Tag Archives: alternative litigation finance

The Growth in Litigation Finance Continues

Since its beginnings in the US, litigation finance has mainly been associated with helping the “little guy” in David v. Goliath lawsuits.  While helping to level the playing field is very important, especially to companies like TownCenter Partners who value justice for everyone.  Supporting smaller organizations is not the only use for alternative litigation finance.

Litigation finance can be helpful to even the largest organizations to manage risk and use their resources more strategically.  As larger organizations become involved in litigation financing not only is the market for it growing rapidly but it is also changing how funder’s run their business.

The traditional model was that litigation finance companies gave an advance to individual clients to cover attorney’s fees and legal costs.  But now single-case investments are not the only part of funders’ business.

There is a growing trend toward larger portfolio investments that combine multiple cases and provide something like a credit facility that a client can draw on during its suit. Part of this is because as larger law firms are using litigation finance they are interested in having more flexibility to have alternative fee arrangements but don’t want to have to take on that risk all at once.

For growth, it is helpful for firms to take on multiple cases at once but even if you only pick strong cases there is still a likelihood of at least some loses.  Therefore, a third-party funder can help a law firm to manage its risks as it grows more rapidly.  Additionally, the use of litigation finance for companies and law firms helps to add predictability to their litigation spending from quarter to quarter.

With more and more jurisdictions approving of alternative litigation finance, including recently Hong Kong and Singapore, experts predict that the demand will only increase.  As the market expands there will be continued discussion over regulations as we have already seen here in the United States, however, discussions about disclosures and other methods of regulation do not seem to be deterring the market.

Topics:  litigation finance, alternative litigation finance, third-party funding, law firms, regulation

 Works Cited:  Nathan Hale, Litigation Funding Isn’t Just for the Little Guy Anymore, Law 360 (April 20, 2018).

Intellectual Property Cases and Litigation Finance

Intellectual property is becoming one of the most active areas of litigation finance for a few reasons.  In particular, trade secret misappropriation cases are a good fit for litigation finance.  Many trade secret cases arise from startup companies and are company-endangering situations.  Meaning that these are high stakes situations for small companies that usually do not have extensive legal budgets.  These types of cases often present themselves in the way of an extremely large and wealthy company against a smaller, less wealthy organization.

This is the case with the current court case in the Northern District of California, where Space Data is alleging that Google used confidential information and infringed on three of the company’s patents.  While it recently came out that Space Data is not using third-party litigation financing in this particular case.  This would be the type of trade secret or intellectual property case for third-party financiers to get involved in.

In cases like Space Data where there is a noticeable difference in size and resources between the two companies, the use of alternative litigation funding helps serve a primary purpose of leveling the playing field and allowing the smaller organization to continue the litigation longer than they probably would be able to on their own.  Third-party money would allow the startup or smaller organization to hire the best legal representation and afford expert witness testimony rather than taking an early, low-ball settlement offer.

Beyond just leveling the playing field, litigation financing can be extremely important for technology that is untested or not well known.  A new invention may have great prospects but may not have hit store shelves yet so it would be hard to prove damages for the court.  Litigation funding can assist in this dilemma by providing money to get the best experts to testify to the value of the invention or to use the best predictive software for market sales to provide the court with an appropriate damages amount.

Litigation funding is not only for trade secret cases or intellectual property cases where the two parties are distinctly different in size.  Larger companies can also benefit in the use of alternative litigation finance to transfer risk from their company to a third-party.  As well as transferring the cost of litigation from their books to an outside company’s to preserve the company’s bottom line.

Topics:  litigation finance, alternative litigation finance, third-party funding, antitrust, international, competition

 Works Cited: John Bair, ‘Potential’ Litigation Funding Not Relevant in Google Lawsuit, The Legal Examiner (July 5, 2018).

Matt Harrison, Investment Manager and Legal Counsel, Bentham IMF (June 07, 2017).

