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Commercial Deals

LF Dealmakers Panel: Ask the Experts: An Insider’s Approach to Getting the Best Deal

Ted Farrell, Founder of Litigation Funding Advisors moderated a panel which included Fred Fabricant, Managing Partner of Fabricant LLP, Molly Pease, Managing Director of Curiam Capital, and Boris Ziser, Partner at Schulte Roth and Zabel. The topics covered in this panel discussion were:
  • Getting up to speed on funding & insurance products
  • How to fast track diligence and deal with exclusivity
  • Negotiating key terms and spotting red flags
  • Benchmarking numbers & making the waterfall work for you
The topic of insurance came up first. Molly Pease began the discussion by noting that it isn’t always the case that funders are looking to lower risk in every situation. “It’s not always the case that we’re looking to minimize risk with insurance, because that comes with a cost,” Pease noted. “We don’t necessarily want to cut into our return, so there has to be a good fit for the insurance product.” The moderator, Ted Farrell then pointed out that starting a litigation funder isn’t exactly about lowering risk.  So, risk mitigation is important, but not the primary driver of investment decision making. Boris Ziser agreed, yet noted how insurance opens the door to lot of other investors.  “More than half of our mass tort deals have insurance,” said Ziser, “with either the entire deal or a tranche of deals being insured.” Getting wrapped by a single A-rated carrier allows certain investors to participate in the investment. On the issue of judgement preservation in the IP space, Fred Fabricant explains that in the patent space, he hasn’t seen a lot of insurance products in the pre-judgement section of the case. “There are too many uncertainties, and it is very hard to assess the risk in this phase of the case.”  Fabricant is looking forward to insurance products in this phase. “In post-judgement, much easier for insurance to assess the risk, because you’ve eliminated lots of uncertainties.”  For his part, Fabricant is interested in insurance products to mitigate risk, especially in portfolio funding cases, though he hasn’t had much experience with insurance products yet. Further topics discussed included exclusivity (Fred Fabricant noted he doesn’t shop deals between funders, in order to maintain long term relationships), funder communication with clients (funders want to move just as quickly or even more quickly than lawyers and claimants—the process can be slow sometimes if claimants need to vet whether the terms are appropriate), and funder due diligence (it’s always better to be upfront about the risks of a case, since the funder will find those out eventually anyway—and every case has risks, no sense in pretending you have a panacea of a legal claim). In the end, it was an expansive panel discussion that covered a range of topics pertinent to securing a litigation funding deal.
Commercial

Understanding the Intersection Between Litigation Funding and ATE Insurance

The combination of third-party litigation funding and After The Event (ATE) insurance can be a powerful tool for lawyers and clients, allowing them to pursue meritorious cases whilst lowering their overall litigation risk. However, in order for these partnerships to succeed, it is vitally important that each party understands the others’ priorities and concerns. A post from Harbour Underwriting provides a recap of a recent panel discussion on ‘The litigation funding and ATE insurance lifecycle: A roadmap to success for lawyers and clients’, hosted at Miller Insurance’s London office. The panel included Harbour’s own managing director and underwriting director Rocco Pirozzolo, joined by Nick Pontt, managing director at Locke Capital, and James Gowen-Smith, head of ATE insurance for Miller Insurance. Discussing the importance of commerciality when it comes to selecting cases, Pontt explained that funders are likely to reject an opportunity based on “enforcement, duration and an alignment between budget and quantum.” Gowen-Smith built on this point from the broker’s perspective and emphasized that “proportionality is the key word: the cost to quantum ratio”, meaning that smaller cases can create difficulties. Harbour’s Pirozzolo highlighted that an undervalued aspect is understanding the level of risk a client is willing to expect, noting that he finds it to be a “struggle when a lawyer says their client doesn’t need litigation insurance or funding.” In his view, this is one of the areas where utilising a broker’s services can be incredibly useful. Furthermore, Pirozzolo argued that there is a false assumption that clients only use outside funders when they lack capital, whereas it is often the case that “many clients have the money but are happier using someone else’s as it’s an efficient way to run their business.” The panel’s participants also discussed the importance of planning and preparation when it comes to the use of litigation funding and insurance, with each party needing to understand every aspect of the case before deciding whether it is the right opportunity to pursue. Pontt highlighted that this also works in reverse for lawyers when approaching funders and insurers, as they should have a solid understanding of their own priorities and processes.
Commercial Regulatory Issues

