Tag Archives: Class Actions

The Benefits of ALF in Class Actions

“Access to our courts is expensive—prohibitively so for the vast majority of class action plaintiffs”.  Tyler W. Hill, “Financing the Class: Strengthening the Class Action Through Third-Party Investment”, 125 Yale L.J. 484, 494 (2015).  Alternative litigation financing (“ALF”) is recognized as having the potential to not only improve access to the courts, but also make litigation more economically efficient and receptive to the traditional aims of tort and employment discrimination law.  See, e.g., Peter Charles Choharis, “A Comprehensive Market Strategy for Tort Reform”, 12 Yale J. on Reg. 435, 435 (1995).  These virtues apply to class action litigation as well.

The social benefits provided by ALF are being increasingly acknowledged.  Addressing the value of ALF, New York Supreme Court Justice Shirley Kornreich noted the “sound public policy of making justice accessible to all regardless of wealth” and recognized that the expense of litigation can otherwise deter litigation against “deep pocketed wrongdoers”.  Hamilton Capital VII LLC I v Khorrami LLP, No. 650791/2015, 2015 WL 4920281, at *5 (NY Sup Ct 17 August 2015).  See also Susan Lorde Martin, Op-Ed., “Leveling the Playing Field”, N.Y. Times (Nov. 15, 2010), http://www.nytimes.com/roomfordebate/2010/11/15/investing-in-someone-elses-lawsuit/leveling-the-playing-field (“Defendants in lawsuits often have insurers to finance their litigation expenses; litigation finance firms merely play that same role for plaintiffs, leveling the playing field.”)

Some observers have parsed public statements of certain litigation financiers and concluded that “litigation investors [] see their market as comprising large corporations [and] that it is politic to give class actions a wide berth”.  Deborah R. Hensler, “Third-Party Financing of Class Action Litigation in the United States: Will the Sky Fall?”, 63 DePaul L. Rev. 499, 507-508 (2014).  The evidence belies this conclusion.  ALF plays a critical and necessary role in class actions.

In perhaps the most detailed and comprehensive academic treatment to date, the “Financing the Class” journal article cited above “draws on recent literature about the benefits of third-party litigation financing”, and makes a meticulous case advocating the merits of promoting third-party financing of class actions. “Financing the Class”, id. at pp. 489, et seq.  The author – as well as other observers — note that class actions perform important compensatory and regulatory functions, and should therefore be encouraged.  ALF provides a mechanism for advancing the beneficial role of valid class actions, which might otherwise be unsustainable.  See also Jay Tidmarsh, “Can We Talk Money?”, JOTWELL (Courts Law) (Jan. 19, 2016), available at http://courtslaw.jotwell.com/can-we-talk-money/.

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.

Topics:  Litigation finance, portfolio financing, portfolio funding, third-party funding, alternative litigation finance, class actions.

A Perspective on Litigation Finance from a BigLaw Attorney

The United States Chamber of Commerce and other critics of litigation finance would have you believe that the business of investing in litigation is one of payday lending’s shady cousins.  This characterization raises the question of why any serious lawyer would have anything to do with litigation finance.  A BigLaw attorney who recently moved from a prestigious firm to a litigation finance company explains why litigation finance was an attractive career move, and, in making that explanation, he rebuts many of the most negative myths and stereotypes of litigation finance.

Garrett Ordower is the model of a promising BigLaw attorney on the brink of great professional success.  He attended the University of Chicago Law School, where he was editor-in-chief of The University of Chicago Law Review. He had two prestigious clerkships with federal judges, one on the Second Circuit and the other in the Northern District of Illinois.  And then he began to work as a litigator for Wachtell, Lipton, Rosen & Katz, one of the nation’s leading litigation firms.

Ordower enjoyed his practice experience because it compelled him to ask hard questions and engage in rigorous analysis.  As he put it, litigation practice involved looking through the lens of the law to ask questions like, “What facts matter in the particular legal context? What did they mean as applied to the law? And how do we present these facts and law most favorably to our client?”

Ordower began to learn about litigation finance through a college friend, who was involved with a litigation finance company.  He came to realize that success in litigation finance requires the same analytical skills as success in the litigation department at a big firm.  He explained that “[l]itigation finance combines all of those skills that I’ve learned through the years: the analysis of facts, the application of law, and, of course, the continual questioning of arguments, positions, and assumptions.”