Antitrust Law and Litigation Finance

Antitrust or competition is a unique field because in the US it requires proof of harm in civil matters by the claimant even after government prosecution.  This means that expert witnesses need to be involved every time a claim is pursued which adds more than usual financial pressure for the clients, even when their firm is willing to work on a contingent fee basis.  As a result, clients and law firms must be committed to pursuing a claim just to get to where the claim can be filed.  Additionally, the nature of antitrust claims usually means that the claimants have already suffered financial hardships due to some event before this point and may not be able to afford litigation.  This is why antitrust claims can be great candidates for alternative litigation financing.

Antitrust litigation is also a unique field because claims usually have a very long timeframe.  Therefore, it is vital to find a financier that has the resources to support a lengthy claim or to support the functioning of everyday business for the claimant’s company while the suit is ongoing.  However, the duration of antitrust claims can also make them more attractive to litigation finance companies that like to see at least a year or more in litigation before getting involved in a matter.

The past few years have brought an expansion of antitrust actions in Europe and the UK.  These have been high value cases against large organizations such as investigations into Volkswagen, Daimler and Audi.  This action in Europe suggests a trend that may be worldwide, a growing number of antitrust and competition claims.

Along with more claims comes more regulation.  In 2017, the EU Antitrust Damages Directive was implemented across the UK and Europe to make antitrust claims more plaintiff friendly by shifting the burden of proof to the defendants.  This may seem to be not as important to the U.S. considering in American jurisdictions the burden of proof still rests on the plaintiff, however, I suggest that it is particularly important in the realm of antitrust to pay attention to what is happening in Europe and elsewhere for two reasons.

First, newer regulations such as the EU Damages Directive may be indicative of industry changes that may begin to reach across the oceans.  But secondly, because so much of the economy is multinational now it is important to understand regulations in other countries.  For example, the EU Damages Directive contains a provision saying that actions can be brought in the jurisdiction in which the defendant is domiciled or in the jurisdiction where the harmful event occurred.  Therefore, law firms can take a more global approach and bring actions in multiple jurisdictions for their clients rather, than being more limited.

Topics:  litigation finance, alternative litigation finance, third-party funding, antitrust, international, competition

 Works Cited:  Ann Rogers, et al., Emerging Issues in Third-Party Litigation Funding: What Antitrust Lawyers Need to Know, The Antitrust Source (December 2016)

Aviva Will, Trends in Legal Finance: Competition & Antitrust, Burford Capital (February 27, 2018).

The Benefit of Litigation Finance at the Appellate Level

Even while litigation financing is booming and expanding in the U.S., its purview is still rather limited.  Most people view alternative litigation finance as an option in the beginning stages of a case where a financier receives the complaint and some discovery and decides to invest or not invest from the start.  However, that is not the only time to invest in a case.  In fact, some funders will require that the litigation has been on going for a specific period of time before they will get involved.

Even if there is no prerequisite time period for a financier, many people only consider litigation finance at the trial level and often overlook the benefit of litigation finance at the appellate level.  Winning a trial is very exciting but often takes time and drains resources.  Therefore, when it comes to an appeal it can be helpful to have the assistance of third party funding.  The use of litigation finance at this stage in litigation may lessen the risk for the client or law firm and may be able to provide some security of the winning award from trial.

For individual plaintiffs, it may be an option to monetize all or part of what was awarded at trial.  An arrangement like this may be in the form of a non-recourse an arrangement.  Meaning that if on appeal the verdict is overturned, the financier receives nothing and the client keeps the investment.  However, if the verdict is upheld on appeal than the financier would receive the investment back in full in addition to a negotiated return on the investment while the client would keep the rest of the award.

For a law firm, the process is likely to be similar.  It may be possible to monetize part or all of a law firm’s contingency fee after the trial but before an appeal.  Just like with the claimant’s advance, it would usually be a non-recourse agreement where the firm would only repay the investment plus negotiated return if the decision is upheld on appeal.

However, just like litigation finance agreements during trial there is due diligence that must be done before agreements can be made.  Usually due diligence would include considering discovery, the trial record, reviewing briefs of the relevant legal issues, and discussing the case with the appellate counsel.  Based on the results of due diligence, a litigation funder will be able to understand the risk profile of taking the case.

