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LF Dealmakers Forum Brings Together Legal Funders, Lawyers, Academics and In-House Counsel

September 20, 2019

LF Dealmakers Forum Brings Together Legal Funders, Lawyers, Academics and In-House Counsel

This past Wednesday and Thursday saw New York City play host to the 2nd annual LF Dealmakers Forum. Hosted by Wendy Chou, whose popular IP Dealmakers Forum served as a launchpad for a similar conference aimed at the litigation funding market, the sold out two-day event brought together industry experts and novices alike. Keynote Address The event kicked off with a keynote address from Stephen Susman, founding partner of Susman Godfrey, and one of most successful plaintiffs lawyers in US. Susman recounted his early days as essentially one of the first litigation funders, having formed his contingency-only plaintiff-side law firm in the late 70s, back when the notion of contingency-only raised more than a few eyebrows. Susman saw himself filling a need in the marketplace, and indeed by the end of the decade had grown so popular that in 1981 he landed the cover of American Lawyer, which itself founded the legal journalism market. In the process of running his contingency-fee practice, Susman learned how to construct fee agreements that provide the right incentives, how to handle cases efficiently, how to compensate associates and partners properly, and how to teach younger lawyers to be effective at their trade. These are all ideals that Susman continues to preach. The theme of Susman’s speech was how contingency leads to efficiency. The more skin in the game that attorneys have, the more likely they are to question the efficacy of their discovery motions, and reconsider or reevaluate their overall case strategy with an eye towards efficiency over simply a ‘more is better’ approach. “Lawyers who are paid by the hour have no incentive to be efficient,” Susman said. “Even if they give you a discount. It’s like buying a suit at Barney’s half price. It’s already been marked up four-times.” To that end, Susman advocates funders adopt a 50/50 fee model with the law firms they partner with. He recommends funders insist that law firms also maintain skin in the game. Susman further encouraged the industry to play an active role in reducing the cost of litigation. He advocates for public jury trials, as opposed to private dispute resolution. Susman ended his address by suggesting that funders have a role to play in terms of advising their clients on how best to negotiate with their law firms. While acknowledging that this advice goes against his own best interests, Susman stated unequivocally that litigation funders – with their legal expertise, and the fact that they are no longer lawyers and are therefore operating as advisors – can guide clients on how best to negotiate with law firms on fee arrangements. This is an area where funders can provide value to the client, outside of pure financing. Panel Discussions Panels ranged from a broad overview of the funding industry, to coverage of specific sector topics. In the first panel of the day, which provided a bird’s eye view on the state of the industry, panelists highlighted the industry’s monumental growth, both in single-case and portfolio funding, and within boutique and AmLaw 200 law firms alike. Of course, as firms become more knowledgeable, they are becoming more sophisticated. Five years ago many law firms hadn’t even heard of litigation funding, whereas now they are experts; some even holding auction processes for funding, and others entertaining offers from funders as a source of leverage for settlement negotiations. In the latter example, a law firm will receive an offer from a funder with no intention of accepting. They simply approach the counterparty in the claim and ask for a higher settlement figure than what the funder is willing to invest. Clearly, the marketplace is growing more sophisticated. What’s more, law firms are negotiating better fee splits on their behalf. Years ago, a funder would receive 100-150% of their investment recouped on first-money back. Today, law firms are negotiating a chunk of that first