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The Alliance for Responsible Consumer Legal Funding (ARC) Statement Regarding the Minnesota Supreme Court Decision Maslowski v. Prospect Funding Partners, LLC, et al. v. James Schwebel, Esq., et al.

A21-1338        Pamela Maslowski, Respondent, vs. Prospect Funding Partners LLC, et al., Appellants, vs. James Schwebel, Esq, et al., Respondents. Court of Appeals: 1.         A repurchase rate in a litigation financing agreement is not subject to Minnesota’s usury law, Minn. Stat. § 334.01 (2022), when repayment of the purchase price is contingent upon a recovery in the underlying litigation. 2.         Remand to the district court is appropriate to address plaintiff’s challenge to the repurchase rate under the common-law doctrine of unconscionability. 3.         The repurchase rate specified in the litigation financing agreement began to accrue after the agreement was signed, not after our abolition of the former common-law prohibition on champerty. Reversed and remanded. Justice Anne. K. McKeig. Concurring, Justice Gordon L. Moore, III, Justice Natalie E. Hudson, and Justice Margaret H. Chutich.

“We are very pleased that the Minnesota Supreme Court took its time in rendering a thoughtful decision in this matter and, once again, held that the consumer legal funding contract at issue was enforceable. The decision is consistent with what courts and legislatures have said across the country, that this product is not a loan and should not be treated as such,” stated Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding.

“Following the Court’s logic in its June 2020 opinion that the transaction did not violate the common law prohibition on champerty, the Court today correctly recognized that, “A repurchase rate in a litigation financing agreement is not subject to Minnesota’s usury law” This well-reasoned decision joins others across the country in the growing consensus that consumer legal funding transactions are not loans and should not be treated like loans.”

About ARC 

The Alliance for Responsible Consumer Legal Funding (ARC) is a coalition established to preserve legal funding as a choice for the many Americans who have suffered an unexpected economic loss due to an accident and have a pending legal claim. Legal funding can help families pay for immediate personal needs such as rent, mortgages, car repairs, utilities and groceries while they wait for their claims to settle fairly. ARC trade association promotes practices and regulations that lead to informed decisions between individuals and their attorneys, so families have more options—not fewer.

Eric Schuller

President

Case Developments Commercial

Woodsford-Funded Class Action Against Ardent Leisure Reaches $26M Settlement

The power of litigation funding to drive successful outcomes for shareholder-led class action claims has once again been demonstrated, as a Woodsford-funded action has achieved a settlement with one of Australia’s largest leisure companies.  Reporting by Business News Australia reveals that Ardent Leisure, the Australian leisure company which owns and operates the Dreamworld theme park, has settled a shareholder class action for $26 million. The class action, which began in June 2020, alleged that Ardent had misled its shareholders over safety measures at Dreamworld in the lead-up to the 2016 Thunder River Rapids Ride accident which led to the deaths of four people.  The class action was run by Piper Alderman and received funding from Woodsford, with the claim also including allegations that this misleading conduct had led to an artificial inflation of Ardent’s share price between June 2014 and October 2016. The final settlement accounts for roughly 10 per cent of the $260 million that shareholders lost in the aftermath of the tragic incident in 2016. In a statement regarding the settlement, Ardent explained that the company’s board “determined that the commercial decision to settle the shareholder class action that had been ongoing for over three years was one made in the best interests of the company and its shareholders.” Of the $26 million settlement, Ardent will only register $4 million of that amount as an expense, with the remaining balance of the settlement being fully insured.
Commercial Deals

