Tag Archives: legal reform

Litigation Finance Opening Doors for Plaintiffs

While laws continually change and evolve, many believe that the legal system is stagnant.  Things have continually been done the same way for years and years.  However, new innovations such as litigation finance are in fact changing the system and producing growth.

It may not be a procedural change that people notice from the outside looking in.  But litigation finance allows plaintiffs more opportunities to bring claims that they may not have been able to bring just a decade ago due to a lack of resources.  It allows plaintiffs to enforce their rights and seek justice either in court or through another form of dispute resolution using the attorney of their choosing.

Litigation financing also benefits attorneys.  The use of litigation financing means attorneys and firms do not have to change their rates or compromise their pay structure to represent clients and take on new cases. Additionally, litigation finance also allows firms to compete for cases so that there is the best chance for a favorable outcome for the client.

Furthermore, litigation finance provides opportunities to seek global remedies.  According to Dilip Massand of SAS Asset Recovery in Dubai, “litigation finance has served to allow parties in one jurisdiction to pursue their rights and remedies in other jurisdictions where they may not have confidence in rule of law, or transparency into the legal process – not only in terms of finance, but also in terms of enforcement and collection of foreign judgments and arbitration awards.” This cross-jurisdictional impact allows for justice for more individuals and smaller parties than we’ve had in the past.

The use of litigation finance is rapidly growing, signifying a strong demand for the resource.  Whereas, litigation demand has been flat in the past decade, reports are now showing a growth in the past few years, which is thought to be at least partly attributable to new innovations in the legal field such as litigation finance.

Topics:  litigation finance, legal reform, litigation costs, third-party funding

 Works Cited:  Sanjay Kamlani and David Perla, Taste the Soup! Innovation is Hiding in Plain Sight in the Legal Profession, Above the Law (February 27, 2018)

Litigation Finance Changes the Law Firm Landscape

It used to be taken for granted that large firms did not take cases on a contingent fee basis.  If a plaintiff had a potentially valuable claim and wanted to pay a lawyer through a contingent fee, the only place to look was a boutique firm.  But litigation finance is changing all of that, and large firms are now being more aggressive about pursuing contingent fee cases.

The reasons are simple.  If a plaintiff really does have a valuable case, there are more and more opportunities for such a plaintiff to find a litigation funder that will invest in the claim.  This investment can be used to pay a portion of the attorneys’ fees up front.  This means that taking a case on a contingency basis involves much less risk to the firm when a litigation funder is involved.

The diminution of risk means that even risk-averse firms can begin to seriously consider contingency fee cases. In addition, small firms with relatively few financial reserves can also afford to take on high-stakes contingency cases.  Thus, there is more competition among lawyers to get big contingency cases.

“The pool of lawyers available to try a case expands because young lawyers who otherwise could not afford to take the case on contingency can now get funding,” said Alan Kluger, a founding member of Kluger, Kaplan, Silverman, Katzen & Levine. “That’s good. It gives clients a bigger pool of lawyers to choose from. The good lawyers are going to get a lot of work.”

This competition means that some boutique firms that specialized in contingent fee cases are getting less business.  Some of these firms are struggling to manage this new competitive challenge.  But overall, this development is good for clients and for the justice system as a whole.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, boutique firms, contingency fees

 Works Cited:  Monica Gonzalez Mesa, Litigation Funding Changes Legal Landscape for Boutique and Small Firms,  Daily Business Review (Nov. 20, 2017) available at https://www.law.com/dailybusinessreview/sites/dailybusinessreview/2017/11/20/litigation-funding-changes-the-legal-landscape-for-boutique-and-small-firms/

 

Litigation Finance as a Tool for Bankruptcy Trustees

When a company becomes insolvent, it can be difficult for a bankruptcy trustee or liquidator to find the resources to pursue claims that the company might have.   Litigation finance companies can be one place to find such resources.  A current case in Australia illustrates as much.

Recently, the Australian whisky company, Nant Distillery, collapsed, owing an estimated $4.9 million to creditors.  Its liquidator, Deloitte, discovered evidence suggesting that the former distillery company had been trading insolvent for years.  According to Deloitte’s Richard Hughes, “Investigations regarding the company’s affairs revealed [it] may have been insolvent from as early as 30 June 2014.  Moreover, the investigation revealed that Nant’s executives may have engaged in a variety of fraudulent activities, knowing that the company was insolvent.

Perhaps unsurprisingly, some of the parties involved in this scheme have been uncooperative with the liquidator’s efforts to unravel Nant’s finances.  This puts the liquidator in the position of needing to pursue legal claims in order to recover misappropriated assets, but, of course, because the company is insolvent, it can be hard to fund such litigation.

