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Key Takeaways from LFJ’s Special Digital Event: Innovations in Litigation Funding

November 11, 2021

Key Takeaways from LFJ’s Special Digital Event: Innovations in Litigation Funding

On Wednesday, November 10th, Litigation Finance Journal hosted a special digital conference titled Innovations in Litigation Funding. The event featured a panel discussion on disruptive technologies within Litigation Finance, including blockchain, AI and crowdfunding platforms. Panelists included Curtis Smolar (CS), General Counsel of Legalist, David Kay (DK), Executive Chairman and Chief Investment Officer of Liti Capital, Cormac Leech (CL), CEO of AxiaFunder, and Noah Axler (NA) Co-founder and CEO of LawCoin. The panel was moderated by Stephen Embry (SE), founder of Legal Tech blog TechLaw Crossroads.  Below are some key takeaways from the panel discussion: SE: All of you seem to have an interest in taking litigation funding out of the back rooms and making it more mainstream so that anyone can invest. I want to ask each of you to briefly explain your specific approaches in trying to accomplish this goal. CS: Basically, what Legalist does, is we use artificial intelligence and machine learning to reduce the potential for adverse selection and hazards that may exist in the Litigation Finance field. By reaching out to those who have valuable claims, we’re able to select the cases we want, versus simply having cases presented to us and sold to us. This has been extremely valuable to us, as we get to really pick the best cases based on criteria that we are selecting. DK: I think we’re getting pretty close to it already being in the mainstream. I think adoption has grown a lot over the last ten years. In terms of moving it forward, our view on it at Liti Capital is that we are trying to democratize the availability of Litigation Finance both from the people who finance it and the people who have access to it. CL: What I really see AxiaFunder doing is connecting investors with a new asset class, and at the same time, providing claimants with a new source of flexible funding. AxiaFunder in a nutshell is a funding platform that connects investors with carefully vetted litigation investment opportunities on a case by case basis. The capital is put to work immediately, and then when the case (hopefully) resolves positively, we return the capital with a return. So there’s little or no cash drag. We see it as an obvious win-win. NA: What we’re seeking to do is open Litigation Finance, like some of the other folks on the panel, beyond the institutional space into individual accredited investors and also to retail investors. The additional value add we have, is that we fractionalize the investments as digital assets, or what are sometimes called tokens, using the Ethereum blockchain. We think ultimately that by doing that, we can bring liquidity to the Litigation Finance space and beyond Litigation Finance as well. We’re not the only ones securing this in the private security space. SE: One of the questions we often see with cryptocurrency, whether it’s right or wrong, is that it’s used to hide who is paying what to whom. How does that concept square with the growing concern of many investors (and to some extent, the judiciary) about transparency in terms of funding agreements and the identity of funders? DK: I think the key here is consistency, which is to say ‘who is the funder?’ and I think that’s an important distinction that gets a short shrift from a lot of these discussions. To put it another way, if Liti Capital is the funder, then it’s obviously very important to know who Liti Capital is, and who are any majority or control holders within Liti Capital. And we, like other companies on the blockchain, are still required to do KYC and other rules with our investors to ensure that we’re compliant with domestic and international law. So I think that piece is much ado about nothing. But what I will add, is that I do think litigation funders should be held to the same standard as companies, and whether or not an arbitrator has an investment in our company is important to know, or a decision maker has an investment in our company is important to know. And disclosures in the same way that’s required in US Federal Court makes perfect sense. This is not a new issue. I think where we fall prey to the people that are against litigation funding…we’re falling prey to this argument that somehow everything and everyone must be known—or it’s evil. Access to justice is not evil. Being able to compete with people with large amounts of capital is not evil. NA: I second a lot of the things David said. At LawCoin, we’re selling securities. We’re very upfront about that. That’s a hot button issue in crypto, whether or not a particular token is a security. We have a separate white list that exists off of the blockchain, which might in some cryptocurrency circles lead to criticism that we’re not a decentralized operation in the way that a lot of cryptocurrency evangelists argue that cryptocurrency is most suited for. We embrace the obligations that go with issuing securities, so as a result…there’s no issue with respect to our platform with having anonymous investors that haven’t gone through a KYCAML process. SE: Given the volatility of cryptocurrencies that we’ve all seen…how do you mitigate against a severe price drop or price increase, and what do you tell investors in that regard? DK: How does Blackstone or Apollo mitigate against market crashes or change in the underlying value of their equity? Volatility and movement in price just exist—in terms of value of the corporation. In terms of funding the cases, we’re not funding cases in Bitcoin or Ethereum. We’re not a cryptocurrency, we’re a company that’s listed on the blockchain. Our token trades on the blockchain, but our token represents the underlying equity of the company. The money that we raise, 90% of it is dollars, some small percent is in Ethereum, but…our expenses are paid in dollars, we raise money in dollars, our revenue comes in dollars. There is some currency risk in anything we would keep in Ethereum, but we manage it. … You really just have to be aware and manage the fact that you’re operating in two currencies. SE: Given the way litigation sometimes drags on, especially in the US, given the unexpected twists and turns—what happens when you have to go back to your investor pool and say, ‘we need some more money?’ How do you manage that and how are the terms structured? CL: There are two aspects to it. First of all, before we actually issue a claim, there’s no adverse cost risk for the claimants or our investors. But once you issue the claim, you potentially have adverse costs risk for the claimants. If the claimants can’t pay, our investors could potentially be liable for the adverse costs risk, which we’re obviously not comfortable with. Before we will fund a case where the claim is going to be issued, we basically get a cost budget through trial, and make sure we have enough money to see the case through to the end of trial. Having said that, the cost-budget is always an estimate. So sometimes you need to come back and get more capital from investors. Litigation Finance Journal produces numerous digital events throughout the year. Please subscribe to our free weekly newsletter to stay informed about future events. 
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Case Developments Commercial

