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Key Takeaways from LFJ’s Digital Event: Legal Tech and LitFin

On December 6th, 2023, Litigation Finance Journal produced its final event of the year: Legal Tech and LitFin: How Will Tech Impact Litigation Finance Globally?

Tets Ishikawa moderated an insightful and pertinent discussion on the use of legal tech in the litigation finance industry. Panelists included Nick Rowles-Davies (NRD), Founder of Lexolent, Isabel Yang (IY), Founder of Arbilex, and Joshua Masia (JM), Co-Founder and CEO of Dealbridge.ai.

Below are some key takeaways from the event (answers have been truncated for the purpose of this article):

Legal tech is quite a broad term.  What does the legal tech landscape mean to you, and how does it fit into your business?

IY: We’re in a very exciting time in legal tech. Where I sit, I primarily deal with the underlying technology being artificial intelligence (AI). The primary advances in advanced AI have primarily occurred out of language being the source data. A lot of these text-based AI advancements all hold great significance for the practice of law.

At Arbilex, we are taking advantage of large language modeling (LLM) to reduce the cost of data acquisition. When we take court briefings and unstructured data and try to turn that into structured data, the cost of that process has dramatically decreased, because of Chat GPT and the latest LLMs.

On the flipside, because AI has become so advanced, a lot of off-the-shelf solutions have tended towards a black box solution. So the model’s output has become a more challenging task. At Arbilex, we have always focused on building the most stable AI—so we focus on how we can explain a particular prediction to our clients. We are increasingly investing a lot of our time and human capital into building that bridge between AI and that use case.

How relevant has legal tech been, and will it be, in the growth of the litigation finance sector? 

JM: When we look at scaling operational processes, a lot of times we have to put our traditional computer science hat on and ask, ‘how have we historically solved these problems and what has changed in the past several years to evolve this landscape?’

A lot of the emphasis with technology has been about normalizing and standardizing how we look at these data sets. There’s a big issue when you look at this approach and what existing platforms have been doing—this is a very human business. Because of that, there’s a lot of ad hoc requests that get mixed in. So what gen-AI is doing, we’re getting to a point where you don’t have to over-structure your sales or diligence process. Maybe the first few dozen questions you’re asking of a given data set are the same, but eventually we want to be able to ask questions that are specific to this deal. So being able to call audibles and ad-hoc analysis of data sets was really hard to do before the addition of generative AI.

NRD: Legal tech is becoming increasingly relevant, but the real effect and usefulness has grown over time. It makes repetitive tasks easier, and provides insights that are not always readily apparent. But in terms of the specific use of AI to triage outcoming matters, we identify matters in different areas—is this something we simply aren’t going to assess, will it be sent back for further information, does it fit the bucket of something we would fund per our original mandate, or does it go on the platform for the purpose of others to look at and invest in that particular matter.

AI is having an increasing impact and is being used with more regularity by litigation funders who are funding they can increase efficiency and get to a ‘yes’ much more quickly.

A lot of lawyers would say, this is fascinating, but ultimately this is a human industry. Every circumstance will be different, because they will come down to the behaviors of human beings in that time. Is there a way that AI can capture behavioral dynamics?

IY: In general, we need to have realistic expectations of AI. That comes from, what humans are uniquely good at are not necessarily the things that AI is good at. AI is really good at pattern-spotting. Meaning, if I train the model to look for recurring features of particular cases—say, specific judges in specific jurisdictions, when coming up against a specific type of argument or case—then AI in general has a very good ability to assign the weighting to a particular attribute in a way that humans instinctively can come to the same place, you can’t really quantify the impact or magnitude of a specific attribute.

The other thing that we need to be realistic about, is that cases are decided not just on pattern, but on case-specific fact attributes (credibility of a witness, availability of key evidence). If you train AI to look for things that are so specific to one case, you end up overfitting the model, meaning your AI is so good at looking for one specific variable, that it loses it general predictive power over a large pool of cases.

What I would caution attorneys, is use AI to get a second opinion on things you believe are a pattern. In arbitration, attorneys might use AI on tribunal matters—tribunal composition. AI models are way better at honing in on patterns—but things like ‘do we want to produce this witness vs. another witness,’ that is not something we should expect AI to predict.

For the full panel discussion, please click here.

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More Than 100 Companies Sign Letter Urging Third-Party Litigation Funding Disclosure Rule for Federal Courts Ahead of October Judicial Rules Meeting

By Harry Moran |

In the most significant demonstration of concern for secretive third-party litigation funding (TPLF) to date, 124 companies, including industry leaders in healthcare, technology, financial services, insurance, energy, transportation, automotive and other sectors today sent a letter to the Advisory Committee on Civil Rules urging creation of a new rule that would require a uniform process for the disclosure of TPLF in federal cases nationwide. The Advisory Committee on Civil Rules will meet on October 10 and plans to discuss whether to move ahead with the development of a new rule addressing TPLF.

