Tag Archives: legal reform

Litigation Funding Regulation in England and Wales

Perhaps nothing demonstrates the growing importance of litigation funding than the fact that government regulators are beginning to pay attention to it. In the United Kingdom, litigation funding has been largely regulated by private and voluntary efforts. But legislators are beginning to consider whether regulation is necessary.

In the United Kingdom, as in the United States, litigation finance is growing. According to publicly available data, the sixteen largest third-party funders in the UK now have over £1.5 billion under management.  This represents an increase of 743% from £180 million in 2009. But those are just the public figures. It is likely that much more than that amount is invested in litigation finance.

Currently, the UK government does not regulate litigation finance. And, as of last year, the government had no plans to put regulatory legislation forward. The government has, however, said that it is ready to investigate what kind of legislation might be warranted if substantial changes occur in the litigation funding marketplace.

In the absence of legislation, the regulation of litigation funding in England and Wales is voluntary. The primary source of this voluntary regulation is a membership organization:  the Association of Litigation Funders (ALF). ALF has established a voluntary code of conduct for its members, which was first published in November 2011. It was developed by a working group from the Ministry of Justice.

Under the code, funders many not attempt to influence the litigation, and they must agree to pay all debts when they become “due and payable.” They must also ensure that they have enough capital to cover all the arrangements on their books for a minimum period of 36 months. In addition, the code prevents funders from terminating a funding agreement “without good reason.” Funders must also assure that, before the funding agreement is signed, the party receiving funding must receive “independent advice” on the terms of the funding agreement. ALF members which fail to meet the requirements of the code may be subject to a fine of up to £500 and/or termination of their membership.

Keywords:  litigation finance, legal reform, third-party funding, law reform, regulation of litigation funding

Works Cited:  Ben Wells, Regulation of Third Party Litigation Funding in England and Wales, Out-Law (July 19, 2018) available at https://www.out-law.com/en/articles/2018/july/third-party-litigation-funding-england-wales/

A New Approach to Litigation Funding

Up until now, almost all third-party litigation funding came from investors who sought to gain directly from the recovery in the litigation. But, as litigation finance grows and expands, new approaches to litigation funding are emerging.  One recent development comes from the home rental platform, Airbnb.

In New York City, officials fined an Airbnb host $30,000 after he appeared at a city council meeting to speak out in support of home rentals.  The host sued the city in federal court, accusing officials of retaliating against him for expressing his opinion. Airbnb then volunteered to pay his legal fees in the case.

The timing of the suit is noteworthy. It was filed just hours before the New York City council was expected to pass a bill requiring Airbnb and other home-rental sites to disclose the names and addresses of hosts. The bill is designed to facilitate New York’s ability to enforce its rules against short-term home rentals. Airbnb opposes the measure, asserting that it would invade the privacy interests of law-abiding hosts.

Not surprisingly, Airbnb’s participation in this suit is not the first time it has had some conflict with New York city government. In 2016, it sued both the city and New York state over their restrictions of short-term sublets. Just before the city’s consideration of a disclosure rule, Airbnb and the city council engaged in a public battle over whether Airbnb’s business was good for the city’s housing rental market.

Airbnb’s support for its host’s lawsuit is a new variation on an established theme in litigation finance. In 2016, billionaire Peter Thiel funded a suit by Hulk Hogan against the gossip website, Gawker. But Thiel sought to keep his involvement secret; Airbnb’s funding is out in the open. And that is what is interesting about this case. Airbnb is using funding as an instrument in its on-going, public dispute with the city. This willingness to be public about litigation finance is another indication of the greater acceptance of litigation finance.

Keywords:  litigation finance, legal reform, third-party funding, Peter Thiel, Airbnb

Works Cited:  Olivia Zaleski, Airbnb Is Financing a User’s Lawsuit Against New York City, Bloomberg (July 18, 2018) available at https://www.bloomberg.com/news/articles/2018-07-18/airbnb-is-financing-a-user-s-lawsuit-against-new-york-city

Growth and Acceptance of Litigation Funding Continues

Notwithstanding widespread criticism, litigation funding continues to grow and gain acceptance in a variety of ways. Recent events show that there are more litigants – and a wider variety of litigants – seeking funding and that, correspondingly, the investment in funding continues to expand and diversify. Finally, courts are starting to show more awareness of the value of litigation funding in the pursuit of justice.

Recent surveys show that the percentage of lawyers in the United States whose firms used litigation finance grew from 7 percent in 2013 to 11 percent in 2014, and then to 28 percent in 2015. At a recent conference for insurance lawyers and defense attorneys, 35 per cent said they had been involved in a case where litigation funding was used.

As more parties seek third-party funding, more investors are making funds available.  Increasingly, hedge funds are providing capital to funding companies, expanding the availability of funds.  To be sure, some major players have left the market, unwilling to accept the risks of the market.  But, on the other hand, new kinds of funders keep entering the market.  For example, crowdfunding is now being used to finance some cases through platforms such as TrialFunder, which uses proprietary computer models to let people invest modest amounts in lawsuits.

Judges are beginning to recognize the public policy benefits of litigation funding. For example, in Lawsuit Funding LLC v. Lessoff, No. 650757/2012, 2013 BL 343470 (N.Y. Sup. Ct. N.Y. Cty. Dec. 4, 2013), the court pointed out that public policy favors litigation financing because it “allows lawsuits to be decided on their merits, and not based on which party has deeper pockets.”  Generally, courts have not concluded that a funder’s security interest violates the ethical prohibition on sharing fees with nonlawyers. In Counsel Fin. Servs., LLC v. Leibowitz, 2013 BL 199584 (Tex. Ct. App. July 25, 2013), the court confirmed that litigation funding does not violate the prohibition on fee-sharing.

All of these developments demonstrate that the momentum in favor of litigation funding is building. Increasing demand for funding promotes an increase in the supply of available capital, and more widespread investment increases the diversity of funding models and makes it ever more clear that litigation funding can solve a variety of problems in modern litigation.

Keywords:  litigation finance, legal reform, third-party funding, ethics, litigation finance best practices

Works Cited:  Joan C. Rogers, Litigation Funding on Rise in Big Cases, Panel Says, Bloomberg (March 23, 2017) available at https://www.bna.com/litigation-funding-rise-n57982085617/

 

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/