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Commercial Legal Innovation

Bribes, Grease Payments and Global Litigation Finance 

Both competition law and consumer protection law focus on eliminating global marketplace manipulation. Deceptive acts and practices in many offshore businesses are byproducts of illegal bribes, or legal grease payments. Exclusionary price fixing of international virtual currency markets suggests that innovation is necessary to level the playing field.  Boston College International and Comparative Law Review researchers have suggested that ‘greasing the palms’ of international regulators is not necessarily forbidden. During the COVID-19 pandemic, many virtual currency firms made significant efforts to increase earnings via marketplace manipulation. Conditional regulatory approvals have prompted deceptive advertising practices which led to marketplace fraud and earnings manipulation. Famous international banks have made a business out of regulatory arbitrage frameworks … allegedly issuing bribes when necessary.  To navigate such bad behavior, price fixing agreements can be negotiated as a litigation finance tool. Engaging virtual currency fixing, as with Proof of Transfer (POX) powering NYCCoin and MIA Coin, supports the idea of government “donation bounties.”  Such practices are a hot topic of discussion for United States innovation policies.  The Department of Justice has recently begun to consider various instances of litigation finance solutions to help eliminate cross-border bribery and marketplace manipulation architectures.  For reference, we highlighted 32 key points in“The Foreign Corrupt Practices Act: It’s Time to Cut Back the Grease and Add Some Guidance.” Feel free to scan the doc and see our key takeaways (highlighted inside). 
Commercial

Podcast: The Litigation Finance Asset Class 

With the litigation finance industry experiencing meaningful growth, many investors are finding the space to be an attractive alternative asset class. The United Kingdom has witnessed litigation finance investment increase twofold, now valued at £2B a year.  A new podcast from Robert Rothkopf, Managing Partner of Balance Legal Capital, explores industry trends driving venture capital and private equity investments in litigation finance. Rothkopf is credited with being a pioneer in the UK’s third party funding industry.  Balance Legal Capital is a member of the Association of Litigation Funders (ALF). ALF serves as an independent association engaged by the Ministry of Justice in self-policing England and Wales litigation funding agreements. Listen to the podcast to learn more about Rothkopf’s insights.
Commercial

Pandemic-Powered Third Party Funding 

During the COVID-19 pandemic, world economies came to an abrupt halt. Nearly every industry was forced to reimagine itself in a bid for survival. Two years into the new normal, litigation finance’s exponential growth has been buttressed by an onslaught of COVID-19 related litigation claims.   Bill Tilley of Amicus Capital Group recently published a LinkedIn essay exploring third party funding trends witnessed during the pandemic. Tilley highlights that a large number of new litigation investors have joined the market to meet the demand for claims. With industry awareness on the rise, many regulators are looking to introduce third party funding mandates with consumer protections in mind.  Tilley forecasts that quality litigation will continue to experience increased costs, spawning a need for alternative litigation lenders. The time to a verdict is slowing, as the pandemic has contributed to litigation supply chain disruptions. Third party investors must be willing to devote time and resources and be patient as they await resolution.   Tilley says, with the pandemic waning, third party investment is continuing to surge with exponential year-on-year increases well into 2030. 
Announcements Commercial Fundraising

BALANCE LEGAL CAPITAL COMPLETES FIRST CLOSE AT GBP130M IN NEW LITIGATION FUND

BALANCE LEGAL CAPITAL LLP, a London-based provider of litigation and arbitration finance, today announced it has raised a further GBP 130M from 8 institutional investors in the first close for a new UK fund, bringing Balance’s total AUM to over GBP 250M. Balance is targeting Q2 2022 for a second and final close.

The investors in the new fund include repeat investors from Balance’s prior vehicles plus further global institutional investors located across the UK, US, Switzerland, the Nordics, and Australia. In addition to its discretionary capital pools, Balance has direct access to significant further co-investment capital from its investors, enabling it to fund the largest litigation budgets.

As ever, Balance has delegated authority over its litigation investment decisions.  Balance will use the new funds to continue to invest in commercial disputes and class actions with a focus on disputes in common law jurisdictions (ex. USA), particularly the UK and Australia.  Balance invests across all sectors and commercial claim types including contract, tort, shareholder disputes, joint venture disputes, competition, class actions and more.

Robert Rothkopf, Managing Partner of Balance Legal Capital, said “We are thrilled to announce the launch of our new fund, which will further enhance our ability to support claimants and law firms in litigation proceedings.  This is the second multi-investor fund we have launched in two years and demonstrates the strong demand for our capital.  We’re grateful to our investors for continuing to back us in our new fund, to our high-calibre team at Balance, and to the law firms, barristers and insolvency practitioners we partner with to obtain justice for businesses and individuals.” 