money, and even integrating success fees (usually in the 20% range) to secure their spot at the front of the line. On a CIO-specific panel, the panelists discussed their preferences for types of cases to fund. Obviously, IP topped the list, given the lengthy time-to-settlements and high upfront costs. International arbitration was also mentioned, yet most funders broaden their scope to include any commercial litigation opportunities. To keynote speaker Susman’s point, panelists did point out that they prefer to get law firms on board with fee sharing, via 50/50 splits, yet they noted how some law firms simply aren’t comfortable with risk. Therefore, if a case is right, the funder will cover 100% of fees if necessary. When asked about the biggest threats to funding, panelists agreed that all of the overly optimistic or naïve capital coming into the space could lead to some negative outcomes, like funder misbehavior which may incur negative headlines. These could then be seized upon by regulators in a bid to exert broad industry oversight. Allison Chock of Bentham IMF noted that the Chamber of Commerce is now approaching state legislatures, and none of them know what litigation finance is or how it works.  So they are ramming through legislation with people who don’t understand the industry. This is a cause for concern. And to the point of ‘dumb money’ in the space, Chock illustrated an example of how an influx of capital into a growing sector can lead to extremely bad decision-making. She told of receiving an email from a claimant in a case they had looked at that another funder had heard that Bentham was interested, so they simply threw money at the claimant. Chock’s firm signed an NDA, but that didn’t mean they were interested. They simply wanted to diligence the claim. Chock noted how this was the third such instance she heard about, where another funder jumped into a claim simply because her firm had been looking at it. “A fool and his money are soon parted,” warned Chock. A Case Study Perhaps the most interesting panel of the day centered around a case study of how litigation finance literally saved a business’ life. Business Logic (BL) had a trade secrets misappropriation and breach of contract claim against a subsidiary of Morningstar. At the time, BL was a 20-person firm with annual revenue of $4MM. All of its margin and savings were tied up in the litigation. The case had been in the works for a few years, and BL was so confident in their claim they committed much time and money to fighting it. Yet they reached a breaking point. The company was going to have to reduce its workforce to continue the claim, unless it found outside financing. They reached out to a trio of funders, and Lake Whillans responded. The funder provided fee coverage and even working capital to BL. Now, as the trial approached, law firm Yetter Coleman could find top experts and formulate a robust case. Suddenly, Morningstar got nervous. No longer could they threaten the small Business Logic by bleeding them dry pre-trial. The trial was approaching, and BL had a strong case, and was well-capitalized. The damages claim was for $65MM, and Morningstar was so concerned about a multiple of that number being rewarded, they settled for nearly the full value of the claim – $61MM. It was the 9th largest trade secrets settlement at the time, and to this day remains the largest in the state of Illinois. BL has since grown its business to 150 employees, and changed its name to NextCapital. The story illustrates the quintessential David v. Goliath dynamic that litigation funding facilitates, and highlights how funding can not only save a company from going under, but help it thrive well into the future. Final Thoughts Given the packed house, it’s safe to say there will likely be a third annual conference next year. The growing popularity of conferences like LF Dealmakers underscores the mainstream acceptance of litigation finance. I personally noticed the diversity of attendees at this conference compared to the initial installment. There were more lawyers, in-house counsel and academics this time around, and I expect that will continue into next year and beyond.

