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The 2022 Litigation Finance Report

For five years (est. 2017), Lake Willians and Above the Law have surveyed legal professionals to glean their perspectives on the litigation finance industry. The 2022 Litigation Finance Report profiles graphs and charts depicting a robust litigation investment marketplace that is growing with exponential returns.  According to the survey, trends signal that litigation finance is widely profiled as a valuable tool for legal professionals. Those who would engage litigation finance a second time after initial usage is tracked at 94%.  Professionals with first-hand experience using litigation finance have jumped from 30% to 70% over the last three years. Engagement of litigation investment is viewed as a savvy way to hedge risk, while adding meaningful compliments to corporate balance sheets. The future of third party funding looks bright, with 80% of respondents who have not utilized litigation funding open to considering the practice. The report sports a bounty of figures, charts and graphs that visualize the industry's growth.

Federal Court of Australia makes first aggregate damages award in a funded representative proceeding in Toyota Class Action

The following piece was contributed by Martin del Gallego and Matthew Harris of Australian law firm, Piper Alderman. This article considers a recent decision of the Federal Court of Australia, awarding damages to class action claimants on an aggregate basis.  Aggregate damages is a rare global award which covers all group members described or identified in the award.  This was the first instance of aggregate damages being awarded to a funded litigant in Australia, and may spur a trend in representative claims brought on this basis. In Williams v Toyota Motor Corporation Australia Limited (Initial Trial) [2022] FCA 344, Justice Michael Lee relied on s 33Z(1)(e) of the Federal Court of Australia Act 1976 (Cth) (the Act) to award damages to group members in possession of certain Toyota vehicles throughout the entirety of the claim period, calculated as the percentage reduction in value of their vehicle or vehicles.  It has been estimated that Toyota’s total aggregate damages bill may exceed AU$2 billion. Key Takeaways
  • For an order of aggregate damages to be made in a representative proceeding, the Court needs to be satisfied on a principled basis with which to assess and distribute the relief;
  • The analysis must be informed by general principles governing the assessment of damages, and can result in an award of aggregated damages applying to a specific class of group members within a representative proceeding;
  • While the judgment is liable to spur a trend in claims for aggregate damages, precisely how such an award will impact the approval of legal costs and a funder’s commission remains to be seen.
Background to the proceedings The case before the Court concerned claims relating to Toyota’s supply of 264,170 defective diesel vehicles to Australian consumers between 1 October 2015 and 23 April 2020 (Relevant Period).  These vehicles were fitted with diesel combustion engines and a ‘diesel exhaust after treatment system’, or ‘DPF’, aimed at reducing harmful pollutants and other emissions from the engine.  The case alleged that the vehicles were defective because the DPF was not designed to function during all reasonable driving conditions, and even if driven normally, there was a propensity for the car’s exhaust to emit excessive white smoke and malodour, and cause reduced fuel efficiency and trigger ‘excessive’ notifications prompting the need for service or repair. In alleging that the vehicles were not of ‘acceptable quality’ in breach of the statutory guarantee under s 54 of the Australian Consumer Law (ACL), and that Toyota’s conduct had been misleading and deceptive in contravention of ss 18, 29(1)(a) and (g), and 33 of the ACL, the lead applicant sought two types of damages under s 272 of the ACL:
  • Under s 272(1)(a), damages for the reduction in value of each relevant vehicle resulting from the failure to comply with s 54 of the ACL; and
  • Under 272(1)(b), other reasonably foreseeable loss or damage incurred as a result of the defect and failure to comply with s 54 of the ACL, including excess taxes, fuel consumption, financing costs, servicing costs and lost income.
Of these heads of damage, only two were suitable for determination at the initial trial of the lead applicant’s claim:  the ‘reduction in value’ damages under s 272(1)(a) and damages for excess GST paid by group members in connection with acquiring the relevant vehicles under s 272(1)(b).  (A separate question had been asked and answered in an earlier interlocutory application in the case, clearing the way for a potential aggregate damages award, in respect of only part of the lead applicant and group members’ claims.[1]) Aggregate Damages Having found in favour of the lead applicant, on among other things, their ‘acceptable quality’ cases, Justice Lee also found that the same determinations could be made on a common basis for the remainder of group members.  His Honour found that the lead applicant and group members were entitled to damages for the reduction in value of their vehicles, and for excess GST paid in connection with that reduction.  