Topics:  litigation finance, alternative litigation finance, third-party funding, appellate cases, legal appeals

Works Cited: Litigation Finance at the Appeals Stage, Burford Capital (February 27, 2014).

Litigation Finance Provides Help in Bankruptcies

Litigation finance can serve to help produce meaningful recoveries in bankruptcy situations. This was well illustrated in the case of MagCorp bankruptcy trustee, Lee Buchwald and attorney Nicholas Kajon against MagCorp’s former holding company for driving MagCorp into bankruptcy.

After pursuing claims for over ten years and winning a $213 million judgment, Buchwald and Kajon were wary that MagCorp may win on appeal and wanted to guarantee that whatever the outcome of the litigation, there would be money to distribute to MagCorp’s long-suffering creditors.  To do this, Buchwald and Kajon sold an interest in the right to receive proceeds from the judgment on appeal.  This was a $26.2 million sale to then, Gerchen Keller Captial (now Burford), which allowed the bankruptcy estate to monetize a portion of the contingent asset and guarantee a minimum recovery to creditors.

The MagCorp situation is just one example of how litigation finance can be used besides the “traditional” case funding method where a financier pays the plaintiff of plaintiff’s law firm to continue a lawsuit.  Additionally, litigation finance could be used in bankruptcy scenarios to provide large capital to the estate by purchasing the claim outright when the estate has one, high-value claim with extensive litigation.  This method of litigation financing would mean that the financier would assume full litigation risk of the claim.

Or a slight variation on the traditional model of providing money directly to plaintiffs, litigation finance could be used to provide capital to law firms that specifically litigate bankruptcy issues on contingency terms.  By giving the firm more upfront cash flow, it allows such a firm to lower its risk exposure and take on litigation even when a cash-poor estate is unable to pay for the litigation on their own.

However, bankruptcy is a more regulated area of the law than many other areas.  With specific courts and codes, it could mean that some litigation finance agreements in bankruptcy would require court approval.  For this reason, those seeking outside capital should be able to demonstrate the need for the economic arrangement and the justification for it. Additionally, bankruptcy finance transactions should be structured to maximize value and avoid any foreseeable pitfalls.

Even with the extra regulation, the liquidity that the litigation finance industry can provide to cases could be extremely valuable to certain bankruptcy cases, particularly when resources are low and estates need to maximize the value of their assets.

Topics:  litigation finance, alternative litigation finance, third-party funding, bankruptcy, investments

 Works Cited: Travis Lenkner, Litigation Finance and its Uses in Bankruptcy, Law360 (July 25, 2017).

 

Four Common Misconceptions About Litigation Finance

The more litigation finance grows, the more it is understood.  But here are four misconceptions that still prevail about the field of litigation finance.

1. The underwriting process is long, tortuous, and highly invasive. This obviously depends on the funder that you are using and can even depend on outside factors such as how many cases the organization is currently reviewing. But it is likely to be rather quick (possibly days, more likely weeks) because financiers want to move quickly to strike a deal and they will have experience litigators helping them evaluate cases and make swift decisions regarding whether or not they will be investing.

2. Artificial intelligence runs the underwriting process. While artificial intelligence may be helpful for some areas of the legal field, deciding whether or not to invest in a case is an area that is still decided by humans.  Each funding organization will take into account different factors, weighing each one, and considering all the facts before making any decisions.  This type of analysis is not one that is very well suited for artificial intelligence as it varies so much.  There is not a formula that could be used to say yes or no if a case qualifies for a particular financier.

3. Litigation financiers control the paths of the litigations that they fund. In general, after agreeing to fund litigation and signing a contract with specific terms, financiers take a back seat role.  They will more than likely monitor the cases that they’ve invested in.  But due to ethical and professional responsibility guidelines they will most likely not be involved in the litigation at all.  They could potentially influence the litigation by retracting their funding but that is usually difficult to do (based on the terms of the agreement) and unlikely to happen.

4. Litigation financing is expensive for parties. Obviously, litigation financiers are trying to make money or else they wouldn’t be able to do this. However, the market is still growing, thus there is not an excess of competition so that parties can explore options before making a decision.  Additionally, each organization may be able to offer slightly different terms so it is important to do the research.  But at the end of the day, financiers want to receive good cases so hopefully they will be pricing fairly to stay engaged and involved in the market.

