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Commercial Regulatory Issues

LF Dealmakers Panel: The Great Debate: Trust and Transparency in Litigation Finance

September 27, 2023

LF Dealmakers Panel: The Great Debate: Trust and Transparency in Litigation Finance

The day’s featured panel included a discussion around ethical challenges and conflicts of interest, impacts on attorney-client relationships, developing a regulatory framework, and balancing the benefits vs. the risks of litigation funding. The panel consisted of Nathan Morris, SVP of Legal Reform Advocacy at the U.S. Chamber of Legal Reform, Charles Schmerler, Head of Litigation Finance at Pretium Partners, Lucian Pera, Partner at Adams and Reese, and Maya Steinitz, Professor of Law at Boston University. The panel was moderated by Michael Kelley, Partner at Parker,Poe, Adams and Bernstein, LLP. This unique panel was structured as a pair of debates (back-to-back), followed by an open forum involving panelists and audience questions. The first debate was centered around the question of ‘what is litigation finance?’ Essentially, what constitutes third-party financing, what are the key components that make up a litigation funder, and how should we define the practice? Some key takeaways from this part of the discussion:
  • Insurance carriers haven’t been classified as third-party funders, but essentially that is what they are doing
  • A secured bank loan to a law firm is not what we talk about when we talk about litigation funding. So, financing a litigator is not necessarily litigation finance. Litigation funders offer financing related to the litigation, making them an interested party in the litigation., in contrast to a disinterested bank
  • Law firms acting on the contingency model can indeed be classified as litigation funders
  • Litigation funding doesn’t even have to be for profit. Famously, Peter Thiel funded Hulk Hogan’s litigation against Gawker, and it is unclear if there was any profit participation on Thiel’s part, though his likely motivation was revenge (or perhaps justice) after Gawker previously outed him as gay
  • Context matters, especially when we consider how we define litigation finance for the purpose of regulation
The question then came: Is a legal defense fund a litigation funder? It files briefs, and somebody must pay to have those briefs filed. So should their donors be identified? This question led to a robust debate between moderator Michael Kelley and Charles Schmerler over whether the Chamber of Commerce should be classified as a litigation funder. After all, the Chamber accepts donations and then uses its capital to file claims—so would donors to the Chamber be considered litigation funders? Schmerler noted that causal litigation is different from commercial litigation—especially from a public policy perspective. So conflating them under the semantic of ‘litigation funding’ isn’t as useful, even if they can each be technically classified as litigation funding. That robust discussion gave way to the second debate, which focused on disclosure, and control and conflicts in litigation finance transactions. Kelley asked Nathan Morris why he supports disclosure in litigation funding matters. Morris feels that the purpose of disclosure is to understand the nature of the involvement of the funder, and such disclosures should be made, just as they are made in the case of insurance. It’s important to gauge a funder’s measure of influence, the structures and contours of their arrangement with the plaintiff, and how that might impact case decision. Maya Steinitz added that disclosure requires a nuanced analysis, in that impact litigation is different from commercial litigation, which is different from class actions. So identifying a clear line for disclosure leads to conflicting views, because people are responding to the idea of disclosure in different scenarios. Steinitz believes in a balancing test—what is in the best interests of the public, considering variables such as the type of litigation and motive of litigation? We shouldn’t draw a general rule on disclosure, but rather have a bespoke response based on several factors. Other panelists disagreed, believing that ‘disclosure is a solution in search of a problem,’ and that ultimately it will serve no benefit, as it is essentially impossible to determine how much control a litigation funder has over a claim, or whether the law firm in question is in dire need of capital and must therefore cede control to the funder. Morris’ position remains that disclosure is necessary, and insists his views are not predicated on the desire to see the industry regulated out of existence, but rather to protect the public interest. The open forum portion led to some interesting discussion points, including:
  • Whether law firms in a funded claim have abdicated their independence to litigation funders
  • How ethics rules regulate litigation funders and funding agreements
  • Whether disclosure of the existence of funding can even identify any control issues in the case
  • The prospect of litigation being funded for purely financial (as opposed to meritorious) reasons
In the end, this was a very unique structure for a panel discussion, which led to a passionate and spirited debate by the panelists, as well as a thorough degree of engagement from the audience.
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Commercial Regulatory Issues

Merricks Calls for Ban on Secret Arbitrations in Funded Claims

By John Freund |

Walter Merricks, the class representative behind the landmark Mastercard case, has publicly criticized the use of confidential arbitration clauses in litigation funding agreements tied to collective proceedings.