Funders See Increasing Opportunities in Bankruptcy Litigation

As the global economy continues to struggle to stabilize, corporate finances are constantly under stress and the volume of corporate defaults is rising. Whilst this obviously represents a worrying trend, it has also created opportunities for litigation funders who have recognized an opportunity to make significant returns by investing in bankruptcy litigation. An article from The Wall Street Journal and shared on MSN, details the rise in recent years of third-party funders’ involvement in bankruptcy lawsuits, with both companies and their creditors looking to make a quick financial return for selling the rights to disputes in bankruptcy court. Ken Epstein, investment manager and legal counsel at Omni Bridgeway, highlights that funders are “seeing a recognition of litigation assets as another source of value for companies and their unsecured creditors in a more robust way than we have in the past.”  The article notes an increase in bankruptcy litigation funding by some of the leading funders, including Burford Capital, whose first engagement with bankruptcy cases dates back to 2010. Since then, Burford has been involved in many claims involving bankrupt companies including the Magnesium Corp. of America claim in 2015 and the ongoing Petersen Energia Inversora claim against the Argentine government. Chris Bogart, chief executive of Burford, explained that the funder is seeing more growth in this sector and is “being asked to look at more cases than we have in the last couple of years.” However, WSJ’s reporting also shows that these bankruptcy lawsuits are not without complications or disputes between investors, lenders and funders. The article highlights the example of Benefit Street Partners’ financing of a lawsuit on behalf of unsecured bondholders of Sanchez Energy. Rival investors, including the established funder Lake Whillans Capital, are now challenging the litigation loan and arguing that ‘a court-appointed creditor representative signed away too much of the lawsuit’s value.’
Commercial

Omni Bridgeway’s Matsui Talks ‘Exponential Demand for Dispute Finance’ in Asia

As the litigation funding industry becomes an increasingly mature and established investment market within the American and European regions, competition between funders will naturally push them to look for the next most-promising jurisdictions. Of all the potential growth regions, Asia’s position as a rapidly expanding economic powerhouse means that funders are keen to establish strong foundations for what they hope will be a plentiful litigation finance market in the coming years. In a recent interview conducted by Star Anise, Eloise Matsui, investment manager at Omni Bridgeway in Hong Kong, provides an overview of the current trends in the Asian litigation finance market and offers insights into Omni Bridgeway’s approach to this region. Matsui highlights Singapore and Hong Kong as two jurisdictions with potential for substantial growth, with both having “permitted funding of international arbitrations and insolvency litigation.” Outside of these two key jurisdictions, Matsui notes that most other Asian countries “are civil law jurisdictions where litigation funding is not restricted”, and that the region’s potential market size is huge, given the rapid pace of economic growth across many states. In particular, she suggests that the amount of inbound investment into Asia will naturally “give rise to high-value commercial cross-border disputes and, in turn, exponential demand for dispute finance.” In terms of Omni Bridgeway’s specific areas of focus, Matsui highlights India and South Korea as two jurisdictions of interest, with the funder “already working with substantial local businesses to resolve disputes on the international stage.” She also argues that litigation finance is becoming “increasingly mainstream as a cost and risk mitigation option” within Asia, and that Omni Bridgeway is “seeing increasing applications for funding and funded cases.”
Announcements Consumer

THE AMERICAN LEGAL FINANCE ASSOCIATION COMMENDS MINNESOTA SUPREME COURT DECISION ON CONSUMER LITIGATION FUNDING

The Minnesota Supreme Court took a significant step to ensuring equal access to justice with their decision in Maslowski vs. Prospect Funding Partners LLC. yesterday, overturning the trial court and Court of Appeals holding and ruling unanimously that Consumer Litigation Funding is not subject to usury law as there is no absolute requirement to repay. In their decision, reversing the trial court and Court of Appeals, the Minnesota Supreme Court ruled that the repurchase rate in Prospect’s agreement was not subject to Minnesota’s usury statute. The American Legal Finance Association (ALFA) filed the only amicus curiae brief in this case on behalf of the interest of their members.

“The Minnesota Supreme Court’s ruling in Maslowski vs. Prospect Funding Partners LLC. again made clear Consumer Legal Funding is not subject to usury laws and recognized the fundamental differences between Consumer Legal Funding and a loan,” said Jack Kelly, ALFA Managing Director. “The decision closely follows ALFA’s primary presentation in its amicus curiae brief to the court on the matter and stands as a testament to the importance of Consumer Legal Funding, backing individuals in their pursuit of justice while promoting fairness and equity. We commend the Minnesota Supreme Court for recognizing the merits of ALFA’s argument. Empowering consumers through legal funding is core to ALFA’s mission. We will continue to advocate for fair regulations, ensuring access to justice without jeopardizing financial stability."