Balance Legal Capital LLP was advised on the establishment of its new fund by Herbert Smith Freehills LLP, London.

About Balance Legal Capital

Balance Legal Capital was founded in 2015 by Robert Rothkopf (former Herbert Smith Freehills litigator) and Simon Burnett (a former Freshfields litigator).  Its investment committee includes Lord David Gold (former global senior partner of Herbert Smith and head of disputes) and Ian Terry (former managing partner of Freshfields and global head of disputes).  Fraser Shepherd (former litigation partner at Gilbert + Tobin, Sydney), Donny Surtani (former litigation partner at Herbert Smith Freehills) and Nick Gardner (former head of Intellectual Property Litigation at Herbert Smith) are senior advisers to the investment committee.

Example cases funded by Balance include (1) the audit negligence claim by the Patisserie Valerie Group (in liquidation) against Grant Thornton UK LLP (solicitors – Mishcon de Reya LLP); and (2) group proceedings for vehicle owner clients of Leigh Day in the emissions claims against BMW, Vauxhall, Peugeot, Citroen for selling diesel vehicles allegedly containing unlawful emissions defeat devices.

Balance Legal Capital LLP is a member of the Association of Litigation Funders of England and Wales (ALF) where Robert Rothkopf is a board member.  Balance Legal Capital LLP is also a founder member of the Association of Litigation Funders of Australia (ALFA) where Simon Burnett is a board member.  Balance Legal Capital LLP is authorised and regulated by the UK’s Financial Conduct Authority and by the Australian Securities & Investments Commission.

https://www.balancelegalcapital.com

Case Developments Commercial

Appeal Tribunal Refuses Google’s Request for ATE Premium Disclosure

The Competition Appeals Tribunal recently ruled that requiring disclosure of after-the-event insurance premiums would amount to an unfair advantage. In this case, tech giant Google sought disclosure in the name of transparency. Law Gazette details that the CAT is concerned with transparency as it pertains to funding agreements in collective proceedings. Bridget Lucas, QC referenced the unique nature of class action proceedings—which necessitate CAT approval of a proposed class representative. She explains that this stems from the knowledge that a PCR’s funding arrangement is relevant to CAT’s assessment of the CPO filing. CAT found that funding agreements and ATE premiums must only be disclosed if they are relevant. The ruling stems from a claim brought by over 19 million claimants regarding app distribution and payment processing. The case could be worth nearly a billion GBP. Vannin Capital is funding the collective action. The special regime for collective actions does require claimants to disclose funding agreements. Ultimately though, the court decided that the need for disclosure in this case is outweighed by an unwillingness to give one side a tactical advantage.
Commercial

Why Law Firms Should Welcome Litigation Funding

It’s common for law firms to adopt ‘thin reserve’ strategies to keep budgets lean and liquidity high. But when a pandemic occurs, it can leave the legal services industry in a lurch. Augusta Ventures explains that there are numerous reasons for law firms to consider litigation funding as an option. Litigation Finance can be a valuable tool in terms of working capital. When liquidity issues impact entire industries, collecting on bills can be a challenge. When firms fail to pay their own bills in a timely way, confidence erodes and reputations can be damaged. But litigation funding can be used for working capital, monetizing existing legal assets while alleviating the money crunch so many firms are feeling. Some firms address shortfalls by delaying or lowering partner distributions—which most partners are not generally in favor of. This option can engender bad will among partners and staffers, and may send the signal that a firm is in dire financial straits, thus lowering its standing in the field. Litigation Finance can address these issues in a timely and low-risk manner. Third parties can fund single cases or portfolios, providing non-recourse funds that can be used to address budget shortfalls, or as working capital to ensure bills are paid and partners are compensated. As Litigation Finance continues to grow and adapt to the needs of firms and clients, new and innovative solutions will present themselves. Presently, firms would do well to consider the benefits of Litigation Finance in terms of liquidity and reputation.
Commercial People Moves

Omni Bridgeway Launches DC Office with Former Alston & Bird Partner

Litigation Finance powerhouse Omni Bridgeway is opening its fifth US office—this time in Washington DC. The new office will be led by Jason Levine, noted trial lawyer and former partner at Alston & Bird. Levine joins Omni Bridgeway at a time of unprecedented demand for legal funding services. Law.com details that Omni Bridgeway is growing fast in the US—expanding its staff by 20% since November 2021. Jim Batson is the co-chief investment officer and managing director for the US. He explains that demand for funding services is steadily increasing now that business is returning to normal. Levin’s experience includes winning regulatory, commercial, anti-trust, and class action cases across multiple industry sectors. He’s earned a total of $3 billion for corporate clients, and avoided over $17 billion for defendants he’s represented. It’s expected that Levin will work from home near DC for the time being, though he expects to meet some clients in person.
Commercial Regulatory Issues