Accordingly, it was necessary for his Honour to determine a principled basis for arriving at a quantum of the reduced value which could be applied on an aggregate basis to all relevant group members. The Federal Court’s power to award damages on an aggregate basis is found in s 33Z of the Act. This section provides, among other things, that the Court may, in determining a matter in a representative proceeding, make an award of damages for group members, sub‑group members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the Court specifies,[2] or award damages in an aggregate amount without specifying amounts awarded in respect of individual group members.[3]  Further, subject to section 33V of the Act, the Court is not to make an award of damages under s 33Z(1)(f) unless a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment.[4] Noting that class actions were not the ‘Galapagos islands’ of litigation, Justice Lee observed that an award of damages, even on an aggregate basis, was subject to two overarching principles as to the award of compensatory damages.[5]  His Honour observed that an award of compensatory damages must be considered in the light of the overriding compensatory principle, and that even where the process of estimating damages is difficult, the Court ‘must do what it can’, this principle equally applying to an assessment of ‘reduction in value’ damages. Justice Lee found that the Court is not permitted, by s 33Z of the Act, to take an approach of awarding aggregate damages on a per vehicle basis and determining the separate question of distribution at a later stage. Because of this, his Honour was faced with a challenge of how to distribute relief to group members who had possessed the relevant vehicles for only part of the Relevant Period.  His Honour termed these group members as ‘Partial Period Group Members’ and concluded at [432]: The bottom line is that without knowing the price at which, or the time at which, the Partial Period Group Members bought and sold Relevant Vehicles on the secondary market, one cannot determine on a principled basis how the compensation for the owners of those Relevant Vehicles ought to be assessed or distributed. One must always bear in mind the whole object of any award of damages is to put the claimant in the position the claimant would have been in but for the contravening conduct. Ultimately, the Partial Period Group Members will be required to undertake an individualised assessment of their loss. For the ‘Entire Period Group Members’, that is, people who possessed the relevant vehicles throughout the entirety of the Relevant Period, the Court awarded aggregate damages under s 33Z(1)(e) of the Act.  The award of aggregate damages for the Entire Period Group Members was calculated on the basis of a 17.5% reduction in value of the average retail price of the particular type of vehicle at the particular time it was purchased.  In circumstances where the group member paid a price lower than the average retail price for their vehicle, the lower of the two prices was said to be the applicable comparator from which the 17.5% reduction in value is to be calculated.[6]  In being satisfied there was a reduction in value of the relevant vehicles of 17.5% resulting from the failure to comply with s 54 of the ACL, Lee J also found that Entire Period Group Members were also entitled to recover the excess GST they paid on that reduction in value, calculated as 10% of the reduction in value.[7] Regarding the claim for damages under s 33Z(1)(f) of the Act, the Court declined to award aggregate damages on this basis, because his Honour was not satisfied that a reasonably accurate estimate could be made of the total amount owing to group members as required by s 33Z(3). Conclusion Williams is the first instance of a Court awarding aggregate damages in a funded representative proceeding, and provides helpful guidance on how the Court will approach such claims, particularly where only part of the claim is suitable for determination on an aggregate basis.  That said, while Justice Lee found in favour of the class on the issue, it is plain that such an assessment will need to be carried out on a case-by-case basis. About the Authors Martin del Gallego, Partner Martin is Chambers & Partners recognised commercial litigator with 15 years’ experience in high stakes, high value litigation. Martin specialises in class action and funded litigation, with expertise across a broad range of sectors including financial services, energy & resources, construction and insolvency. Matthew Harris, Lawyer Matthew is a litigation and dispute resolution lawyer at Piper Alderman with a primary focus on corporate and commercial disputes. Matthew is involved in a number of large, complex matters in jurisdictions across Australia. -- For queries or comments in relation to this article please contact Kat Gieras, Litigation Group Project Coordinator | T: +61 7 3220 7765 | E:  kgieras@piperalderman.com.au [1] Williams v Toyota Motor Corporation Australia Limited [2021] FCA 1425. [2] Federal Court of Australia Act 1976 (Cth) s 33Z(1)(e). [3] Ibid s 33Z(1)(f). [4] Ibid s 33Z(3). [5] Williams [421]-[423]. [6] Williams [446]. [7] Williams [492].