Pogust Goodhead Secures Landmark Win Against BHP in Brazil Dam Case

By John Freund |

In a major breakthrough for cross-border group litigation, Pogust Goodhead has secured a resounding victory in its long-running claim against mining giant BHP over the 2015 collapse of the Fundão tailings dam in Mariana, Brazil. The UK High Court has ruled BHP liable for the disaster, which killed 19 people and unleashed a wave of toxic sludge through the Rio Doce basin, displacing entire communities and leaving lasting environmental damage.

According to Non-Billable, the ruling confirms BHP’s liability under both Brazilian environmental law and the Brazilian Civil Code. In rejecting the company’s jurisdictional and limitation defenses, the court made clear that English law recognizes the right of over 600,000 Brazilian claimants to pursue redress in UK courts. The judgment underscores BHP’s operational and strategic control over the Samarco joint venture and found that the company was aware of critical dam defects more than a year before the collapse. The attempt to distance itself through the argument of being an indirect polluter was also dismissed.

This outcome is a critical milestone in one of the largest group actions ever brought in the UK. A trial on damages is now scheduled for October 2026, with case management proceedings set to resume in December.

The win comes amid internal turbulence at Pogust Goodhead, including recent leadership changes and reported tensions with its litigation finance backers, but the firm remains on course to press forward with what could be a multibillion-dollar compensation phase.

Commercial

Incentive Payments Not Essential for Named Plaintiffs, Study Finds

By John Freund |

A new empirical study by Brian Fitzpatrick of Vanderbilt Law School challenges a widely held assumption in class action litigation: that incentive payments are necessary to recruit named plaintiffs. The research, published in the Journal of Empirical Legal Studies, analyzed federal class-action filings from January 2017 through May 2024, using data drawn from the legal-tech platform Lex Machina. It leveraged a natural experiment created by the United States Court of Appeals for the Eleventh Circuit’s 2020 ruling that barred incentive payments in the 11th Circuit (Florida, Georgia, Alabama) while other circuits continued permitting them.

An article in Reuters states that according to the analysis, the volume of class-actions filed in the 11th Circuit did not meaningfully decline relative to other circuits after the ban on incentive payments. In other words, the absence of such payments did not appear to impair the ability of plaintiffs’ counsel to find willing named plaintiffs.

Fitzpatrick and his co-author, graduate student Colton Cronin, observed that although courts routinely approve modest incentive awards (averaging about $7,500 in non-securities class actions) to compensate the named plaintiff’s extra effort post-settlement, the data suggest that payments may not be a driving factor in recruitment.

Fitzpatrick emphasizes that this is not to say incentive payments have no role. He notes that there remains a moral argument for compensating named plaintiffs who shoulder additional burdens. These include depositions, discovery responses, trial participation, and public exposure. Yet the study’s finding is notable. Motivation for class-representation may be rooted more in altruism, reputation or justice-seeking than in straightforward financial gain.

For the legal-funding industry and class-action litigators, the findings are significant. They suggest that reliance on incentive payments to secure named plaintiffs may be less critical than previously assumed, potentially lowering a transactional cost input in structuring class settlements. On the other hand, third-party funders and litigation financiers should consider how the supply of willing named plaintiffs might remain stable even in jurisdictions restricting such payments.

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.