David Kerstein was a litigator at Gibson Dunn nine years ago when he first learned about litigation financing, an industry that has seen rapid growth in recent years.
His work at Gibson was a mix of complex commercial cases, including securities, bankruptcy, and arbitration matters. His desire to do something more entreprenuerial had him considering a different path when he learned about litigation funding from a matter he was working. He saw the potential in the nascent industry and left the gold-standard litigation firm to join Bentham IMF (now Omni Bridgeway).
Kerstein has since struck out on his own and helped found Validity Finance, which focuses on funding business-to-business, commercial litigation in the U.S., as well as international arbitrations. They provide capital to individual commercial plaintiffs and to commercial law firms. As Chief Risk Officer and Senior Investment Manager, Kerstein works with companies and firms on funding models for cases, while applying his litigation expertise to advise on case strategy.
Lawdragon: How has the pandemic impacted your business? Are you seeing more or less of certain types of cases?
David Kerstein: We are seeing more opportunities that are directly or indirectly related to the current economic environment coming from Covid, including insurance recovery matters, breaches of contract, and failure to perform-type disputes. As the crisis continues, we have seen a general increase in the need for capital and our services across industries and law firms. With liquidity challenges, there has been an uptick in outreach from firms of all sizes, including large firms that were previously not willing or ready to share risk or consider using funding.
We are also hearing from large corporations that theoretically could afford to fund their own litigation, but would rather use their own capital to make their widgets or perform their core competency. These corporations are beginning to recognize that litigation finance is another tool that they can use to manage and mitigate litigation risk and finance a large project, like a significant litigation.
LD: Interesting. Are you offering any different products or services in these times?
DK: In the wake of Covid-19, we have been approached to partner with law firms to create jumbo-sized portfolios. These are designed on a bespoke basis and represent an innovative way to approach financing a firm’s growth, or to smooth out cash flow and mitigate risk. Portfolios of this size helps firms pool risk for everything from receivables, hiring, and supporting the traditional set of contingency cases. As law firms compete for key clients, these portfolios also offer a way for them to offer discounts far beyond what they can do with traditional mark-downs and AFAs [alternative fee arrangements]. We’ve been excited to develop these bespoke products and to collaborate with firms to solve a real need in the industry.
LD: How did you get into litigation financing in the first place? Did you practice as a lawyer originally, or what’s your education and career background?
DK: I’ve been incredibly fortunate to have had the opportunity to study at and then work at a series of elite institutions. Starting with the University of Pennsylvania, where I got a degree in diplomatic history, and then following with Penn Law School, I received an excellent undergrad and law school education, and was able to build a network of close contacts with whom I collaborate to this day.
Following law school, I spent the bulk of my legal career at Gibson Dunn, which has one of the top, if not the top, litigation group in the country. I was able to hone my legal and litigation skills there and work and establish relationships with some of the most elite litigators in the country. The educational and premier law firm foundation and network that I built served me well when I chose to change career paths and enter the litigation finance world back in 2014.
I learned about the litigation funding world while I was practicing at Gibson Dunn. I was working on the well-known Chevron Ecuador litigation in 2011, and I was working late one night (as usual), and in a miserable mood, when I discovered that the plaintiffs in that litigation were using something I had never heard of until that moment – litigation funding. The litigation finance industry, still relatively new now, was really just getting started in the United States then. I had been thinking about a new career path, and suddenly, the proverbial cartoon lightbulb went off over my head and I could see the path ahead of me.
The passion that sparked me one terrible night led me to a meeting with Ralph Sutton, then the Chief Investment Officer at Bentham, and later to join Ralph there, where I worked for four years as an investment manager. Two years ago, I joined Ralph again when we founded Validity. We have since had the opportunity to fund and work with top notch litigation boutiques and many AmLaw 100 firms either on an individual case or portfolio funding basis.
LD: Having gone from a litigator to a litigation financier, how would you describe your work style now? And, what characteristics does it take to thrive in this burgeoning area?
DK: I would describe my style or philosophy as collaborative and open minded. I believe that you have to have a combination of deep legal knowledge and experience, along with patience and creativity, in order to find and ultimately invest in the right transactions.
In addition, I pride myself, as does our whole company, on being client-focused and on establishing fair, trusting, and long-term relationships with clients. In short, if you are our client, we want you to be happy you worked with us, to come back to work with us again, and to pass word of your experience to others.
LD: How did you decide to start your own litigation funding firm?
DK: I was fortunate to be able to cut my teeth at one of the pioneers in litigation finance. Even though I loved it there, when I had the opportunity to join Ralph, as well as Julia Gewolb and Laina Hammond to found our own company that was focused on client service and trust, it was kind of a no brainer. When you see a need in the market, and an opportunity to take an ownership and leadership role in a startup-type company with an amazing team, a great mission, and a significant amount of committed capital, it is an easy decision to make.
LD: What do you do for fun when you’re outside the office?
DK: I am an avid live music fan and a proud NYC music freak, as well as a long-suffering Mets, Jets, Islanders, and Knicks fan. I like to live by the mottos, “Can’t you live while you’re young,” and “Please me have no regrets,” because you won’t find moments in a box. As a life-long New Yorker I love attending any event where there is a lot of energy, hanging out with my two “young men” who are now 15 and 12, and devoting time to two charity organizations, the Freaks Action Network and Riley’s Way Foundation.
In the recent Covid era, where it can seem like a week is a month and an hour a day, although its currently not feasible to attend large events, it’s still important to stay in touch with friends, colleagues and clients. So, like many others, I’ve substituted in virtual cocktails, meals, and concerts on Zoom, House Party, and other virtual platforms.