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Balancing Risk and Reward in Litigation Finance: Lessons from High-Profile Case

By John Freund |

The following is a contributed piece by Jeff Manley, Chief Operating Officer of Armadillo Litigation Funding.

The allure of substantial returns from mass tort litigation has historically tempted law firms and their third-party financiers to commit resources to speculative cases. While investing strongly in speculative torts certainly has its time and place, prevailing trends highlight the necessity of certain risk management practices. The unpredictable outcomes of high-profile cases, like the Camp LeJeune water contamination lawsuits, accentuate the imperative for a discerning approach to case selection and the strategic diversification of portfolios.

Balancing Opportunity and Prudence in Speculative Torts

Early-stage speculative torts like the Zantac litigation represent a blend of potential and caution. (In re Zantac (Ranitidine) Products Liability Litigation, 2021). Initially, Zantac cases drew significant attention from law firms with projections of substantial compensation figures. However, the legal complexities and subsequent valuation adjustments highlighted the disparity between initial projections and actual compensation figures realized, reinforcing the need for meticulous risk assessment in speculative torts. While similar cases have captivated law firms and financiers with their substantial projections, they also underscore the importance of an exhaustive risk assessment—demonstrating how initial excitement must be tempered with diligent legal analysis and realistic valuation adjustments.

Navigating the Complex Terrain of Camp Lejeune Litigation

The Camp Lejeune water contamination lawsuits represent promising ventures for financiers and mass tort firms to affirm their moral duty by advocating for those who served our country. However, these cases also carry lessons on the pitfalls of overzealous investment without careful scrutiny. The drawn-out nature of the litigation serves as a reminder that while the pursuit of justice is noble, it must be balanced with sound risk management to ensure long term firm stability.

Endurance in Talc Litigation: A Testament to Long-Term Vision

The protracted legal battles surrounding talcum powder’s health risks underscore the necessity for long-term strategic planning in mass tort litigation. Firms must factor in the operational demands and the financial foresight to manage compounded interest on borrowed capital over extensive periods. Simultaneously, it’s critical to sustain investment in new torts, ensuring a balanced portfolio that accommodates both ongoing cases and emerging opportunities. This balanced approach underpins the stamina needed to endure through a decade-long commitment, as exemplified by the talc litigation.

Understanding Returns in the 3M Earplug Litigation

The 3M earplug litigation concluded within a standard timeframe, yet the distribution of settlements spans several years, offering more modest financial returns than many anticipated. This outcome serves as a pragmatic reminder of the nuanced nature of mass tort settlements, where significant payouts are not always immediate or as substantial as predicted. Nonetheless, this reinforces the value of prudent risk management strategies that account for longer payout terms, ensuring a stable financial forecast and the firm’s resilience in the face of lower-than-expected returns.

Strategic Portfolio Diversification

Given these varied experiences, it is imperative that law firm owners and financial backers craft a robust case portfolio strategy. By balancing the mix of cases from speculative to those with a more established settlement trajectory, firms can better manage risk and ensure operational stability. Strategic diversification is not just wise—it’s a vital tactic to maintain resilience in the evolving landscape of the mass tort industry.

The Value of Expert Financial Partnerships

Choosing a reputable and experienced litigation finance partner is essential for law firms aiming to effectively balance their case portfolios. A seasoned funding partner provides invaluable guidance in evaluating potential cases, assessing financial risks, and optimizing investment strategies. Their expertise in navigating the nuanced terrain of litigation finance is a critical asset.

Adopting a balanced portfolio strategy—carefully curated to include a variety of torts at different development stages—provides a more stable foundation than pursuing an “all-in” strategy on a single high-potential tort. This method not only reduces dependency on the success of any single case but also positions the firm more favorably in the eyes of prudent lenders.

Recent high-profile cases in the mass tort arena, like those mentioned above, serve as potent reminders of the inherent uncertainties in litigation finance. For law firm owners and their financial backers, the path forward demands a nuanced view of risk, underscored by strategic portfolio diversification and the cultivation of partnerships with experienced financing entities. By adopting these principles, stakeholders can safeguard their investments against the capricious nature of mass litigation, securing a resilient and prosperous future in the challenging yet rewarding domain of legal finance.

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John Freund

John Freund

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Case Developments Commercial

Deminor Announces Settlement in Danish OW Bunker Case

By Harry Moran |

An announcement from Deminor Litigation Funding revealed that a settlement has been reached in the OW Bunker action in Demark, which Deminor funded litigation brought by a group of 20 institutional investors against the investment banks Carnegie and Morgan Stanley.

This is part of a wider group of actions originating from OW Bunker’s 2014 bankruptcy, which led to significant financial losses for both company creditors and shareholders who had invested in the company. These other cases were brought against several defendants, including OW Bunker and its former management and Board of Directors, Altor Fund II, and the aforementioned investment banks.

The settlement provides compensation for plaintiffs across the four legal actions, with a total value of approximately 645 million DKK, including legal costs. The settlement agreement requires the parties to ‘waive any further claims against each other relating to OW Bunker’. Deminor’s announcement makes clear that ‘none of the defendants have acknowledged any legal responsibility in the group of linked cases in connection with the settlement.’