So Ordower left the firm and moved to a litigation finance company. And even in the early stages of his career in litigation finance, he recognizes that those who invest in litigation do so only after a careful evaluation of the merits and prospects of a case.  They invest only when they can be confident that a case is well-founded and has a real chance to succeed.  Ordower’s description of how his new job works demonstrates exactly why litigation finance makes the justice system better and why its critics are so far off the mark:  “We seek to really learn the story, and then once we’ve digested it, to ask a lot of questions. We will question your facts and test your arguments.  We will engage in a candid dialogue about a case’s strengths and weaknesses. Doing so allows us to have confidence in our decisions and offer competitive terms. And those that explore funding with us will have the benefit of knowing they’ve received a full, fair, and honest evaluation.”

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, class actions, BigLaw, legal careers

Works Cited:  Garrett Ordower, Why Did I Go from BigLaw to Litigation Finance? Good Question,, Above the Law (Sept. 20, 2017) available at https://abovethelaw.com/2017/09/why-did-i-go-from-biglaw-to-litigation-finance-good-question/?rf=1

Canadian Court Concludes That Litigation Financing Is a Private Matter

In a recent post, we discussed a Canadian case in which a plaintiff class and its litigation funder sought court approval for a particular kind of financing agreement that would fund attorneys’ fees and litigation expenses during the pendency of the case.  In a similar case, involving a single plaintiff rather than a class, another Canadian court has declined to approve a parallel agreement, but this ruling is not a defeat for litigation funding.  To the contrary, because the court ruled that funding agreements were a private matter not subject to court approval, the decision is ultimately a favorable one for litigation funding in Canada.

In Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc., Seedlings asserted a claim for patent infringement. Like many commercial entities in intellectual property cases, Seedlings entered into a litigation funding agreement with a litigation finance company. Under the agreement, financing company would provide funding for Seedlings’ legal fees and other litigation costs in return for a share of the recovery in the case.  The agreement expressly provided that the financing company could terminate the agreement and stop funding the case if it was no longer satisfied that the case was commercially or legally viable.  In the event of termination, the financing company would take retain a right to a reduced share of the recovery.

The financing company and Seedlings asked the court for a declaration that the agreement did not render the action an abuse of process or demean the administration of justice,.  The motion also asked the court to declare that Pfizer could not interfere with Seedlings reliance on third-party funding.  Before this motion, a Canadian federal court had never considered the validity and enforceability of a litigation funding agreement in the context of private commercial litigation.  Those courts had only ruled on litigation funding agreements in the context of class actions.

The court dismissed the motion on the ground that it lacked the jurisdiction to make such a declaration.  According to the court’s analysis, because the litigation financing agreement was i independent from the underlying patent action, it was not within the statutorily defined jurisdiction of the federal court. For similar reasons, the Court also concluded that Pfizer had no right to challenge the validity of the litigation funding agreement because it did not affect or determine the validity of the rights asserted by Seedlings.

While Seedlings and the financing company did not obtain exactly the kind of endorsement they hoped for, they did get a favorable result.  As a result of the court’s ruling, there is now precedent that prohibits a litigant from challenging its opponent’s litigation financing agreement. In addition, the Seedlings Court’s ruling makes it clear that litigation financing agreements are completely independent of the substance of a litigation matter and, therefore, that bringing a case with the help of a litigation funder cannot be an abuse of process.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, class actions, Canadian law, contingency fees, partial contingency fees

 

Works Cited:

Bennett Jones, LLP, Funding Arrangements in Private Litigation Are Private Matters—Not to Be Scrutinized by the Federal Court or the Defendant, JD Supra (Sept. 25, 2017) available at http://www.jdsupra.com/legalnews/funding-arrangements-in-private-45489/

A Canadian Innovation in Class Action Funding

One of the principal benefits of litigation funding is it facilitates a more just and efficient allocation of the risk associated with lawsuits.  In return for a share of the recovery in a case, a deep-pocketed investor can assume some of that risk by advancing funds to the litigant, thereby making it easier for the litigant and the attorney to pursue the claim.