Law Professor and Funder Offer Response to House Hearing on Litigation Funding

Although calls for the regulation of third-party litigation funding are neither new nor uncommon, as LFJ reported earlier this month, a hearing in the US House of Representatives placed these familiar critiques within an explicitly political lens. In an op-ed for The Hill, Suneal Bedi, assistant professor of business law and ethics at Indiana University’s Kelley School of Business, and William C. Marra, director of litigation funding at Certum Group, provide a response to the recent Congressional committee hearing on litigation funding.  At its latest hearing, the House Committee on Oversight and Accountability’s leading members suggested that third-party funding posed a threat to the American legal system and encouraged frivolous lawsuits. However, Bedi and Marra suggest that litigation funding is actually “more likely to expedite case resolution, reduce litigation spend, lower the cost of legal services, and deter frivolous lawsuits.” The authors argue that this position is reinforced by the latest scholarship, citing a recent paper titled ‘Financing the litigation arms race’, which was published in the Journal of Financial Economics.  Bedi and Marra explain that the paper’s ‘game theoretic model’ found that the presence of third-party funding would discourage defendants from trying to prolong the litigation or pile up exorbitant costs, because the funder ensures that a plaintiff cannot be bullied into submission due to a lack of funds. Furthermore, they argue that increased competition from litigation funders should lead to an overall decrease in the cost of legal services.  Addressing the idea of funders backing frivolous lawsuits, Beddi and Marra highlight that the same paper backed up the natural conclusion that a funder who focused on frivolous cases would quickly go out of business.  In the conclusion to the op-ed, Beddi and Marra also reference their own paper in the Vanderbilt Law Review, which found that “litigation funding likely results in a net increase in welfare”. They argue that lawmakers should properly evaluate the existing research and scholarship into litigation funding, before enacting regulation that harms the very legal system they are looking to protect.
Commercial

Burford Co-COO Discusses the Evolution and Future of Litigation Funding

The frequent calls for more stringent oversight and regulation of litigation funding across various jurisdictions can be viewed as a recognition of the fact that the industry is increasingly becoming a staple feature of the legal market. This view has been reflected in a recent discussion with one of Burford Capital’s most senior leaders, emphasizing that legal finance is continuing to move towards ubiquity. In an interview with the ABA Journal, David Perla, co-chief operating officer at Burford Capital, discussed the evolution of the litigation finance industry over recent years, as well as Burford’s recent research into in-house counsels’ litigation strategy, and the recent victory for Burford in the YPF-Argentina case. Looking at the transformation of legal funding during his time at Burford, Perla noted that it has moved from being a niche part of legal services, to now “being more mainstream and part of the conversation in the broader legal market.” Even though litigation funding still retains many detractors and those who call for increased regulation of the practice, Perla argues that overall, it has become “significantly less controversial or contentious” Perla suggests that this broadly more mainstream view of third-party funding has also transformed the way clients look at Burford and other funders, seeing them not just as a source of capital, but providing clients with “a trusted partner, the same way they have bankers and financial advisors.” As a result of this wider understanding and adoption of litigation finance, Perla predicts that in the future we will see “legal finance moving into ubiquity, where CFOs, GCs and heads of litigation in any case that is complex and expensive will consider the use of financing.”
Case Developments Commercial

Burford Capital Moves to Secure $16 Billion Award from Argentina

The case of Petersen Energia Inversora SAU. v. Argentine Republic has already become one of the biggest stories in litigation finance this year, with Burford Capital’s financing of the lawsuit against Argentina leading to a $16 billion judgement from the US District Court. However, as many speculated at the time of the award, one of the biggest challenges in this case was yet to come, as Burford would be faced with the enormous difficulty of collecting on this massive award.  Reporting by Bloomberg Law reveals that Burford Capital is indeed moving quickly to secure the collection of its $16 billion judgement from the Argentine government. The article explains that just last week, Burford sent a letter to US District Judge Loretta Preska, asking the court’s permission to begin attaching Argentine assets and collect on the multi-billion-dollar award, starting from October 16th. In their explanation for this swift move to attach assets, Burford’s lawyer, Randy Mastro cited a recent interview with a government official to argue that Argentina has made it clear that it “has no intention of paying the judgement, and it would be spurious for Argentina to suggest otherwise.” In an interview conducted earlier this month with Bloomberg Television, Burford’s chief investment officer, Jonathan Molot claimed that they appreciated “the challenges that Argentina faces” in paying the $16 billion award.
Commercial Legal Innovation

Sarah Lieber and Justin Brass Announce the Launch of JBSL Legal Finance

A post on LinkedIn announced the launch of a new legal finance company, JBSL, founded by Sarah Lieber and Justin Brass. The co-founders bring a wealth of experience to JBSL, as both Lieber and Brass have previously served as co-heads of Stifel’s Litigation Finance group for the past four years. Prior to their time at Stifel, Lieber and Brass also spent time at Jefferies and Burford Capital, demonstrating an impressive history of senior leadership positions within the litigation finance industry. The announcement highlights the experience that Lieber and Brass are bringing to their new venture, stating that “over the last half decade, our team has originated and syndicated billions in large, structured, non-recourse loans to the top law firms in the U.S.” The post also notes the founders’ expertise in more complex legal finance transactions, pointing out that they “are the only team on Wall Street that regularly facilitates secondary market trading of other financiers’ and plaintiffs’ litigation risk.” Launching a new provider of legal finance in a busy and competitive funding market, Lieber and Brass emphasized that “what sets us apart from our competitors is the scale and flexibility of our capital.” They revealed that JBSL’s motto would be, “the institutionalization of this asset class”, and that their aim was to make legal finance “accessible to every type of investor and capital provider.” Those interested in working with JBSL are encouraged to contact the company at: JBSLinfo@jbsllitfin.com 
Commercial Special Features