Charles Demoulin, Chief Investment Officer of Deminor, said that “the settlement makes it possible for our clients to benefit from a reasonable compensation for their losses”, and that they were advising the client “to accept this solution which represents a better alternative to continuing the litigation with the resulting uncertainties.” Joeri Klein, General Counsel Netherlands and Co-head Investment Recovery of Deminor, said that the settlement had demonstrated that “in Denmark it has now proven to be possible to find a balanced solution to redress investor related claims.”

Case Developments Commercial

Burford German Funding Sued Over Hausfeld Ownership Stake

By Harry Moran |

The ownership or funding of law firms by litigation funders continues to be a hot topic in the world of legal funding, with models such as alternative business structures (ABS) gaining momentum in places like Arizona. However, a complaint filed by a client in Delaware reveals a falling out due to the reverse funding model, where a law firm maintained an ownership stake in the funder.

Reporting by Bloomberg Law covers a new lawsuit brought against Burford German Funding (BGF), an affiliate of Burford Capital, by a client who claims that the funder failed to disclose the fact that BGF was partly owned by the same law firm it nominated to lead the client’s antitrust cases. Financialright Claims GMBH (FRC) alleges that when it negotiated the funding agreement with BGF for its antitrust litigation against the trucks cartel, it had no knowledge “that Hausfeld  was  also  a  part  owner  of  BGF  through  an  entity  called German Litigation Solutions LLC (“GLS”) or that one of the lead German partners at Hausfeld responsible for the firm’s representation of FRC had a personal stake.”

The complaint, filed by FRC in the Delaware Superior Court, explains that as Hausfeld is part-owner of BGF, and the funding agreement “provides for a share of FRC’s recoveries in the Trucks Litigations to flow to FRC’s lawyers”, this constitutes a contingency fee arrangement which are illegal under German law.  FRC had filed a lawsuit against Hausfeld in a German court and then applied for discovery from BGF, Burford and GLS in the Delaware District Court, which was followed by an assertion by these parties that the application for discovery “is subject to mandatory arbitration” under the terms of the funding agreement.

FRC argues that “as  a  direct  result  of  BGF’s  fraud  on  FRC,  FRC  did  agree  to  the Arbitration Agreement that—according to BGF—subsumes disputes between FRC and GLS.” However, FRC claims that it “would  never  have  agreed  to  an  arbitration  clause  requiring  it  to arbitrate claims against Hausfeld”, were it not for the concealment of Hausfeld’s ownership stake in BGF. FRC is therefore asking the Superior Court to declare that “BGF fraudulently induced  FRC  into  agreeing  to  the  Arbitration  Agreement”, and that the agreement should be declared both invalid and unenforceable.

Lisa Sharrow, spokesperson at Hausfeld LLP, provided the following statement:  “The US-based Hausfeld LLP and the UK-based Hausfeld & Co LLP hold indirect economic minority interests in Burford German Funding. These are separate legal entities from Hausfeld Rechtsanwälte LLP that do not practice law in Germany. Burford German Funding was of course developed and set up in a way that was fully compliant with all relevant regulations.”

David Helfenbein, spokesperson at Burford, also provided a response to Bloomberg via email: “There is a dispute in Germany between a client Burford has funded and its lawyers. Burford is not a party to that dispute and its outcome has no impact on us. This Delaware proceeding is a third-party discovery request to Burford for material for the German litigation, which Burford believes should be adjudicated in arbitration and not in the Delaware courts.”

The full complaint filed by FRC can be read here.

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Case Developments Commercial

Deminor Funding Paralympic Athlete’s Lawsuit Against IPC

By Harry Moran |

Supporting access to justice remains one of the core benefits that litigation funding brings to legal systems all around the world, with third-party funders providing the desperately needed resources for smaller litigants to fight against well-resourced defendants. This is epitomized in a case where a funder is supporting a Paralympic athlete’s fight for justice against the sport’s governing body.

An announcement from Deminor Litigation Funding revealed that it is funding a lawsuit brought against the International Paralympic Committee (IPC) by Brazilian Para swimmer André Brasil. The lawsuit has its origins in World Para Swimming’s (WPS) revision of its classification system for the Paralympic Games in 2018, which led to André Brasil being reclassified as ineligible to compete. Following this decision, Brasil and the Brazilian Paralympic Committee (CBP) initiated legal proceedings against the IPC in Germany, arguing that the classification system violates both human rights, and German and European antitrust laws. 

At first, the Cologne Regional Court rejected these arguments and sided with the IPC, but this was eventually overturned by the Düsseldorf Court of Appeal, ruling that the IPC’s position as a monopoly meant that it ‘had an obligation to grant the Athlete a sufficient grace period in order to prepare him for the rule change and his potential ineligibility.’ The court ordered the IPC to pay André Brasil damages, but the IPC is now seeking to appeal the decision at the Federal Court of Justice.

André Brasil is being represented by Counsel Alexander Engelhard and a team of attorneys from Arnecke Sibeth Dabelstein. Engelhard expressed gratitude to have “a reliable and value-driven litigation funder in Deminor” supporting the lawsuit, and said that “together we will do what it takes to allow the Federal Court of Justice to decide in the Athlete’s favour.”

Dr. Malte Stübinger, General Counsel Germany at Deminor said, “By supporting André, we are advocating for a broader change that champions the rights and fair treatment of all athletes. It's essential that we address these systemic issues to ensure that the spirit of competition remains just and equitable for everyone.”