Topics:  litigation finance, alternative litigation finance, third-party funding

Works Cited:  David Lat, 5 Myths About Litigation Finance, Above the Law (June 5, 2018).

Senate Legislation for Disclosure in Litigation Financing

Senate Judiciary Committee Chairman Chuck Grassley (with Senators Thom Tillis and John Cornyn) recently introduced legislation that would require disclosure of third party litigation financing agreements in civil lawsuits.  The Litigation Funding Transparency Act of 2018, would require disclosure at the beginning of any class action lawsuit filed in federal courts or aggregated into federal multi-district litigation.

Grassley is calling for what he says is, “a healthy dose of transparency” to ensure the fairness of the civil justice system.  He says this is in an interest to prevent conflicts of interest in litigation.  The background work for this bill began in 2015 when Grassley and Cornyn began seeking details on the types of cases that funders would finance, the terms of the agreement, and if the court or other interested parties knew of the agreement.

However, since that beginning research in 2015, litigation financing has substantially expanded.  Burford Capital alone has reported profits up 75% in 2016 and that 28% of private practice lawyers in the U.S. say their firms have used third-party funding directly.  That is “a four-fold increase since 2013.”

The Litigation Funding Transparency Act of 2018 would apply to all class actions in federal courts by requiring class counsel to disclose in writing to the court and all other named parties to the case, the entity of any commercial enterprise that has a right to receive payment that is contingent on the receipt of monetary relief in the case.  This disclosure may be limited by stipulation or order of the court to protect certain information.  The same obligations would apply in any claim that is aggregated into a federal multi-district litigation proceeding.

Professor Anthony Sebok from Cardozo School of Law, raises both procedural and substantive concerns about this bill.  His procedural concern is that Congress should let lawmaking come from below on this issue.  By that he is referring to some jurisdictions already passing disclosure laws at the federal district court level.

His substantive concern is that there is no proven benefit of disclosure.  The Senators proposing the bill suggest that it will help discover conflicts of interest earlier on but Professor Sebok suggests that there is just not proof of a lot of conflicts of interest, in part because only two litigation finance companies are publicly traded but neither are publicly traded in the U.S.

Topics:  litigation finance, alternative litigation finance, third-party funding, new regulation, Litigation Funding Transparency Act of 2018

 Works Cited:  Anthony Sebok, Procedural, Substantive Concerns About the Litigation Funding Transparency Act of 2018, Big Law Business (June 14, 2018).

News Release, Grassley, Tillis, Coryn Introduce Bill to Shine Light on Third Party Litigation Financing Agreements, Impact News Service (May 15, 2018)

Continuing Advancements in Litigation Finance

LexShares, a commercial litigation finance firm, has recently announced the launch of a new program, LexShares Private Market (LPM).  The LexShares Private Market is an exchange for secondary litigation finance transactions, bringing together litigation funders and institutional investors.

This new announcement continues to prove what many people have been saying, litigation finance is only continuing to grow and mature at rapid rates.  Thus, creating a demand for more innovation and adaptation.  LexShares Chief Executive Officer, Jay Greenberg says that LPM will bring centralization and efficiency to the litigation finance market.

LPM will not only offer institutional investors more opportunities but will also allow litigation funders to purchase assets in the secondary market to expand their portfolios.  Additionally LPM will allow buyers to analyze available deals, connect with sellers, and transact securely, all through the online system.

This addition to the litigation finance market will continue to broaden the abilities of investors and funders to reach more people and lawsuits all through an online system.  One would hope that as the market and need for litigation finance only continues to increase that will mean that there will be justice in even more claims than before.

However, it will be interesting to see as the market continues to expand with more firms funding litigation and more innovative systems how that will affect competition.  Right now there is not much information on terms of litigation finance agreements or costs that the funders are charging.  But usually in any booming market with growing competition prices will decrease for everyone to stay competitive.

