t claim the right to control your legal strategy or settlement decisions. Many funders claim they don’t do that, but then insert clauses in the funding agreement that give them leverage to dictate terms later in the game.
Once you’re comfortable with the basics, it becomes a question of whether your funder adds value and builds trust. Does she understand the issues you’re litigating? Does she have a collaborative attitude? Does she answer your questions and make suggestions that you find helpful? Some of our clients like to use us as a sounding board as they develop their strategy and arguments. We welcome that. Every time we talk to a client, our goal is to help them get closer to their desired outcome.
LD: This type of work is becoming a real game-changer in the broader legal industry. Can you speak to what makes this work so innovative for lawyers and their clients?
RS: We operate on a very simple premise, which is that disputes should be decided on their merits and not on who has the deepest pockets. Our goal is to liberate our clients from cost constraints to the extent possible. For companies that means they can pursue the litigation strategy of their choice and work with outstanding professionals and experts. For lawyers it means they can focus on doing what they do best, which is advocate for their clients.
LD: Why did you decide to go out on your own and found Validity rather than stay with another company?
RS: I spent 6 years at Bentham IMF, which is a commercial litigation funder based in Australia. I left to start Validity because Bentham is managed from another country. I wanted the US market to have a funding company that was run by Americans, tailored to the needs of American clients, and based here. Focus matters a lot. We can be more nimble in our solution development, more responsive to clients, and more aligned as a company because of that focus.
LD: Do you have a favorite book about the law?
RS: That’s a hard one. I’d have to say “The Lottery,” by Shirley Jackson. It’s a short story about a small town which, in lieu of having a court system, holds a lottery once a year to randomly choose someone to be stoned to death. The implicit deal is that everyone will behave themselves all year, and then vent any pent up anger or revenge instinct in this one brutal ritual. Apparently the New Yorker got a lot of hate mail when they published it in the 1940s, but I think it makes an important point. Every society needs to have a mechanism for dispute resolution. Our system is based on reason and objective measures of fairness. It’s not a perfect system, but it’s one of the only things standing between us and some very unpleasant alternatives.
LD: If you weren’t in your current job, what would you be doing now?
RS: Reading books on the beach in Mexico.