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Commercial Resources

The 2021 Litigation Finance Survey Findings

In September, Bloomberg Law surveyed 38 litigation finance providers, 37 lawyers, and 75 legal professionals in the UK, US, and Australia on their interest in and use of Litigation Finance. This survey provides a stirring look at developments and attitudes within the industry. As Bloomberg Law explains, the main area of concern for funders and attorneys is the question of who maintains control over the litigation. Current and pending legislation tends to guarantee that clients retain the right to decision-making even in funded cases. Meanwhile, it appears that ethical implications are of far greater importance to lawyers—with 55% listing it as a concern, compared to just 14% of funders. Matters of return waterfall provisions (based on a multiple of invested capital) and attorney returns subordinated to return of funder capital were of high importance to both funders and lawyers. Factoring duration risk in calculations of proceeds distribution is also important to lawyers and funders—though funders find it a more crucial issue. Funders also focus on the right to withhold funding. When lawyers are considering entering a funding agreement, they tend to look at the factors in this order.
  1. Financial terms
  2. Reputation of the funder
  3. Track record of the funder
  4. Type and quality of in-house legal consultancy
Commercial litigation remains the most popular area of practice for funder/attorney agreements. This is followed by international litigation, antitrust matters, international arbitration, insolvency, patent law, environmental actions, copyright/trademark cases, insurance issues, and product liability. General industry views are largely positive toward funding, though there are some specific areas of concern. At least 39% of funders and 56% of lawyers do not feel that Litigation Finance is transparent as an industry. In more positive news, more than ¾ of lawyers and 97% of funders do not agree with the oft-repeated accusation that legal funding enables frivolous filings and cases without merit clogging court dockets. Still, lawyers were largely neutral on the positive ethical reputation enjoyed by funders. Most interestingly, about half of lawyers and nearly 4/5 of funders disagree with mandatory disclosure of legal funding agreements. In the end, we see that lawyers are 69% more likely to seek out litigation funding compared to five years ago. That’s solid news for this industry that continues to grow and adapt to meet the changing needs of lawyers and clients.
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Case Developments Commercial

Woodsford Funds Govia Thameslink Railway Action

A legal claim that could be worth as much as GBP 100 million has Govia Thameslink Railway concerned. It alleges that one of the most active commuter railways in Britain has been routinely overcharging as many as 3.2 million passengers. The claim, filed late last month, is funded by Woodsford. Woodsford Litigation Funding explains that the case addresses a lack of access to ‘boundary fares’ in which commuters with a London Travelcard are entitled to discounted fares from the boundary zones covered by cards to their destination. A similar case, also funded by Woodsford, involves a claim seeking up to GBP 93 million against two unconnected rail operators. Govia Thameslink Railway is accused of not making boundary fares available to riders, nor informing passengers that they were an option. Since November 2015, it’s estimated that 240 million trips could have been more affordable thanks to boundary fares—had commuters been aware of them. This constitutes a breach of UK competition rules, plus an abuse of market powers. To be eligible for inclusion in the class action, claimants must meet specific criteria:
  • Must have owned a Travelcard after 10/2015.
  • Must have also purchased at least one rail fare from a station within a zone covered by the Travelcard.
  • Must have purchased a rail fare to a location outside the zone of the Travelcard.
Potential claimants aren’t required to bring individual claims, nor is there a fee to participate in the action. Funding from Woodsford makes it possible for claimants to sign on at no initial cost to them.
Commercial Regulatory Issues

What Have We Learned from Lloyd v Google?

The Supreme Court recently rejected the claim filed by Richard Lloyd against Google. Lloyd is the former executive director of Which?, a consumer protection organization. The case involved a data breach from over ten years ago, wherein Safari users were subject to double-click ad cookies without their consent. Law Gazette details that Lloyd v Google tackles two significant issues. First, it examines whether or not there’s a right to bring an opt-out class action in cases involving data privacy and protection. Second, it looks at whether there should be compensation in data rights cases when there has not been proof of individual impact. In February of this year, the UK government debated, then declined, to introduce legislation specific to opt-out class actions for matters involving user data. Their reasoning was that there was another, perhaps better, form of class action. Lloyd pursued this and was not successful. Litigation funders have taken a particular interest in this case—calling it a test case for UK collective actions in the future. Justice Leggatt denied claims made on behalf of roughly 4 million iPhone users in the UK, saying they only have a right to compensation if they have evidence of financial losses or distress. What might constitute evidence of distress is unclear. This ruling means that Big Tech won’t have to demonstrate that they’ve acted ethically. Rather, the people they harm, whose privacy has been violated, have to prove some tangible damage. There are still opt-in class actions, but it’s admittedly untenable to expect millions of clients to collect and submit evidence of the individual impact of a large data mishandling. It also leaves funders in a lurch—choosing between increasing access to justice and risking a large investment on a class action that may never reach a profitable conclusion. Ultimately, we’re left with millions of users allegedly violated by a tech company which will face no tangible repercussions.
Announcements Commercial People Moves