Validity Finance Expands into California with Addition of Former Covington & Burling Litigator Mark Chen and Several Distinguished Advisors

Leading litigation funder Validity Finance  announced it has expanded to California, adding experienced litigator Mark Chen as portfolio counsel in Los Angeles.  Mr. Chen was previously special counsel with Covington & Burling in LA, representing clients in complex commercial disputes, including major intellectual property cases in the entertainment sector. In his new role, he will help assess Validity’s funding opportunities with law firms and businesses in Southern California and the West Coast.

Validity also named as senior advisors two high-profile California litigators, Thomas J. Nolan and J. Thomas Hannan. Mr. Nolan is trial counsel in the Los Angeles office of Pearson, Simon & Warshaw; Mr. Hannan is of counsel to Bartko Zankel Bunzel & Miller in San Francisco. In their new advisory roles, they will assist Validity in furthering relationships with law firms and entities in need of litigation finance for commercial disputes. Additionally, Validity appointed noted litigation valuation expert Gene Phillips as a special advisor. The L.A.-based Mr. Phillips will assist Validity in quantitative analysis, damages valuation and strategic relationship-building. Mr. Philips is CEO of PF2 Securities, which provides research and expert witnesses in large-scale financial disputes. With its latest expansion coinciding with the firm’s fourth anniversary, Validity has achieved a national footprint, with offices in New York, Houston, Washington, DC, and Los Angeles. “We’re excited to establish a presence in Southern California, one of the country’s most robust legal markets and home to some of the nation’s busiest civil court venues,” said Validity CEO Ralph Sutton. “We’ve previously collaborated with Los Angeles-based trial firms in funding successful matters and the time was right to plant our flag here,” he added. “We’re especially pleased to bring on Mark Chen from Covington to enhance our LA operations. He brings a strong track record representing both plaintiffs and defendants in high-stakes cases, including many high-profile matters.

While at Covington & Burling, Mr. Chen litigated matters for clients across a range of industries, including tech, healthcare and entertainment. His representations included multiple matters for the U.S. Olympic Committee, Sony Music Entertainment, and others.

Mr. Chen graduated summa cum laude from Cornell Law School, where he was an editor of the Cornell Law Review, and later clerked for Hon. Stanley Marcus, Senior U.S. Circuit Judge with the U.S. Court of Appeals for the 11th Circuit. Mr. Chen holds a B.A. in business administration from the University of California, Berkeley.

New Senior Advisors Tom Nolan and Tom Hannan

Commenting on the appointment of Messrs. Nolan and Hannan as senior advisors, Mr. Sutton said, “Tom and Tom are both veteran California trial lawyers who have served as lead counsel in numerous major cases. They bring important perspective, expertise and broad relationships based on decades of successful trial practice. We’re fortunate to welcome them as senior advisors as we grow our West Coast presence.” A fellow of the prestigious American College of Trial Lawyers, Mr. Nolan is one of the nation’s preeminent trial lawyers, with broad experience in complex commercial disputes including class actions, antitrust, fraud, contract, and intellectual property matters. His extensive trial record includes winning jury verdicts of more than $1billion for his clients and defeating claims exceeding $15 billion asserted against his clients. Mr. Nolan started his career in public service as a federal prosecutor, during which time he served as the chief of fraud and special prosecutions in the Los Angeles U.S. Attorney’s Office. He then spent nearly 30 years in big law at Howrey, Skadden and Latham & Watkins before joining Pearson, Simon & Warshaw in 2020. Mr. Hannan is an accomplished trial lawyer with a national reputation and noted success representing both plaintiffs and defendants in complex commercial cases.  Mr. Hannan served as judicial law clerk to renowned US district judge Alfonso J. Zirpoli in the Northern District of California. He practiced law for over 40 years with his equally well-known partner Ron Lovitt at Lovitt & Hannan. Together, they successfully litigated a wide variety of professional negligence, fraud and complex commercial matters.