According to Legal Futures, Merricks spoke at an event where he argued that such clauses can leave class representatives exposed and unsupported, particularly when disputes arise with funders. He emphasized that disagreements between funders and class representatives should be heard in open proceedings before the Competition Appeal Tribunal (CAT), not behind closed doors.

His comments come in the wake of the £200 million settlement in the Mastercard claim—significantly lower than the original £14 billion figure cited in early filings. During the settlement process, Merricks became the target of an arbitration initiated by his funder, Innsworth Capital. The arbitration named him personally, prompting Mastercard to offer an indemnity of up to £10 million to shield him from personal financial risk.

Merricks warned that the confidentiality of arbitration allows funders to exert undue pressure on class representatives, who often lack institutional backing or leverage. He called on the CAT to scrutinize and reject funding agreements that designate arbitration as the sole forum for dispute resolution. In his view, transparency and public accountability are vital in collective actions, especially when funders and claimants diverge on strategy or settlement terms.

His remarks highlight a growing debate in the legal funding industry over the proper governance of funder-representative relationships. If regulators move to curtail arbitration clauses, it could force funders to navigate public scrutiny and recalibrate their contractual protections in UK group litigation.

Commercial

Innsworth Backs £1 Billion Claim Against Rightmove

By John Freund |

Rightmove is facing a landmark £1 billion collective action in the UK Competition Appeal Tribunal, targeting the online property platform’s fee structure and alleged abuse of market dominance. The case is being brought on behalf of thousands of estate agents, who claim Rightmove’s listing fees were “excessive and unfair,” potentially violating UK competition law.

An article in Reuters outlines the case, which is being spearheaded by Jeremy Newman, a former panel member of the UK’s competition regulator. The legal action is structured as an opt-out class-style suit, meaning any eligible estate agent in the UK is automatically included unless they choose otherwise. The claim is being funded by Innsworth Capital, one of Europe’s largest litigation funders, and the legal team includes Scott + Scott UK and Kieron Beal KC of Blackstone Chambers.

Rightmove has responded to the legal filing by stating it believes the claim is “without merit” and emphasized the “value we provide to our partners.” However, news of the action caused a sharp drop in its share price, falling as much as 3.4% on the day of the announcement. The suit comes at a sensitive time for Rightmove, which has already warned of slower profit growth ahead due to increased investment spending and a softening housing market.

The case underscores the potential of collective actions to challenge entrenched market practices, particularly in digital platform sectors where power imbalances with small business users are pronounced. For litigation funders, this marks another high-profile entry into platform-related disputes, with significant financial upside if successful. It may also signal a growing appetite for funding large opt-out claims targeting dominant firms in other concentrated markets.

Commercial Deals

Nera Capital Launches $50M Fund to Target Secondary Litigation Market

By John Freund |

Dublin-based litigation funder Nera Capital has unveiled a new $50 million fund aimed squarely at secondary market transactions, signaling the firm’s strategic expansion beyond primary litigation funding. With more than $160 million already returned to investors over its 15-year track record, Nera’s latest move underscores its ambition to capitalize on the growing appetite for mature legal assets.

A press release from Nera Capital details how the fund will be used to acquire and sell existing funded positions, enabling Nera to work closely with other funders, claimants, and institutional investors across the U.S. and Europe. This formal entry into the secondary market marks a significant milestone in Nera’s evolution, with the firm positioning itself as both a buyer and seller of litigation claims—leveraging its underwriting expertise to identify opportunities for swift resolution and collaborative portfolio growth.

Director Aisling Byrne noted that the shift reflects not only the increasing sophistication of the litigation finance space, but also a desire to inject flexibility and value into the ecosystem. The secondary market, she said, complements Nera’s core business by allowing strategic co-investment and fostering greater efficiency among experienced funders. Importantly, the fund also opens the door for outside investors seeking litigation finance exposure without the complexities of case origination.

Backed by what the firm describes as “sophisticated investors,” the fund will support ongoing transactions and new deals throughout the UK and Europe over the next 12 months.

The move highlights an emerging trend in litigation finance: the maturation of the secondary market as a credible, liquid, and increasingly vital component of the funding landscape. As more funders diversify into this space, questions remain about valuation methodologies, transparency, and the long-term implications of a robust secondary trading environment.