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Key Takeaways from LFJs Digital Event: Litigation Finance: What to Expect in 2024

February 12, 2024

Key Takeaways from LFJs Digital Event: Litigation Finance: What to Expect in 2024

On February 8th, 2024, Litigation Finance Journal hosted a special digital event titled ‘Litigation Finance: What to Expect in 2024.’  The event featured Gian Kull, Senior Portfolio Manager at Omni Bridgeway, David Gallagher, Co-Founder of LitFund, Justin Brass, Co-CEO and Managing Director of JBSL, and Michael German, Co-Founder and CIO at Lex Ferenda. The event was moderated by Peter Petyt, founder of 4 Rivers. The discussion covered a range of topics pertinent to the litigation funding space. Below are some key takeaways from the event: Which areas are you particularly interested in investing in over this coming year?  MG: There is a supposition that this industry will continue to grow in 2024. All of the indicators suggest that the industry will continue to grow–nearly all of the funders are funding bankruptcy-related cases, and three quarters are funding patent cases. Those are areas of interest to us, and I think that will continue to make sense, given the types of commercial cases they are – complex cases that require significant amounts of attorney time and defendant time,  and yield significant costs to the litigaiton. JB: We’re going to see a continued expansion into the mass arbitration space. That is something that has been coming up with more frequency. Mass torts has been staying quite busy. And where we see a lot of potential is with the evolution of the secondary market. There are a lot of funders coming up with maturing cases, and it makes sense for those funders to redeploy that capital into other opportunities – not necessarily exit that case – but just sell a minority stake or a portion of it. We that in traditional fixed income classes, so we think that is going to continue in the funding market as well. Are you seeing any kind of appetite to invest in jurisdictions you haven’t previously invest in? Have some jurisdictions matured to the point where you now will give them a serious look?  GK: That’s a hard question to ask Omni Bridgeway as a whole, because we try to be in a lot of places. But from my own experience in Europe, we’ve gotten quite comfortable in the Netherlands, we have a very large investment in Portugal. Spain is next on the list. Italy is after that. The jurisdiction I’ve been most disappointed in – aside from the UK with the regulatory issues there – is Germany. For such a large economy, from a commercial collective redress perspective that is a dead end. As we move through Europe, I’ll be watching the regulatory regimes and how those are tested over the coming years. Are you seeing many requests for monetization of judgements or awards, or is that not an area that you are particularly interested in?  DG: We’re especially interested in that, largely because my partners have spent a lot of their careers making those types of investments. And just speaking from my own experience, that has always been an important part of the market, and continues to be an important part of the market. I think the availability of judgement preservation insurance makes funding more available and appropriate both on the funder’s side and the client’s side. In my view, it’s very interesting to see the number of people in the market moving into the insurance space. In my view quite a surprising number – it’s certainly indicative of a trend. LFJ just announced today that Ignite has launched a capital protection insurance resource. So there are a lot of interesting things happening here. Is it still early days for this space, because there are a lot of people moving into it with interest?  MG: I share the sentiment of having a general level of surprise with how many folks from the litigation finance industry insurance has drawn. From the Lex Ferenda perspective, insurance has proven to be a very expensive option, that ultimately my clients and I don’t feel is worth the cost. But the vast majority of our investments – from an insurer’s perspective – are probably the least good fit, so that’s probably why it’s reflecting in the price. JB: I think the insurance aspect of litigation finance is here to stay. There will be growing pains along the way. I think even as recently as last week, there were disclosures in the Affordable Care Act fee dispute where the law firm got an insurance policy related to its fee award. What was interesting there, was the law firm was seeking disclosure about the policy, and in essence how it worked. So not only is it new and here to stay, we’re seeing it become public. The risk to early-stage cases is the pricing can be expensive, but what will happen over time, is like anything else, the insurers will be tracking the progress on those cases, and as funders come back as repeat customers, they’ll be looking at you and factoring that relationship into their pricing, just like how a bank factors that into a credit score. I think the best path forward is figuring out how to work together and create a level of transparency and trust, because it’s not going away. For the full recording of the event, click here.

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MWE Guide Outlines Compliance Priorities for Litigation Fund Managers

By John Freund |

Fund managers exploring or operating within the litigation finance space face a complex and often underappreciated regulatory landscape. A recent guide from McDermott Will & Emery provides a detailed roadmap for how litigation fund managers can navigate this evolving environment, with a particular focus on securities laws, fiduciary obligations, and conflicts of interest.