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Commercial Regulatory Issues

Valve Faces Certified UK Class Action Despite Funding Scrutiny

By John Freund |

The UK Competition Appeal Tribunal (CAT) has delivered a closely watched judgment certifying an opt-out collective proceedings order (CPO) against Valve Corporation, clearing the way for a landmark competition claim to proceed on behalf of millions of UK consumers. The decision marks another important moment in the evolution of collective actions—and their funding—in the UK.

In its judgment, the CAT approved the application brought by Vicki Shotbolt as class representative, alleging that Valve abused a dominant position in the PC video games market through its operation of the Steam platform. The claim contends that Valve imposed restrictive pricing and distribution practices that inflated prices paid by UK consumers. Valve opposed certification on multiple grounds, including challenges to the suitability of the class representative, the methodology for assessing aggregate damages, and the adequacy of the litigation funding arrangements supporting the claim.

The Tribunal rejected Valve’s objections, finding that the proposed methodology for estimating class-wide loss met the “realistic prospect” threshold required at the certification stage. While Valve criticised the expert evidence as overly theoretical and insufficiently grounded in data, the CAT reiterated that a CPO hearing is not a mini-trial, and that disputes over economic modelling are better resolved at a later merits stage.

Of particular interest to the legal funding market, the CAT also examined the funding structure underpinning the claim. Valve argued that the arrangements raised concerns around control, proportionality, and potential conflicts. The Tribunal disagreed, concluding that the funding terms were sufficiently transparent and that appropriate safeguards were in place to ensure the independence of the class representative and legal team. In doing so, the CAT reaffirmed its now-familiar approach of scrutinising funding without treating third-party finance as inherently problematic.

With certification granted, the case will now proceed as one of the largest opt-out competition claims yet to advance in the UK. For litigation funders, the ruling underscores the CAT’s continued willingness to accommodate complex funding structures in large consumer actions—while signalling that challenges to funding are unlikely to succeed absent clear evidence of abuse or impropriety.

Commercial

Court of Appeal’s First UPC Panel Draws Attention from Litigation Funders

By John Freund |

Litigation insurers and third-party funders across Europe are closely monitoring the first case heard by a newly constituted panel of the Unified Patent Court’s Court of Appeal, as the matter could offer early signals on how appellate judges will approach procedural and cost-related issues in the UPC system. The case, Syntorr v. Arthrex, is the inaugural appeal to be considered by the third Court of Appeal panel, making it an important early data point for stakeholders assessing litigation risk in the young court.

An article in JUVE Patent explains that the appeal arises from a dispute over European patent rights and follows contested proceedings at the Court of First Instance. While the substantive patent issues are central to the case, the appeal has attracted particular interest from insurers and funders because of its potential implications for security for costs and the treatment of insurance arrangements in UPC litigation. These questions are of direct relevance to how litigation risk is underwritten and financed, especially in cross-border patent disputes where exposure can be significant.

The establishment of additional appeal panels is itself a sign of the UPC’s increasing caseload, and early rulings from these panels will play a key role in shaping expectations around procedural consistency and predictability. For funders, clarity on whether and how courts scrutinise insurance coverage, funding structures, and security applications is critical when deciding whether to deploy capital into UPC matters. Insurers, meanwhile, are watching closely to see how appellate judges view policy wording, anti-avoidance provisions, and the extent to which coverage can be relied upon to satisfy cost concerns raised by opposing parties.

Although no substantive appellate guidance has yet emerged from this first hearing, the case underscores how closely financial stakeholders are tracking the UPC’s evolution. Even procedural decisions at the appellate level can have downstream effects on pricing, structuring, and appetite for funding complex patent litigation.

For the legal funding industry, the UPC Court of Appeal’s early jurisprudence may soon become a reference point for risk assessment, influencing both underwriting practices and investment strategies in European IP disputes.

Commercial

UK Government Signals Funding Crackdown in Claims Sector Reform

By John Freund |

The UK government has signalled a renewed regulatory focus on the claims management and litigation funding sectors, as part of a broader effort to curb what it characterises as excessive or speculative claims activity. The move forms part of a wider review of the consumer redress and claims ecosystem, with third-party funding increasingly drawn into policy discussions around cost, transparency, and accountability.

An article in Solicitor News reports that ministers are examining whether litigation funding and related financial arrangements are contributing to an imbalance in the claims market, particularly in mass claims and collective redress actions. While litigation funding has historically operated outside the scope of formal regulation in England and Wales, policymakers are now considering whether additional oversight is required to protect consumers and defendants alike. This includes potential scrutiny of funding agreements, funder returns, and the role of intermediaries operating between claimants, law firms, and capital providers.

The renewed attention comes amid political pressure to rein in what critics describe as a growing “claims culture,” with the government keen to demonstrate action ahead of future legislative reforms. Industry stakeholders have cautioned, however, that overly restrictive measures could limit access to justice, particularly in complex or high-cost litigation where claimants would otherwise be unable to pursue meritorious claims. Litigation funders have long argued that their capital plays a stabilising role by absorbing risk and enabling legal representation in cases involving significant power imbalances.

While no formal proposals have yet been published, the article suggests that funding models linked to claims management companies may face particular scrutiny, especially where aggressive marketing or fee structures are perceived to undermine consumer interests. Any regulatory changes would likely build on existing reforms affecting claims management firms and contingency-style legal services.