The letter, organized by Lawyers for Civil Justice (LCJ), comes at a time when TPLF has grown into a 15 billion dollar industry and invests funding in an increasing number of cases which, in turn, has triggered a growing number of requests from litigants asking courts to order the disclosure of funding agreements in their cases. The letter contends that courts are responding to these requests with a “variety of approaches and inconsistent practices [that] is creating a fragmented and incoherent procedural landscape in the federal courts.” It states that a rule is “particularly needed to supersede the misplaced reliance on ex parte conversations; ex parte communications are strongly disfavored by the Code of Conduct for U.S. Judges because they are both ineffective in educating courts and highly unfair to the parties who are excluded.”

Reflecting the growing concern with undisclosed TPLF and its impact on the justice system, LCJ and the Institute for Legal Reform (ILR) submitted a separate detailed comment letter to the Advisory Committee that also advocates for a “simple and predictable rule for TPLF disclosure.”

Alex Dahl, LCJ’s General Counsel said: “The Advisory Committee should propose a straightforward, uniform rule for TPLF disclosure. Absent such a rule, the continued uncertainty and court-endorsed secrecy of non-party funding will further unfairly skew federal civil litigation. The support from 124 companies reflects both the importance of a uniform disclosure rule and the urgent need for action.”

The corporate letter advances a number of additional reasons why TPLF disclosure is needed in federal courts:

Control: The letter argues that parties “cannot make informed decisions without knowing the stakeholders who control the litigation… and cannot understand the control features of a TPLF agreement without reading the agreement.” While many funding agreements state that the funder does not control the litigation strategy, companies are increasingly concerned that they use their growing financial leverage to exercise improper influence.

Procedural safeguards: The companies maintain that the safeguards embodied in the Federal Rules of Civil Procedure (FRCP) cannot work without disclosure of TPLF.  One example is that courts and parties today are largely unaware of and unable to address conflicts between witnesses, the court, and parties on the one hand, and non-parties on the other, when these funding agreements and the financial interests behind them remain largely secret.

Appraisal of the case: Finally, the letter reasons that the FRCP already require the disclosure of corporate insurance policies which the Advisory Committee explained in 1970 “will enable counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based on knowledge and not speculation.” The companies maintain that this very same logic should also require the disclosure of TPLF given its growing role and impact on federal civil litigation.

Besides the corporate letter and joint comment, LCJ is intensifying its efforts to rally companies and practitioners to Ask About TPLF in their cases, and to press for a uniform federal rule to require disclosure. LCJ will be launching a new Ask About TPLF website that will serve as a hub for its new campaign later this month.

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Commercial People Moves

Mesh Capital Hires Augusto Delarco to Bolster Litigation Finance Practice

By Harry Moran |

In a post on LinkedIn, Mesh Capital announced the hiring of Augusto Delarco who has joined the Brazilian firm as a Senior Associate, bringing a “solid and distinguished track record in complex litigation and innovative financial solutions” to help develop Mesh Capital’s Litigation Finance and Special Situations practices. 

The announcement highlighted the experience Delarco would bring to the team, noting that throughout his career “he has advised clients, investors, and asset managers on strategic cases and the structuring of investments involving judicial assets.”

Delarco joins Mesh Capital from Padis Mattars Lawyers where he served as an associate lawyer, having previously spent six years at Tepedino, Migliore, Berezowski and Poppa Laywers.

Mesh Capital is based out of São Paulo and specialises in special situations, legal claims and distressed assets. Within litigation finance, Mesh Capital focuses on “the acquisition, sale and structuring of legal claims, covering private, public and court-ordered credit rights.”

Case Developments Commercial

Delaware Court Denies Target’s Discovery Request for Funding Documents in Copyright Infringement Case

By Harry Moran |

A recent court opinion in a copyright infringement cases has once again demonstrated that judges are hesitant to force plaintiffs and their funders to hand over information that is not relevant to the claim at hand, as the judge denied the defendant’s discovery request for documents sent by the plaintiff to its litigation funder.

In an article on E-Discovery LLC, Michael Berman analyses a ruling handed down by Judge Stephanos Bibas in the United States District Court for the District of Delaware, in the case of Design With Friends, Inc. v. Target Corporation. Design has brought a claim of copyright infringement and breach of contract, and received funding to pursue the case from Validity Finance. As part of its defense, Target had sought documents from the funder relating to its involvement in the case, but Judge Bibas ruled that Target’s request was both “too burdensome to disclose” and was seeking “information that is attorney work product”.

Target’s broad subpoena contained five requests for information including Validity’s valuations of the lawsuit, communications between the funder and plaintiff prior to the funding agreement being signed, and information about the relationship between the two parties.

With regards to the valuations, Judge Bibas wrote that “while those documents informed an investment decision, they did so by evaluating whether a lawsuit had merit and what damages it might recover,” which in the court’s opinion constitutes “legal analysis done for a legal purpose”. He went on to say that “if the work-product doctrine did not protect these records,” then the forced disclosure of these documents “would chill lawyers from discussing a pending case frankly.”

Regarding the requests for information about the relationship between Design and Validity, Judge Bibas was clear in his opinion that these requests were disproportionately burdensome. The opinion lays out clear the clear reasoning that “Target already knows that Validity is funding the suit and that it does not need to approve a settlement”, and with this information already available “Further minutiae about Validity are hardly relevant to whether Target infringed a copyright or breached a contract years before Validity entered the picture.”The full opinion from Judge Bibas can be read here.