New Special Advisory Role for Gene Phillips

Commenting on Gene Phillips’ addition to Validity’s distinguished roster of outside advisors, Mr. Sutton said, “While the law firms and clients with whom we work are the ones ultimately litigating our funded matters – whether bringing cases or negotiating settlements – it’s essential that our due diligence includes strong economic and data-driven analysis in helping us deploy our capital. That process will benefit tremendously from the contributions of Gene Phillips as special advisor. Gene is one of the industry’s leading litigation experts, and his large network of lawyers and experts will add strategic depth to Validity”. Mr. Phillips holds a BSc degree in mathematics and applied mathematics, and a BSc Hons degree in the Mathematics of Financial Derivatives, from the University of the Witwatersrand in South Africa.

About Validity Validity is a commercial litigation finance company that provides non-recourse investments for a wide variety of commercial disputes. Validity’s mission is to make a meaningful difference in our clients’ experience of the legal system. We focus on fairness, innovation, and clarity. For more, visit www.validityfinance.com.

Bloomberg Law on Historic ‘Secondary Deal Fund’ Landing $750M 

Bloomberg Law profiles Ashley Keller and Adam Gerchen as serial law entrepreneurs who have now raised $750M to fund the first secondary transaction litigation fund. Six years ago, Mr. Keller and Mr. Gerchen made headlines by selling their litigation finance firm for upwards of $160M to Burford Capital. Bloomberg Law reports that the secondary deal landscape for litigation finance is in its infancy. News of Keller and Gerchen’s new secondary market fund (under the banner of Gerchen Capital Partners) is being viewed as a signal of the maturing nature of litigation investment broadly.  According to Bloomberg Law, $225M of proceeds from the fund have been dispatched. In one instance, funds were disbursed to purchase a 30% stake from Omni Bridgeway’s investment in an Australian class action. Sources say Omni was overweight with ‘combustible cladding’ claims in Australia and decided to offload some of the risk to the secondary market.  Bloomberg reports that Gerchen Capital Partners submitted $19.5M to Omni for the stake. A regulatory filing discloses Omni banking a $16M profit for the transaction. Bloomberg’s insights suggest that Mr. Keller and Mr. Gerchen are looking to usher in a robust secondary marketplace for litigation investors. Active debate around a robust secondary market for litigation finance is ongoing. Many suggest that savvy litigation funders would only offload assets if concerned about losing the claim, or not being able to enforce a successful outcome. However, others suggest the needs of litigation franchises change over time, as claims can often take years to reach resolution. Hence there may be a need for a secondary market in Litigation Finance.

Patent Portfolios are in Vogue

Bela Malik (Patent Agent at Affordable Patent Agency, LLC) writes on LinkedIn that child patents are a means to building a strong and healthy patent portfolio. Ms. Malik says that filing child patents is a way to stay on top of the intellectual property market as a patent innovates beyond original design. Ms. Malik suggests that a diverse patent portfolio allows for various investment alternatives, as inventors court investors to fund the protection of their rights.  According to Malik’s essay, the USPTO is susceptible to United States’ Supreme Court rulings, which contain constant fluctuation in what is considered fundable/investable patent law.  When investors are seeking to raise capital for numerous projects, having a solid child patent portfolio is appealing to third party funders. Additionally, quality design of a patent portfolio is viewed as a hedge against competitors who may seek to innovate beyond simple patent certifications. Inventors know that USPTO law has liberal views of ‘fair competition,’ and it has therefore been profitable to err on the side of caution when profiting from patent portfolio litigation claims.  Ms. Malik’s overall position appears to urge an evolution beyond ‘one and done’ patent applications, towards a broader position of building patent portfolios as part of risk mitigation. 

Podcast: The American Bar Association Promotes ‘Financing the Good Fight’ 

The American Bar Association’s Commercial and Business Litigation Committee recently conducted a podcast interview featuring former federal prosecutor Kenneth Harmon and former litigation attorney Giugi Carminati, who discussed litigation finance and the wide range of benefits associated.  During the podcast, Mr. Harmon and Dr. Carminati touch on various third party investment topics including educational barriers currently affecting global litigation funding. According to the American Bar Association, the podcast is aimed at providing sound advice to those looking to expand their knowledge of the growing litigation finance ecosystem, and how investment in the space can be leveraged as a tool to access the civil judicial system.  Click here to listen to the podcast’s insights.