In its decision, the Minnesota Supreme Court unanimously reversed the Minnesota trial and Court of Appeals and held that the repurchase rate in Prospect’s agreement was not subject to Minnesota’s usury statute. The Court based its decision on the fact that there was no absolute obligation of repayment in Prospect’s contract. This was ALFA’s primary argument in its amicus curiae brief and the Court’s opinion closely follows ALFA’s argument. Consumer Litigation Funding contracts do not have an absolute requirement of repayment and do not require repayment if the case does not result in a monetary award.

The key section of the opinion states, “In the current case, the trial court and Court of Appeals rejected Prospect’s argument that the obligation of repayment was not absolute, reasoning that Prospect’s underwriting process seeks to ensure that the parties they contract with will win their underlying case. But something being extremely likely to happen necessarily accepts the possibility, however small, that it may not happen. It simply cannot be said that Prospect’s ability to recover the money given to Maslowski is absolute.”

Brian Montgomery, David Oliwenstein, and Eugenie Dubin of Pillsbury Winthrop Shaw Pittman LLP represented the American Legal Finance Association in their amicus curiae brief.

About American Legal Finance Association (ALFA): ALFA represents the leading consumer legal funding companies across the country. The organization supports sensible regulation in the industry that protects consumers through increased transparency while ensuring access to consumer legal funding. Learn more at https://www.americanlegalfin.com/.

Announcements Commercial

Omni Bridgeway achieves significant growth in key drivers

Omni Bridgeway Limited (ASX: OBL) (Omni Bridgeway, OBL, Group) has today released its results for the 12 months ended 30 June 2023 (FY23, Year). Managing Director and Chief Executive Officer, Andrew Saker, said “I am pleased to announce notable achievements during FY23 and report on a strong finish to the year, underpinned by gathering market momentum and the effectiveness of our diversified funds management strategy.” The Group reported a substantial ~200% turnaround in the second half compared to the first half and is backed by a strong capital position of over $360 million in cash and receivables,” added Mr Saker. Key highlights of FY23:
  • Increased potential future income by achieving a record level of commitments amounting to $544.2m up 17%.
  • The estimated portfolio value (EPV) grew by 12% to reach $30.5 billion, after completions, removal of impaired investments now completed, and disposals, and achieved a 34% CAGR (four years to 30 June 2023).
  • Grew implied embedded value (IEV) by 9% to $3.9 billion, with $1.0 billion provisionally attributable to OBL, excluding estimated management fees and potential performance fees.
  • Delivered a strong second half result with 203% NPAT turnaround of $61.1m from the first half, reflecting improved income, lower expenses and signalling momentum heading into FY24.
  • We have delivered total gross income and revenue to a record level of $330.0 million, up 51% on last year, derived from diversified sources comprising both completions of investments and secondary market sales. 
  • Increased litigation proceeds by 30% to $283.4m comprising $235.7m investment completions and $47.7m cash proceeds from the sale of a participation in Fund 1 assets.
  • Achieved 9% cost savings in 2H23 reflecting non-recurring items and initial savings from expense optimisation with a continued focus on cost efficiencies into FY24.
  • Upsizing of Funds 4 and 5 are progressing well with ~US$400m to US$600m first close from existing investors expected in 1H24, followed by a potential second close with new investors.
  • Build out of platform is now substantially complete readying our business for anticipated future growth.
  • Achieved geographic expansion in the northern hemisphere with new locations in the United States, France and Italy, maintaining both our competitive advantage and industry leadership.
  • Made executive leadership appointments including a Global Chief Financial Officer, a Co-Chief Investment Officer of EMEA and a Global Head of People and Culture.
The remainder of the FY23 Results Summary can be accessed here.
Announcements Consumer

Legal-Bay Pre-Settlement Funding Reports Johnson & Johnson’s Latest Attempt at Bankruptcy has Failed