How State Laws Can Impact Litigation Funding

Can the medieval doctrines of champerty and maintenance impact litigation funding agreements today? Most jurisdictions have abolished the outdated concepts prohibiting anything that looks like third-parties betting on litigation—but it still behooves counsel to know the laws of their case's jurisdiction.  Lake Whillans details that in most places, there’s a push toward creating a welcoming atmosphere for funders and the clients and lawyers who work with them. Let’s look at four major jurisdictions in the US: California, New York, Delaware, and Illinois. In California, champerty and maintenance were never prohibited to begin with. The larger issue is disclosure, which is required by statute. This includes the identity of any funder of a claim or counterclaim—but does not require full disclosure of funding agreements. In fact, in Impact Engine v Google, courts found that the funding agreement and related materials were protected by the work product doctrine. New York law Section 489 prohibits the selling of claims with the intention of pursuing legal action. Of course, most TPLF agreements do not assign claims to another party. It’s much more common for claimants to retain their claims. The non-recourse nature of funding makes agreements exempt from usury laws. Delaware rejected the allegation that legal funding equates to champerty and maintenance. In Charge Injection Technologies v DuPont, DuPont asserted that funders become the true party of interest in the case. The judge rejected this, pointing out that the funding agreement was negotiated without coercion and that funders did not control settlement or strategy decisions. Illinois set a valuable precedent in Miller v Caterpillar. Caterpillar contended that Miller’s funding agreement violated a standing ban on maintenance. The court disagreed, saying the funding was not used for meddling purposes, and was instead in the interest of justice.
Announcements Consumer

Litigation Is Driving Up U.S. Commercial Auto Insurance Costs, Study Finds

Social inflation—the impact of rising litigation on insurers' costs—increased claim payouts for commercial auto insurance liability alone by over $20 billion between 2010 and 2019, according to a new paper by Insurance Information Institute (Triple-I), in partnership with the Casualty Actuarial Society (CAS).
The Triple-I/CAS paper, Social Inflation and Loss Development confirms and quantifies one of the primary factors driving up the cost of commercial auto insurance. A separate Insurance Research Council (IRC) paper illustrated how losses across several insurance lines have accelerated in recent years much faster than economic inflation alone can explain. In addition, while the Triple-I/CAS paper focused on commercial auto insurance, it also identified evidence of similar trends in other lines, such as "other liability occurrence" and claims-made medical malpractice. An occurrence policy pays claims arising during the policy term, even if they are filed many years later. Claims-made insurance can provide coverage when a claim is made, even if it arises from an incident that occurred years ago. Drivers of Social Inflation
Considered to be a growing cost of doing business in the insurance industry, social inflation is influenced by negative public sentiment about larger corporations, litigation funding, and tort reform rollbacks at the state legislative level, all of which have increased liability costs. Shifting public perceptions and attitudes may lead jurors to sympathize with plaintiffs when awarding damages. Jurors may also believe the business, or the insurance company, has unlimited financial resources, leading to what's commonly known as "shock" verdicts.  These monetary damage awards are much higher than expected based on the evidence presented at trial, often exceeding $10 million. Emotional appeals to juries by plaintiff's attorneys are nothing new. Neither are class action lawsuits. But the plaintiff's bar has gone to a new level with tactics like third-party litigation funding and litigation lending, the report notes.  Funding of lawsuits by international hedge funds and other financial third parties – with no stake in the outcome other than a share of the settlement – has become a $17 billion global industry, according to Swiss Re. Law firm Brown Rudnick sees the industry as even larger, estimating it as a $39 billion global industry in 2019, according to Bloomberg. Some states have implemented rules requiring disclosure of third-party litigation funding in lawsuits, which would give defense attorneys and juries insight into the entities other than the plaintiff who are financing the legal fees of plaintiff's attorneys. Such efforts predictably meet resistance from third-party litigation funders. In 2020, the 13 largest commercial litigation funders in the world formed the International Legal Finance Association (ILFA) to advocate for litigation funding and oppose blanket disclosure requirements. Commercial transportation is among the sectors most severely affected by more frequent lawsuits generating higher insurance claim payouts.  A 2020 study by the American Transportation Research Institute found that, from 2010 to 2018, the size of jury verdict awards grew 33 percent annually, as overall inflation grew 1.7 percent and healthcare costs grew 2.9 percent. More frequent lawsuits and costlier jury verdicts can lead to increased insurance costs as rates are adjusted to reflect the changing risk profile. It can even force insurers to stop writing certain forms of coverage. Higher claim costs tend to be passed along to policyholders in the form of higher premiums. In extreme cases, climbing claim costs can ripple through the entire economy, creating conditions analogous to the 1980s liability crisis, where liability claims were adversely impacting the U.S. insurance industry to the point where some insurers faced insolvency.