In the Nant case, Deloitte has considered solving this problem by reaching out to a litigation funder.  An investment from a litigation funder would permit Deloitte to pursue claims on Nant’s behalf with no risk of loss.  If the claims failed, the cost would be shifted to the funder.  And if the claims succeed, Deloitte would recover something substantial, even if it has to share that recovery with the funder.

This logic would apply to any bankruptcy trustee who needs to pursue claims on behalf of an insolvent debtor.  Litigation funding is more than just a way for personal injury plaintiffs to fund their cases.  It has a variety of applications in different procedural contexts, and it can be an invaluable tool for achieving a just result.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, bankruptcy

 Works Cited:  Patrick Billings, Deloitte Liquidator Claims Nant Directors May Have Been Trading While Insolvent, The Mercury (Dec. 2, 2017) available at http://www.themercury.com.au/business/deloitte-liquidator-nant-directors-claims-may-have-been-trading-while-insolvent/news-story/c9a15465fb2b3729c474ee38370524b2

Litigation Finance As an Alternative Investment

More and more sophisticated investors are recognizing that investing in litigation finance can be an effective strategy to minimize the risk of market volatility.  One important sign of the increasing acceptance of litigation finance is that institutional investors are signing up to fund litigation at a high level.

The University of Michigan has recently announced plans add a variety of alternative investments to its portfolio, including a litigation funding company.  These investments, which must be approved by the university’s Board of Regents, could amount to as much as $300 million.  With an endowment valued at $11.3 billion as of October 31, Michigan is no small player in the investment world.

Leading this proposed investment is a commitment of nearly $34 million to Harbor Fund IV, an London-based litigation finance company.  According to Kevin Hegarty, the university’s finance chief, “[t]he primary risk of this strategy lies in Harbour’s ability to continue to underwrite the merits of the claims in which they invest, which makes this strategy largely uncorrelated to the capital markets.” Similarly, in September, the university committed $100 million to a fund that invests in legal claims against Brazilian government entities.

The litigation funding investment is combined with investments in a startup accelerator, Y Combinator, which is known for launching Airbnb Inc. and Reddit. In addition, Michigan also is seeking to commit $130 million to Toronto-based Bay & King Investment Fund, which seeks to invest in mining, distressed opportunities and commodities with “attractive upside potential due to valuation dislocations, transactional complexities, or supply-and-demand imbalances,” Hegarty wrote.

All of these investments have something in common:  they involve the commitment to enterprises whose prospects are not tied to equity markets.  When an investor like the University of Michigan has billions of dollars committed to equities, it just makes good sense to hedge that risk with an alternative investment that can generate income regardless of what is happening in the broader economy.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, hedge funds

 

Works Cited: Janet Lorin, UM Endowment to Invest in Y Combinator, Litigation Fund, Crain’s Detroit Business (Dec. 5, 2017) available at http://www.crainsdetroit.com/article/20171205/news01/646816/um-endowment-to-invest-in-y-combinator-litigation-fund

 

Litigation Finance and E-Discovery

Now that document discovery increasingly means e-discovery, it can be exceptionally costly to produce and review voluminous electronically stored information (ESI).  In many cases, the viability and ultimate value of a claim may not be ascertainable until some discovery is done. For some litigants in such cases this fact creates a dilemma:  they need funding to engage in discovery, but they cannot demonstrate that their cases are worth funding until they are able to engage in discovery.

One firm that provides e-discovery services offers a solution for that problem.  By offering funding for its own e-discovery services, the firm provides something akin to special purpose financing for litigants that have limited financing needs.  It can also be like bridge financing for cases that still need to prove their worth. The availability of this kind of special purpose financing demonstrates the expanding acceptance of litigation funding.

Roy Plattel, one of the principals of HP2 eDiscovery, points out that “[i]n our big-data world the costs of processing and managing the electronic discovery can out pace all other line item costs in the lawsuit.” This trend will only intensify as data populations increase.  He also notes that “with the increasing costs associated with litigating lawsuits, many cases are being prematurely settled or not getting filed at all. Lawyers are rejecting profitable cases because the ‘cost to verdict’ is too high.”

Consequently, HP2 has started offering financing to cover the cost of its services. There are financing arrangements available for both plaintiffs and defendants, and the company does not have any preset requirements for financing.  The litigant’s needs determine how much funding can be provided.