Delta Capital Partners Management Welcomes Michael Callahan as Chief Operating Officer

Delta Capital Partners Management LLC, a global private equity firm specializing in litigation and legal finance, has announced the hiring of new senior executive Michael Callahan. Mr. Callahan joins Delta as its Chief Operating Officer, where he will execute the firm’s strategic and tactical plans worldwide; lead investor relations; and oversee the implementation of new business initiatives, product development, and office openings. Prior to joining Delta, Mr. Callahan worked at Boston Capital for 28 years, where he was a Senior Vice President and the Director of Asset Management. At Boston Capital, Mr. Callahan was responsible for a team of over 60 professionals monitoring and reporting on the performance of Boston Capital's $7.7 billion portfolio, including both lower tier asset management and upper tier investor relations functions.  Mr. Callahan also led the team at Boston Capital that developed a proprietary asset management and reporting platform which was utilized throughout the company. Christopher DeLise, Delta's Founder, CEO and CO-CIO, stated, “We are very pleased to welcome Michael to the Delta team, where his extensive experience in asset management, investor relations, and investment company operations will be invaluable as Delta continues its global expansion and further enhances the firm’s strong position within the litigation and legal finance industry.” About Delta Delta Capital Partners Management LLC is a US-based, global private equity firm specializing in litigation and legal finance, judgment and award enforcement, and asset recovery. Delta creates bespoke financing solutions for professional service firms, businesses, governments, financial institutions, investment firms, and individual claimants. SOURCE Delta Capital Partners Management LLC
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Commercial Deals

Burford Managing Directors Talk Potential Law Firm Ownership

Now that several US states are experimenting with non-lawyer ownership of legal firms, it’s no surprise that major players in Litigation Finance are thinking about taking part. Several more states are considering loosening regulations on who may buy into a law firm, including California and Michigan.

Law 360 reports that Burford Capital may be one funder looking to make a law firm investment. Emily Slater (Managing Director) and Andrew Cohen (Director) are jointly responsible for valuing and underwriting the company’s investment risk. Currently, they’re tasked with assessing an investment in legal firm ownership.

With regard to overall strategy, Slater explains that law firm investment compliments Burford’s funding efforts. Permanent equity in a law firm is a long term investment with a collaborative foundation. She goes on to state that there are some key reasons partial ownership by funders can benefit law firms:

  • Investment provides needed capital that can be used to grow and strengthen the business.
  • Partners can maintain equity in the firm after retirement.
  • These benefits may serve to encourage firm management to employ long-term growth strategies and allow more freedom to innovate.

While some have speculated that private equity firms may also race to buy into legal firm ownership, Slater is not convinced. She explains that legal funders have a far better understanding of law firms than other investment managers, which gives them a huge advantage. Beyond that, Slater is confident that Burford will be first to market.

Obviously, ethics will be examined at length as non-lawyers buy into firms. It’s speculated that non-lawyer ownership may lead to financiers making business decisions—such as which cases to take and when to settle—on behalf of lawyers. Andrew Cohen disputes this vehemently. He claims it’s unlikely that investors would make decisions at the client level.

Commercial

Is Brazil the Next Hot Litigation Destination?

The International Chamber of Commerce has ranked Brazil the #2 destination for matters held in the International Court of Arbitration. This is according to a new report on dispute resolution stats—one of many indicators that Brazil’s legal sector is experiencing impressive growth. Omni Bridgeway explains that Brazil has grown more sophisticated in recent years, with many more industries and businesses availing themselves of the benefits of arbitration. Fernando Merino, Managing director at Steptoe & Johnson LLP is licensed to practice law in Brazil and the US. His ties with the Brazilian legal community affords him specific insights into what’s happening in Brazil, and how that will shape the future of Litigation Finance there. His views on the region include:
  • Brazil has been developing new arbitration laws since 2000, to great effect.
  • Much of this new growth stems from the involvement of industrial sectors like mining, and energy excavation and production.
  • The rise of legal funding provides more opportunities to pursue litigation and arbitration when needed.
Commercial Regulatory Issues