In a recent Canadian class action, a litigation funder has proposed a novel financing arrangement that would provide a new way for litigation funders to more effectively – and fairly – allocate risk.  In Canada, as in the United States, common funding practice in class actions is premised on the idea that the attorneys would work on a full contingency basis, collecting their fee only at the conclusion of the litigation.  The problem with this practice is that it requires the law firm to assume a very substantial portion of the risk of loss in the case.  Of course, assuming such a risk can be a difficult business decision in itself. Moreover, deciding to take a class action on a full contingency basis also has collateral effects for the firm’s practice.  It limits the firm’s ability to take on other risky cases, and it diverts financial resources that could be used to litigate other cases for plaintiffs who have valuable claims but not a lot of cash on hand.

A litigation funder in Canada wants to take a different approach to funding class actions. In Houle v. St Jude Medical Inc, which arises from the marketing of allegedly deficient defibrillators, the third-party funder asked the court to approve a funding arrangement under which the funder would pay for a portion of the attorneys’ fees, so the law firm operates on a partial contingency fee.   In addition, the funder promised to pay all the disbursements for the class, rather than a capped amount, as well as any court-ordered costs. This approach would allow the allocation of risk from both the attorney and the plaintiff class to the funder, whereas the typical funding arrangement only permits the plaintiff to shift risk to the investor.

There is another novel aspect of the funding arrangement in Houle. The funder proposed a clause in the funding agreement that would permit the funder to terminate the funding arrangement on ten days’ notice, if certain events occurred.  These events would include breaches by the plaintiffs or the withdrawal of class counsel. Moreover, the clause would permit the funder to terminate if it ceases to be convinced of the merits of the case or the commercial viability of its investment. In the event of such termination, the funder would be entitled to a greatly diminished share of the recovery.  The clause also provides that the funder can only exercise its termination rights on a reasonable basis.

The parties are waiting on a decision from the court about whether to approve the arrangement.  But the arrangement has obvious advantages.  It fairly allocates risk among all of the parties with an economic interest in the claim.  It facilitates the law firm’s ability to manage the financial burden of the class action and to carry on its representation of other clients.  It provides the funder with the option of withdrawing from the case if it turns out to lack merit, thus reducing the chance that the provision of funding will allow an unmeritorious case to continue.

In short, this arrangement shows how well litigation funding can work.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, class actions, Canadian law, contingency fees, partial contingency fees

Litigation Finance in Class Actions: Are Third-Party Funding Agreements Discoverable?

There is on-going uncertainty about whether and to what extent agreements for third-party litigation funding can be subject to discovery.  This is true in all kinds of litigation, but a couple of recent decisions have reached opposite results in the context of class actions.  This difference ultimately arises from different views about whether the existence of a third-party funder is relevant to class certification issues.

In Kaplan v. S.A.C. Capital Advisors, L.P., the defendants sought discovery about the relationship between the representative plaintiff, class counsel, and a third-party litigation funder.  According to the defendants, such discovery was necessary “to explore whether there may be a risk that the Elan plaintiffs’ funding arrangements could affect the strategic decisions they will make on behalf of the class, or could cause counsel’s interest to differ from those of the putative class members they purport to represent.”  In addition, the defendants argued that the discovery would be necessary to determine whether there was a potential for conflicts between the representative plaintiff and the class over the costs associated with litigation funding.  These arguments did not prevail, however.  The district court declined to compel the production of funding documents because the court found that class counsel’s representations about the adequacy of its resources were sufficient and that any questions about potential conflicts between the class and the representative plaintiffs was purely speculative.

Gbarabe v. Chevron Corp. arose from a fire on an off-shore oil drilling rig off the coast of Nigeria.  The plaintiff class was comprised of fishermen who alleged that their businesses and health were adversely affected by the fire.  As in Kaplan, the defendant argued that the disclosure of litigation funding agreements was necessary to determine the adequacy of class counsel’s representation.  Unlike Kaplan, however, the district court did permit discovery of the litigation funding arrangements.

But there were unique factual circumstances in Gbarabe.  Most importantly, there were serious questions about the adequacy of class counsel, who was a solo practitioner with no formal office or support staff.  Moreover, class counsel had missed deadlines due to lack of resources. In addition, the confidentiality provision of the litigation funding agreement, which class counsel had quoted in a brief to the court, seemed to contemplate that the agreement would be subject to discovery.

These two cases demonstrate that there is no single clear rule for determining the discoverability of third-party litigation agreements.  In the ordinary course, there are strong reasons for prohibiting discovery.  But, when there are real questions about the adequacy of class counsel, and when litigation funding is a crucial factor in assuring such adequacy, discovery may be warranted.

