Building the Right Machine

Origin stories

Wendy Chou: X Social Media has an interesting origin story. Tell me about it.

Paul Liebman: In 2010 our founder, Jacob Malherbe, moved to Pensacola. Just six months after he bought a house there, the BP oil spill happened. And at that point, he had gotten to know a community of no more than 300 residents on this little island. The oil spill devastated the local community. So, he decided to be an advocate.

He started writing a blog and got over 700,000 people to follow it in a very short time. That led to a knowledge of SEO. The lawyers were asking, hey, what are you doing? We can help all these victims. They ended up getting about 12,000 claims from the blog. That led to other mass torts, and then a deep knowledge of Facebook. The company was started in October 2015, and by 2016 it had $2 million in revenue, just doing Facebook advertising for law firms. The way he puts it is that you build the machine right one time, it just works — and the machine hasn’t changed since 2015.

How did you get into this space?

Chou: Early in my career I was immersed in the world of commercial conferences. It’s a very focused business, building an event from scratch from start to finish. You’re basically working against the clock churning out as many conferences as you can as quickly as you can.

What I learned over time is that you don’t have to take that approach. It’s short-sighted and doesn’t deliver true value to participants or the industry as a whole. That’s why our focus at Dealmakers, first and foremost, is on quality and meaningful experiences, to bring people together. We’re invested in the spaces where we operate. We develop partnerships with leading industry players, which ultimately helps us to learn about the industry and optimize the discussions and dealmaking that happens at our events.

One of the things we’ve been hearing about in our conversations with the market is the growing interest and convergence between litigation funding and mass torts. Since X Social sits at the intersection, can you share more about what you’re seeing in the mass tort landscape and how funding is impacting it?

Risk in the mass torts landscape

Liebman: There is a tremendous amount of, we’ll call it “Wall Street money,” coming into the space right now, funding both large firms and small firms. It’s good for the space in a lot of ways. The negatives are that there are a lot of defense firms and even federal judges that are trying to find out if plaintiffs’ attorneys actually have funding or not, because there could be some pressures from the funders behind the scenes to settle cases, especially depending upon what the duration of the tort has been, and how deep they are in their line.

But as far as having funding come into our space, I think it’s a great thing, because it enables firms — and more so, plaintiffs themselves — to have access to legal representation.

We’ve done over 50 mass torts. It’s all about finding the class. In the Purdue opioid case we were asked to find 10,000 clients in four months. We found 67,000 clients. The class could have been much larger.

The only risk in this, in my opinion, is duration: You take a talc litigation, that lasts for eight to ten years. The duration of risk that is associated with mass torts is definitely there.

Investment trends

Chou: I’m curious, speaking about money coming into the space, what kind of investments are you seeing litigation funders make?

Liebman: What we’ve been seeing recently is a lot of the funders are looking for more diversified portfolios. Dockets, if you will. They’re frontloading a lot more of the seasoned torts that are out there, and the shorter duration torts. They’re taking smaller percentages or allocation of the docket, and putting it into the newer torts. Most funders are not just buying one tort, they are looking more for a diversified docket.

Jurisdictional perspectives on ABS

Chou: Let’s talk a little bit about ABS. Obviously, Arizona is front and center, you’ve got Utah, DC, California. We’ve got things going on in different jurisdictions on different timelines. I’m very curious to know what your perspectives are on where ABS stands, and how you see that playing out in the coming years.

Liebman: Most of the emphasis is on Arizona. Going into Utah, there’s a small, small amount of people who are in that little sandbox that’s been going on for about 30 months now. I don’t know how that’s going to end up in that state. But in Arizona, not only are there a lot of funds that are getting involved in ABS, but there are a lot of larger law firms that are opening up an ABS to take that first step in becoming a national brand.

There is a good possibility, using the ABS in Arizona, that we’re all going to end up with a handful of large funds that are equity partners in those firms. Over time, these funds, typically managed by adept businesspeople, may see the benefits of vertical integration and opt to acquire vendors. This would allow them to control all processes in house, from acquiring to litigating the case. This puts the funds in the driving seat of litigation, controlling the process from beginning to end.

However, it’s uncertain if this outcome will ultimately benefit the plaintiffs. While it’s true that not every lawyer excels in business, they undeniably possess a knack for legal representation and client assistance. Meanwhile, it’s questionable whether these funds fully grasp the intricacies of mass tort litigation. And I think the funds that have this grander idea of opening up an ABS don’t know all the pitfalls.

ABS pitfalls

Chou: What are those pitfalls, from your perspective?

Liebman: I don’t think that ABS window is going to be open forever. It’s going to be open for a certain period of time, and then it’s going to close. Some of the pitfalls are not having the best attorneys on staff and representing people. It becomes more of a money machine than anything else. It takes about 24 to 36 months for them to really know if they have a compensable case or not. There are much better ways of doing it, where you can find out within three or four months if you have a compensable case.

What they’re missing is the human factor of plaintiffs’ law firms, actually having a track record with defense, and being able to run jury trials and convince a jury to pay a verdict. They’re missing all the human factors of a law firm.

Funding best practices

Chou: That’s a good transition to the next big question, which is really about the regulation that the space is facing. And it seems to be about transparency. People understanding who’s funding the case, who’s getting paid, and how they’re getting paid. There’s regulation, and then there’s just responsible and best practices. Litigation funding is a newer industry with developing practices, and practices can vary considerably from funder to funder. Coming from the world of intellectual property, I don’t see regulation as always being a good thing, because it can result in unintended, harmful consequences. My question is: How much of the change that needs to happen should be driven by regulatory measures versus development of best practices?

Liebman: We do have best practices going on right now. I am all for regulation, as long as it’s in a certain box, but really, the attorneys that are lenders need to check themselves. I’d rather have them understand that if they don’t do certain things, regulation will come and do it for them.

It’s so clear in what happened in the Texas-Louisiana decision about cost per case. That made the rounds to everybody. If you’re buying on cost per case, I don’t want to protect the money; you should protect the money. Let’s go back to the regular advertising model where we advertise, we pick the good partners. And it’s either cheaper or more expensive than cost per case.

A machine built to help people

Chou: Let’s bring this full circle to a couple of the things that were said earlier. You talked in your origin story about this being an enterprise that came out of being involved with the community and the right relationships, and that what’s often missing is the human factor. You also spoke of building the right machine. What are the components of that machine?

Liebman: Our mission when we started was really helping people. We’ve tried to help 1.8 million people. So building the machine was really how can we help people at the lowest amount of cost? What we are seeing now is all this money chasing yield or chasing returns.

Helping people never fits in anybody’s spreadsheet as a return on your money. It doesn’t say, oh, there’s a 4x return on mass tort. But we’re forgetting about the people we’re trying to help, which is really the foundation of this whole business.