Burford Captial’s Insights on Funding Quality Litigation

Researchers worldwide signal that the cost of a quality litigation team of experts is expected to rise well into the future. When thinking about the future of global enterprise, chief executives are eager to engage vehicles to help their organizations thrive cross-border. Burford Capital claims that franchises that embrace the balance sheet advantages of legal investment will have wider opportunities in commerce than those who choose to ignore the advantages of litigation finance products and services.  According to Burford’s essay on the matter, Chief Financial Officers and their in-house General Councils have fretted while budgeting for multi-year litigation offensives. Burford suggests that those who balk at funding quality litigation will find themselves behind the eight ball over the next decade.  Burford’s researchers have tallied more than 75% of large enterprises holding a range of $20M to $100M in unenforced litigation claims. Burford seeks to expand various lines of business by educating executives of large enterprises about the benefits of LF investment.

Victory Park Capital Bolsters Legal Finance Team with Additions of Chad Clamage and Ahmed Eltamami

Victory Park Capital (“VPC”), a leading global alternative investment firm, today announced the additions of Chad Clamage, Principal, and Ahmed Eltamami, Vice President, to the firm’s investment team. Clamage and Eltamami are primarily responsible for sourcing, analyzing, executing and managing investments within legal finance. They will work closely with Luke Darkow, Principal, and Richard Levy, Chief Executive Officer, Chief Investment Officer & Founder, who leads the legal finance strategy at VPC.

“We are proud to welcome Chad and Ahmed to the firm,” said Levy. “Their breadth of experience in the legal finance industry will be highly valuable as the pace of investment opportunities in this asset class continues to accelerate.”

Clamage brings several years of experience in legal finance to VPC. Most recently, he was a vice president at Burford Capital, where he underwrote and managed litigation finance investments. Prior to that, Clamage was counsel at Mayer Brown LLP, where his practice focused on class action defense, mass tort and appellate litigation. Before Mayer Brown, he clerked for the Honorable Diane S. Sykes of the United States Court of Appeals for the Seventh Circuit. Clamage received his J.D. from Stanford Law School and his B.A. in economics from Stanford University.

Eltamami was previously an associate on the quantitative team at Burford Capital, where he was responsible for analyzing investments within the underwriting and investment arm and managing the existing portfolio. Prior to that, Eltamami worked in the dispute consulting industry where his work focused on expert witness engagements in a variety of complex litigation. Eltamami received his B.A. in Economics-Accounting and completed the Financial Economics Sequence from the Robert Day School of Economics and Finance at Claremont McKenna College.

VPC takes a private credit-oriented investment approach to the legal asset class and targets investments in legal specialty finance, law firm funding and litigation finance.

About Victory Park Capital

Victory Park Capital is a global alternative investment firm that provides capital to emerging and established businesses in the U.S. and abroad. The firm’s differentiated offerings leverage an extensive network of industry relationships, disciplined deal origination, creative financing capabilities, broad credit structuring and special situations expertise. The firm was founded in 2007 and is headquartered in Chicago with additional resources in New York, Los Angeles, Austin, Miami and London. VPC is privately held and a Registered Investment Advisor with the SEC. For more information, please visit www.victoryparkcapital.com.

New Book Titled “Third Party Funding of Dispute Resolution” Explores LitFin in India

“Third Party Funding of Dispute Resolution” is a lucid look into India’s maturing litigation investment marketplace. The authors suggest that for litigation finance to thrive across India, a holistic approach should be considered and appreciated.  An exclusive extract from “Third Party Funding of Dispute Resolution” paints a picture of a worldwide network of funders who invest in meritorious legal claims that comprise legacy portfolio interests. The book’s authors, Ms. Kritika Krishnamurthy and Mr. Anuroop Omkar, explain that India’s litigation investment community holds a myriad of possibilities. With a healthy portfolio mix at the heart of successful litigation investment franchises, the authors suggest that the world’s funders maintain a kaleidoscope of business models. In terms of returns, the authors depict scenarios where funders will receive anywhere from 10%-45% of award proceeds. The book’s premise hinges on the importance of objectivity when considering dispute resolution remedies.  Check out the link above to find out more about “Third Party Funding of Dispute Resolution.”