Topics:  litigation finance, alternative litigation finance, third-party funding, LexShares

Works Cited:  John Freund, LexShares Launches Private Institutional Litigation Finance Exchange, Litigation Finance Journal (June 7, 2018).

Big Law is Embracing Litigation Finance

As litigation finance grows, Big Law wants to be a part of it.  Paul Hastings has been offering litigation finance to its clients for about a year now according to the firm.  Obviously, not every client uses it but for some it can be a very successful option.

Although, little snippets from firms or financiers have come out about the use of litigation finance in big law, much is still unknown.  For example, there is little published information about what firms are using litigation finance and if they are how much or what kinds of cases the money is going to.

As litigation finance has been around much longer in Australia and the U.K., some details are a little clearer in those markets.  A commercial dispute publication from 2014, noted that White & Case had used financing from Vannin capital (a London based company) to represent Pakistani drinks manufacturer in a licensing dispute.  Vannin CEO Richard Hextall has said that the firm has relationships with “top-tier law firms” in multiple markets including the U.S., U.K., and Australia.

Some argue that the lack of transparency calls for more regulation of the industry.  The U.S. Chamber of Commerce in particular has been arguing to regulate litigation finance as they say it increases the overall volume of litigation and presents ethical issues.  The Chamber is specifically arguing for disclosure regulations saying that no one with financial stake in an outcome of litigation should be anonymous.

However, litigation financiers argue that they do not fund cases without merit.  As it is a risk for the funder, most litigation financiers will do extensive research and investigating before deciding whether or not to get involved.

Litigation financing is beneficial to Big Law because it allows attorneys to take on cases that they usually wouldn’t be able to take on while still getting paid at their hourly rate.  Litigation funding is attractive to funders as well as the law firms because it spreads out risks.  Thus, making it an appealing investment.

Topics:  litigation finance, alternative litigation finance, third party funding, big law

 Works Cited:  Stephanie Russell-Kraft, Big Law Embraces Litigation Finance, Big Law Business (March 23, 2018).

Ethical Considerations in Litigation Funding

This blog is specifically targeted at concerns for the plaintiff’s lawyer to consider when their client is utilizing litigation funding.  There are three main concerns to keep in mind when considering litigation finance and your client: loyalty & conflicts of interest, lawyer independence, and confidentiality/attorney-client privilege.

Duties of Loyalty and Conflict Free Representation: the Rules of Professional Conduct govern conflicts of interest.  Therefore, it could be a problem if an attorney affirmatively advises a client to accept a third-party’s funding that will ultimately benefit the attorney and his/her firm in the end.  However, that does not mean that attorney’s can never advise their clients on third party funding.  Instead, the attorneys should just exercise complete disclosure of the various interests at stake when giving advice regarding alternative litigation funding.

Lawyer Independence: again, according to the Rules of Professional Conduct (particularly rules 1.2(a), 2.1, & 5.4), the plaintiff’s attorney must decide how to handle the case, not the litigation funder.  There is particularly a risk that the funder will want the largest return possible and may not want to encourage a settlement if they believe a trial will result in more money in damages.  This is why it is important to find a litigation funder that takes a hands off approach after agreeing to invest in the case.

Confidentiality and Protecting the Attorney-Client Privilege: generally, a litigation funder will require the client to authorize counsel to release information otherwise protected by attorney-client privilege as part of the underwriting process.  There is a risk here that opposing counsel will argue that by sharing confidential litigation information with a funder the client has voluntarily waived any attorney-client protections.  Different courts have handled this differently but it is best for the attorney to discuss this potential concern with their client upfront and to see how the jurisdiction may have handled this in the past.

These concerns are not meant to prohibit litigation funding but rather to just explain certain risks so that any potential problems can be avoided.  Thus, helping the funder, client, and the attorney by hopefully getting the best outcome possible for the case.

Topics:  litigation finance, alternative litigation finance, third-party funding, ethics, plaintiff attorneys, professional responsibility

 Works Cited:  David Atkins and Marcy Stovall, Litigation Funding: Ethical Considerations for the Plaintiff’s Lawyer, Connecticut Lawyer (February 2017) http://www.pullcom.com/news-publications-930.html