Legal-Bay, The Pre Settlement Funding Company, announced today that Johnson & Johnson's efforts to put a hold on the numerous lawsuits they are facing by filing bankruptcy have failed. Judge Kaplan ruled that the filing did not meet the requirements to qualify as a "good-faith" bankruptcy attempt, and was merely a way to seek protections against the billions of dollars the pharmaceutical giant will be expected to pay out in damages. The Johnson & Johnson cases are on track to rank among the largest mass tort settlements in U.S. history. Over 60,000 lawsuits have been brought by plaintiffs who allege that their talc-based baby powder is directly responsible for causing their ovarian cancer and/or mesothelioma, and point out that the company has long been aware of the health risks associated with their product. Several studies dating back to the 1970s concluded that talc particles increase a person's chances of developing serious medical issues, and evidence suggests that J&J has been intentionally concealing the results for decades. However, despite their $8.9 billion settlement offer, J&J continues to stand by the safety of their product.  Chris Janish, CEO of Legal-Bay, commented, "The Judge's ruling in respect to the bankruptcy strategy by J&J seems to be fair for the plaintiffs. However, now the parties need to come back to the drawing board to work on a realistic settlement framework. With the quantity of claims and seriousness of the injuries there is likely to be a large gap—which will only drag things well into 2024. We are hopeful that at some point, both sides will come to a reasonable resolution so the people suffering can receive some funds in near future."  If you require an immediate cash advance lawsuit loan from your anticipated Johnson & Johnson talc baby powder lawsuit settlement, please visit the company's website HERE or call 877.571.0405 Legal-Bay's sources close to the litigation believe that the parties will try to reach a global agreement by year's end. However, payments could be delayed for another two years due to the sheer number of claims to process. Legal-Bay is one of the few legal funding companies who are providing some financial relief to victims and their families with risk-free, non-recourse cash advance settlement loans.
Commercial Fundraising

LitFin Announces Establishment of New Fund

In a post on LinkedIn, Ondřej Tyleček, partner at LitFin, announced that the European funder has established a new fund: LitFin SICAV a.s. Tyleček explained that the launch of the new fund was the result of many months of work alongside managing partner Maros Kravec, with the aim of establishing a fund that will bring “a wider range of qualified investors the opportunity to participate in as well as benefit from the litigation finance asset class”.  Tyleček further explained that LitFin worked with Wood & Company, an investment bank also based in Prague, to help LitFin pursue its strategy for continued growth and further success both in the CEE region and across Europe. He also thanked Miroslav Nosal, Dominik Fries and David Kubon of KLB Legal, for their “guidance through the process of fund establishment.” Those interested in working with LitFin can contact the funder at: info@litfin.cz
Commercial Legal Innovation

Insights on Litigation Funding in Australia from Hartwell Funds

There is no doubt that the litigation funding industry is largely dominated by established global funders whose years of experience and vast reserves of capital allow them to take on the largest and highest value cases. However, it is always important to understand the perspectives of new and growing funders who are finding solid returns for their investors in local or regional markets. On a new episode of Talk Ya Book from Ticker News, John Poynton and Aaron McDonald of Hartwell Funds discuss the intricacies of litigation funding in Australia, explaining their company’s approach as one of the emerging funders in the market. Discussing Hartwell’s investment strategy, McDonald reinforced the value of being prepared for all outcomes, explaining that “97 per cent of the time cases are resolved by consensus, and 3 per cent of the time cases go to trial, so we’re certainly targeting the 97 per cent not the 3 per cent, but you need to make the investment as if you are one of the 3 per cent.” Discussing the impact of litigation funding on cases, Poynton highlighted how “it’s interesting to see how quickly things move to settlement because of the existence of the funder”, as defendants swiftly realise they can’t bet on a plaintiff lacking the funds to see the case through to completion. McDonald further emphasised this “psychological benefit” of funder involvement, stating that defendants understand that “there’s no way that the case is going to capitulate, it’s either going to go to trial or it’s going to settle.” Explaining how the funder pitches opportunities to investors, McDonald acknowledged that there was an aspect of litigation funding that is speculative, but if “you’re measuring the risk and the prospects of the case carefully, getting independent advice about it, you can invest your money wisely in this sector and do well.” He also discussed the key aspects that Hartwell looks for in prospective cases, highlighting that the cases they have been most confident in are those where “the lawyers have come to us and said, ‘here’s a written opinion from a Silk who says that the case is viable’, that really underwrites the investment.” However, both Poynton and McDonald acknowledge that there is a lack of visibility and transparency for third-party funding in cases, and that defendants rarely know when litigation funders are involved in a case. McDonald notes that this is not always true as some courts require lawyers to disclose the presence of third-party funding, and that “those obligations of disclosure are becoming far greater.”