The memo serves as a primer on key legal considerations, especially for those managing funds in the United States or marketing to U.S. investors. It emphasizes that litigation finance funds may be subject to the same regulatory scrutiny as traditional investment vehicles. Managers must consider registration requirements under the Investment Advisers Act of 1940, as well as exemptions, such as those for foreign private advisers or venture capital fund advisers. The authors also explore the application of the Investment Company Act of 1940, cautioning that even non-traditional funds can be pulled into regulatory oversight if structured improperly.

Fiduciary duties take center stage in the memo’s discussion of fund governance. Managers are reminded that they owe duties of care and loyalty to their investors, which can become complicated in litigation finance where the fund’s interests may diverge from those of claimholders or legal counsel. Disclosure, consent mechanisms, and robust internal compliance protocols are strongly recommended to mitigate potential conflicts.

The guide also highlights the increasing focus by regulators and policymakers on transparency and ethical boundaries within the litigation finance industry. Fund managers are urged to prepare for heightened scrutiny and evolving disclosure expectations.

Commercial Regulatory Issues

Op-Ed in The Hill Targets Foreign Investment in Litigation Funding

By John Freund |

A growing chorus of voices is calling for greater scrutiny of third-party litigation funding, with a new op-ed warning that opaque capital is compromising the integrity of the U.S. civil justice system.

An opinion piece in The Hill by Lindsay Lewis and Phil Goldberg of the Progressive Policy Institute argues that American courtrooms are being quietly transformed into a financial marketplace, with hedge funds, foreign sovereign wealth funds, and other investors channeling billions into U.S. litigation. The authors highlight an alleged lack of disclosure, warning that litigation funders can influence or outright control high-value cases, often without the knowledge of courts, litigants, or the public.

The litigation funding industry has long cited a lack of evidence regarding such accusations, yet the pressure from industry critics persists. The article points to mass torts as a flashpoint for abuse, claiming funders are building lawsuits “too big to fail” by bankrolling advertising campaigns and scientific claims to pressure companies into mass settlements regardless of the merits.

The op-ed also echoes previously-made critiques around national security and economic concerns, citing recent reports of Chinese, Russian, Saudi, and Emirati-backed funds investing in U.S. litigation. These foreign entities, the authors argue, could use lawsuits to access sensitive corporate data or strategically target American companies, all while avoiding U.S. taxes on any litigation proceeds.

Lewis and Goldberg call for reforms mandating disclosure of litigation funders, establishing ethical walls between financiers and legal strategy, and regulating foreign involvement in U.S. lawsuits.

Commercial Regulatory Issues

Increased Access to Justice for Claimants to Take on Powerful Organisations in Court

Ordinary people will have greater access to justice thanks to Government’s plans for legislation to help claimants receive the funding they need to take on powerful organisations in court.    

Since the Supreme Court ruling in PACCAR in 2023, claimants have faced uncertainty about whether they can secure funding from third parties in order to bring a civil case against a well-resourced opponent.  

Third-party litigation funding allows people to bring complex legal cases against powerful organisations when they cannot afford the costs themselves. Under these arrangements, a funder pays for the legal case in exchange for a share of any compensation won.   

The PACCAR judgment, which classed these funding arrangements as “Damages Based Agreements”, made it harder to access to third-party funding and has resulted in a drop in collective action lawsuits. Today, the government is confirming that it will take action to remove this barrier to justice by clarifying that Litigation Funding Agreements are not Damages Based Agreements, protecting victims and claimants.   

Minister for Courts and Legal Services, Sarah Sackman KC MP, said:  “The Supreme Court ruling has left claimants in unacceptable limbo, denying them of a clear route to justice. Without litigation funding, the Sub-postmasters affected by the Horizon IT scandal would never have had their day in court. These are David vs Goliath cases, and this Government will ensure that ordinary people have the support they need to hold rich and powerful organisations to account. Justice should be available to everyone, not just those who can afford it."   

David Greene, co-president of the Collective Redress Lawyers Association (CORLA) said: “This announcement is good news for ordinary people seeking access to justice. However, whilst the government has recognised the urgent need to reverse PACCAR, the proposal to regulate litigation funding agreements as part of the proposed legislation is likely to add considerable delay. We therefore urge the government to introduce an urgent bill to reverse PACCAR, and that the thornier issue of what light touch regulation of litigation funding might look like be considered separately.”

The UK’s legal services industry is worth £42.6 billion a year to the economy, with a highly skilled workforce of 384,000.  

A new framework will ensure that agreements are fair and transparent, so that third-party litigation funding actually works for all those involved.  These changes follow a comprehensive and wide-ranging review by the Civil Justice Council (CJC), published earlier this year. The government will continue to consider the recommendations set out in the CJC review.