Member Spotlight: Lee Vandevort

29 years ago, Lee Vandevort helped pioneer what is now the field of litigation finance, focusing on the funding of mediation and litigation in the large public works space. Lee is presently reviewing 2300 matters for possible funding, and he been involved in one of the first portfolio funds and secondary finances.
Company Name and Description: Construction Claims International, LLC, conducts dispute financing and claims analysis in the construction space. LinkedIn Profile: https://www.linkedin.com/in/leevandevort/ Year Founded: 1993 Headquarters: Los Angeles Area of Focus: Presently reviewing 2300 potential litigation funding matters  Quote from Lee: "Litigation finance is moving into the next phase. There will be a focus on niche areas for funding, such as public works projects."
Announcements Case Developments Commercial

Mishcon de Reya Announces Opt-In Claim Against OneCoin Cryptocurrency Scheme

At the European Litigation Funding Conference in March of this year, it was notable that one of the first panels of the event focused on the potential growth of litigation targeting cryptocurrency companies that have allegedly defrauded customers. Whilst it is still uncertain how viable these claims can be, given the difficulties around the valuation of the underlying assets, the announcement of a new claim being brought in the UK suggests that the appetite for these lawsuits is still present. In a press release, Mishcon de Reya LLP have announced that it will be bringing a claim in the High Court in London against those behind the OneCoin cryptocurrency scheme, which allegedly defrauded investors from around the globe. The opt-in claim will allege that OneCoin was not a legitimate cryptocurrency offering but instead “operated as a Ponzi scheme”, taking in over £4 billion in investment and resulting in the founder and their associates “pocketing vast sums of misappropriated investor funds.” Rhymal Persad, partner at Mishcon de Reya, stated: “The fraudulent OneCoin scheme concocted by Ruja Ignatova and others greatly impacted the lives of its victims who ranged from sophisticated to lay investors. The forthcoming claim in the High Court in London aims to achieve at least partial redress for those investors who were taken in by the deception and who suffered losses as a result". In the announcement, the law firm revealed that it had already secured financing from an unnamed third-party litigation funder. OneCoin investors who feels they are victims of the OneCoin scheme are encouraged to join the claim at: https://www.onecoinvictims.com/  
Commercial Deals

CMS’ European Class Actions Report Shows Continued Market Growth

Despite litigation funders facing an array of challenges in Europe, from the UK Supreme Court’s recent PACCAR decision to the European Parliament’s Voss Report, many are still keen to pursue the funding of class action claims within Europe. A new piece of research on class actions in Europe suggests that the market is still healthy and growing, with plenty of opportunities in a variety of jurisdictions and sectors. A partner article in Emerging Europe highlights the findings from CMS’ 2023 European Class Actions Report, which takes a sweeping view of class actions on the continent including current trends, individual country spotlights, and future risks. The top-line data from the report demonstrates how the class action market in Europe has remained strong, with 121 claims filed in 2022, demonstrating a slight increase from 120 claims in 2021, and 119 claims in 2020. As we approach the final quarter of 2023, CMS’ report puts a particular focus on member states’ implementation of the EU’s Representative Actions Directive (RAD). Kenny Henderson, partner at CMS, highlighted that although not every member has completed implementation yet, “the overarching message remains unambiguous: no sector remains unaffected to the far-reaching impact of mass litigation.” He also noted that whilst it is no longer part of the EU, the UK is still “the highest risk jurisdiction in Europe for class actions.” Whilst the report does not offer specific data on litigation funder involvement in these claims, as most funder participation remains anonymous and unreported, CMS’ report notes that “as EU MSs transpose the RAD into domestic legislation, we are likely to see litigation funding expand across Europe.” However, the report notes that the role of third-party funding in each jurisdiction will likely depend on the specific limits that are set out in the individual implementation bills for member states.  Looking at the distribution of these class action claims, CMS’ research found that over the past five years, 48% of claims in Europe have been filed in the UK, with the next highest being 12% in the Netherlands and 7% in Portugal. The class actions in 2022 were also widely distributed across different sectors with ‘financial products / shareholder / securities’ claims making up 31% of the total, competition claims comprising another 26%, and ‘product liability / consumer law / personal injury’ claims accounting for 24%.