Such flexible and specific financing demonstrates that litigation financing is here to stay. More and more capital is being directed to litigation finance, and it is finding specific uses. As the litigation finance sector continues to grow, litigants will be better able to find just the kind of financing that works for them.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, electronic discovery, ediscovery, litigation management services

 Works Cited:  HP2 eDiscovery Announces Litigation Financing for eDiscovery, EIN Presswire (Sept. 20, 2017) available at https://www.einpresswire.com/article/404866183/hp2-ediscovery-announces-litigation-financing-for-ediscovery

 

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/

Another Sign That Litigation Funding Has Entered the Mainstream of Law Practice

If you listen to the United States Chamber of Commerce, insurance industry lobbyists, or any number of defense attorneys, you might think that litigation finance is a somewhat sleazy, back-alley operation, populated only by the unscrupulous.  To be sure, this is the message, either express or implied, when someone tries to equate litigation finance and payday lending by using the term “lawsuit loan.”   But a recent trend in the legal profession belies this suggestion and demonstrates that the most elite lawyers now recognize that litigation finance is a legitimate part of the legal system and that it is capable of making important contributions to the pursuit of justice.  The recent trend is that more and more established attorneys are leaving large, successful law firms – “Big Law” – and taking positions with litigation finance enterprises.  As more and more investment capital flows to these enterprises, they are playing a more influential role in litigation at all levels and in all areas.

Prominent attorneys are noticing, and they are recognizing litigation finance as a legitimate career alternative to big-firm practice.  The migration of established attorneys from big firms to litigation finance is significant because such attorneys have traditionally been willing to explore only a couple of alternatives to law firm practice.  Of course, there is a well-worn path from big firms to in-house counsel offices.  Similarly, attorneys are often willing to leave their firms for some form of government or public service.  But, for many years, these have been the two principal exit doors for attorneys who seek alternatives to practicing with a large or boutique firm.  Now litigation finance is emerging as “door number three.”

For example, a London-based litigation finance company recently opened an office in New York, and it hired three highly regarded associates from prestigious firms, including Arnold & Porter and Kay Scholer.  Another British litigation financier expanded its New York office by hiring a attorney from Proskauer Rose.  American litigation finance companies have recently made hires from firms such as Paul Hastings, Latham & Watkins, Gibson Dunn, and Akin Gump.

The influx of Big Law attorneys means a couple of important things for litigation finance.  First, well-trained, highly regarded lawyers are not going to waste time or fritter away investors’ dollars on specious cases.  Hiring good attorneys is a sign that litigation financiers are interested in high-quality cases. Second, when a litigation finance enterprise has a direct connection to a well-regarded law firm, it has a better pipeline for cases to fund.  Finally, the willingness of good, young lawyers to join litigation financing companies shows that there is a solid expectation among attorneys that litigation finance is here to stay.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, big law

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

How Litigation Funding Helps Medical Malpractice Plaintiffs

As more parties take advantage of litigation financing, the benefits of such financing are becoming more readily apparent.  That is certainly the case with medical malpractice cases.

A recent study, along with anecdotal evidence from attorneys, shows that litigation financing helps create more opportunities for deserving plaintiffs and produces better outcomes.  The study was undertaken by researchers from Vanderbilt University, and it examined the effect of litigation financing on a wide variety of consumer litigation, including personal injury and medical malpractice cases.  According to the study, after Ohio legalized litigation financing in 2008, medical malpractice plaintiffs there received judgments and settlements that were 13.3 percent higher, as compared to all other states, which were assembled in a “synthetic control group.”  The study’s findings suggest that the promised benefits of litigation financing are realized in practice.  That is, when a plaintiff has access to litigation financing, he or she can resist low-ball settlement offers made at the outset of the case.  In addition, plaintiffs with litigation financing can afford to pay for first-rate experts who can demonstrate the merits of their claims.  All of this leads to better settlements and favorable jury verdicts.

The attorneys who represent medical malpractice plaintiffs agree that litigation financing improves their ability take meritorious cases and to try them to achieve the best possible result. Because they take so many cases on a contingent fee basis, many plaintiffs’ firms often have cash flow issues.  When they are uncertain about their cash flow, such firms may decline cases that seem to require large expenditures for discovery and expert testimony.  But when a plaintiff can obtain litigation financing, that is not an issue.  As one attorney put it, “I basically never have to worry about whether I have $10,000 available for an expert to testify at my trial.”

In medical malpractice cases, as in many other kinds of cases, defendants often have an enormous advantage because their litigation expenses are paid by insurers.  But litigation financing levels the playing field for plaintiffs up against those defendants. Referring to litigation financing, one plaintiff’s attorney noted that “it allows us basically to go toe-to-toe with the insurance company in any case,” he said. “We have the funding available to get whatever expert we need in the case and match the unlimited spending that the insurance company has.”