Topics:  litigation finance, legal reform , third-party funding, litigation costs, legal costs, law reform, class actions, discovery

 Works Cited:

Kaplan v SAC Capital Advisors, LP, 2015 U.S. Dist. LEXIS 135031 (SDNY, Sep. 10, 2015)

Gbarabe v Chevron Corp., 2016 U.S. Dist. LEXIS 103594 (ND Cal, Aug. 5, 2016)

 

Canada’s Position on Third-Party Litigation Funding

Canadian courts have been reluctant to approve third-party litigation funding, which is partly due to its potentially negative implications. The doctrines of maintenance and champerty came into existence in the early 1300s in the English legal system when the royal family and officials began agreeing to join their name to certain legal claims in exchange for a share of the proceeds. While these doctrines, barring improper motives in engaging in litigation, have been largely repealed, Canadian courts still consider them relevant today. Canadian courts are beginning to carve out exceptions to actions that otherwise may have been champertous.

The litigation funding industry is even less developed in Canada than it is in the United States. However, growing support for the industry currently exists in the class action field since most firms are incapable of funding class actions and there are huge risks involved in funding class actions. To date, decisions for cases where litigation funding was involved have only been issued in seven provinces, and have primarily been seen in the class action context.

Canadian courts have frequently been requested to examine third-party litigation funding arrangements. Specifically, the courts have been asked to evaluate whether the rate of return in litigation funding agreements is reasonable. The court’s role in these scenarios is not widely opposed. Even advisors engaged in third-party litigation funding are not against courts having a supervisory role where litigation funding is involved.

In 2013, the Ontario Superior Court set forth a number of conditions for court approval in the class action context in the case Bayens v. Kinross Gold Corporation. Also, the court considered whether the agreement was privileged and whether the terms of the agreement compromised the duty owed by the attorney to its client. Further, Canadian courts have indicated that properly drafted litigation funding agreement will provide the following: 1.) the major decisions must be made by the plaintiff; 2.) the return must be reasonable and proportional to the risk undertaken; 3.) the agreement should not contain confidential or privileged information in the case that the court deems disclosure of the agreement necessary; 4.) the agreement must only require plaintiff to disclose controlled and reasonable information to funder; and, 5.) the funder should anticipate a long term financial commitment. [ii]

In 2015, the Ontario Superior Court was first asked to evaluate the role of third-party litigation funding outside the context of class actions in Schnek v. Valeant Pharmaceuticals International Inc., a case which would predict the future of litigation funding in commercial disputes. The court notably stated that there is nothing inappropriate about litigation funding in commercial litigation but the prohibitions against maintenance and champerty must not be violated; the defendant is not entitled to the production of a retainer or budget; and, the litigation funder was entitled to the information and documents disclosed by the defendant. Thus, the court’s findings essentially gave the litigation financing industry a green light in commercial litigation contexts. [iii]

What must be disclosed to a defendant has yet to be decided by Canadian courts. However, both the holdings in Schnek and Schneider v. Royal Crown Gold Reserve Inc. indicate that Canada’s trend will be to prevent disclosure to defendants in cases where litigation funding agreements are involved as who pays adverse costs has no bearing on the matter being litigated. Recent suggestions indicate that requiring a plaintiff to disclose the fact that it is funded by a third-party can have detrimental consequences because it may cause the defense to drown the plaintiff in motions.

[i] Shannon Kari, CANADIAN LAWYER MAG, Third party Litigation Funding, Jan. 3, 2017, http://www.canadianlawyermag.com/6282/Third-party-litigation-funding.html.

[ii] Howard Borlack and Ben Carino, MCCAGUE BORLACK LLP, Third-Party Litigation Funding in Canada, http://www.mondaq.com/canada/x/463462/trials+appeals+compensation/ThirdParty+Litigation+Funding+In+Canada (last updated Feb. 3, 2016).

[iii] Lincoln Caylor and Ranjan K. Agarwal, Law360, June 20, 2016, 2:24 pm, The State of Commercial Litigation Funding in Canada, http://www.law360.com/articles/808851/the-state-of-commercial-litigation-funding-in-canada.

Tagged: Litigation Funding, Third-Party Litigation Financing, Canada, Litigation Financing Agreements, Class Actions, Champerty, Disclosure of Litigation Funding Agreements