AU Litigation Funders See Agreements Grandfathered Through MIS Regime

An Australian court recently offered guidance regarding when litigation funding agreements will be grandfathered, vs when they’ll be subjected to the Managed Investment Scheme regime. This came in the form of a Federal Court decision in Stanwell Corporation Limited v LCM Funding Pty Ltd (2021). MONDAQ details that funding agreements that were signed prior to August 22 of last year can be grandfathered even if the case was in an early investigative phase at the time. At the same time, calling a class action an MIS is something that may be brought before an appellate court. Before 2009, the MIS regime didn’t apply to litigation funding. Decisions made with regard to a work program for investigations and book building can still be considered part of an MIS when they share the same dominant purpose—to facilitate class members seeking remuneration. The decision on grandfathering was determined because, according to amendments made by CALF regulations, a litigation funding scheme is not an MIS, nor will it require an AFSL, if it was entered into before August 22 of 2020. This is provided that the ‘dominant purpose’ (a term that is defined objectively) of the scheme is for claimants to seek remedies for damages incurred. In the case, LCM was accused of operating an unlicensed MIS. When cross-claims were made by LCM, judges determined that even if the scheme had not been eligible to be grandfathered, the scheme itself was arguably not an MIS. It was asserted that the true dominant purpose of the program was not to help claimants seek remedies for damages, but rather, was for LCM’s sole benefit. Ultimately, the case determines that book building or early investigations can be part of a litigation funding scheme—even when group members are not yet involved.
Consumer

Consumer Legal Funding in Personal Injury Cases

Sometimes referred to as ‘lawsuit loans,’ funds given by third-party legal funders are not loans at all. Loans are paid back, typically with interest, regardless of what happens with the money once it’s provided. Legal funding is offered on a non-recourse basis, so funders get nothing if the cases they choose aren’t successful. When they are, funders may take what some describe as the lion’s share of an award. National Law Review explains that the legal funding industry is only about two decades old. But it’s recently come barreling into the mainstream. Economic instability exacerbated by COVID led investors to seek out alternative, uncorrelated assets. Understanding the basics of litigation funding is a good idea for any personal injury lawyer. First, funding requires that a lawsuit be filed. Funders vet cases according to their own guidelines and analytics to determine the best candidates for funding. Funded cases are typically those with a probability for a high payout, and defendants that have suffered significant personal or financial damages. Plaintiffs may also be given an advance to tide them over while they wait for their case to conclude. Clients may use the advanced monies in any way they see fit. The timetable for this can be unpredictable, with duration risk being a major consideration for funders, lawyers, and clients alike. The application process can take 1-7 business days to complete. For complex or high-value cases, the vetting process may last even longer. Underwriters will examine discovery, filed paperwork, deposition transcripts, and anything else they may require to determine whether a case has viability for funding. Along with collective actions, personal injury cases are a commonly funded case type. Other common litigation types include medical malpractice, discrimination, whistleblower actions, and product liability. Litigation funding transactions are still largely unregulated—though that is expected to change.
Commercial

Understanding the Data in Legal Analytics

Third-party litigation funding has grown by leaps and bounds over the last decade, and brought with it tremendous innovation. The pandemic spurred many investors to diversify their portfolios with uncorrelated, alternative assets. Litigation Finance has the potential for very high rewards despite the risk and duration involved. Business Law Today explains that while clients, investors, and attorneys are generally positive about their experiences with litigation funding, detractors persist in arguing that funding leads to a glut of frivolous cases lacking in merit. This assertion is disputed by funders and by available evidence. It also fails to hold up to basic logic—since no one wants to invest in a meritless case. In fact, funders vet cases carefully to ensure that only the most viable and promising litigation receives the funding needed to move forward. In 2020, the American Bar Association released Best Practices guidelines. While not legally enforceable, the report outlines vital factors for consideration by industry professionals. It describes third-party legal funding as a form of risk distribution not unlike a contingency agreement. It’s subject to risk, though that risk can be mitigated with careful research, vetting, and analytics. Litigation Finance provides a means to transfer quantifiable legal risk to the parties best able to weather it. Funding is provided on a non-recourse basis, so the funder is taking 100% of the financial risk in a funded case. Ultimately, the ABA Best Practices Report doesn’t mandate rule-following so much as it suggests broad philosophical principles be applied to all funding types. Among its most specific suggestions are:
  1. Clients, not funders, should control decision-making in cases.
  2. Funding agreements should always be in writing, using clear language.
  3. Written funding agreements should include provisions in the event that the client and funder disagree on strategy, or if the funder wishes to withdraw.
  4. Disclosure should be given in accordance with the rules of the jurisdiction, which vary widely.