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Case Developments Commercial

Dispute Between Funder and Law Firm over Fees Reaches Federal Court

The biggest challenge for a funder taking on an investment in a case is the need to balance potential financial returns against the risk of losing one's investment. However, an ongoing matter making its way through the federal court system in the US shows that even when a case is successful, funders may still face challenges in recovering those returns. Reporting in Bloomberg Law highlights this issue, as Woodsford is seeking to force Hosie Rice, a law firm based in San Francisco, to pay almost $2 million in fees for its financing of a case that successfully settled in 2020. After an arbitrator ruled that Hosie’s client, Space Data, owed the law firm up to $4 million in costs but no contingency fee, Hosie argued that it was not required to award Woodsford any additional fee beyond the original loan repayments. Woodsford’s CEO, Stephen Friel, has argued that this dispute is a simple matter of Hosie failing to repay its debts, and last year an arbitration panel agreed that Woodsford was owed additional remuneration as the $4 million client payment constituted a ‘revenue event’ for the law firm. A federal judge in Delaware is now considering Hosie’s appeal that the arbitration award was improper. Whichever way the judge rules, it is sure to be carefully watched by funders and law firms alike, who no doubt will be considering future situations where the two parties may have differing definitions of what constitutes a contingency fee.
Commercial Deals

Investment in Litigation Finance can offer Stability Against Market Volatility

This year has seen the global economic market continue to struggle on shaky grounds; weighed down by the pressure of inflation, conflict in Europe and associated weaknesses in supply chains. As a result, investors have been looking for alternative avenues to seek more reliable and secure returns for their capital, with litigation financing representing a tempting proposition for a growing number of funds. Insights by Katch Investment Group highlight that with the spectre of a recession on the horizon, investing in litigation finance can provide stability that simply cannot be found in the equities market at present. Katch argues that while investors often overlook this asset class due to its complex nature and smaller market size, in comparison to traditional investments, the litigation finance space is not only growing, but also seeing increasingly diversified opportunities with the rise of specialist outfits. Katch does caution potential investors that engagement in this market needs to be carefully evaluated, with the jurisdiction and type of cases being primary concerns. Furthermore, investors should also assess not only the likelihood of any given case resolving successfully, but also the challenges that may arise when attempting to collect on any financial rewards.
Commercial

Omni Managing Director Highlights Enforcement and Collection as Key Issues

The litigation funding industry is continuing its upward growth trajectory, so much so that even the largest and most established funders must evolve to keep pace with changing market and jurisdictional conditions. In an interview with Lawdragon, Matthew Harrison, managing director and co-chief investment officer at Omni Bridgeway, sees the litigation funding space continuing its upward momentum. This is true not only in terms of case volume, but in the speed of case resolution as the court system begins to shake-off the sluggish pace of the pandemic. Observing another trend that has become a more frequent concern within the industry, Omni Bridgeway has launched a U.S. Judgement Enforcement Team, bringing its expertise to bear in the field of enforcing and collecting awards from successful cases. Mr Harrison highlights that while the primary challenge for any funder will always be winning the judgement in the first place, the need for both clients and firms to consider how to collect on financial returns is of paramount importance. Harrison notes that the biggest trend among Omni’s client base is the increased willingness of the more established law firms and similarly enterprise-level companies to explore litigation funding. Whilst most funders may have started out representing small clients against large entities, Omni’s co-CIO sees this balance shifting, with large-scale commercial litigation being at the forefront of investment opportunities.
Announcements Case Developments Commercial

Manolete Partners writes down GBP2.3 million on High Court decision

Manolete Partners PLC on Friday said it has received a "rare adverse decision" on one of its larger cases from the UK High Court, forcing it to write down GBP2.3 million. Shares in the London-based insolvency litigation financing company were down 15% to 214.00 pence each in London on Friday morning. Manolete said that it has applied for permission to appeal the High Court's decision, but it has decided to write down the full value of the case in its forthcoming results for the six months ended September 30. The impact of the write-down will be a GBP2.3 million reduction to pretax profit, of which the cash paid out on this case to date is GBP636,756. Separately, the company said it will take a more prudent view of the company, due to the challenging macroeconomic climate in the UK. Manolete expects to report a pretax loss of around GBP5 million in its financial year 2023 interim results, as a result of these two factors. However, the company said that it continues to "operate well", with gross cash generation from completed cases in the first five months of the financial year at a "record" GBP15 million. This compares to GBP15.6 million for the entire year ended March 31. Further, it said that revenue, from completed cases, for the first five months of financial year 2023 more than doubled to GBP10.6 million, compared to GBP3.9 million in the same period last year. Chief Executive Steven Cooklin said: "The board and our legal advisers were surprised and disappointed by the very rare adverse initial judgment that we received on one of our larger cases, a case that we originally signed up in 2019. For the first time in our 13-year history, we have applied for permission to appeal that decision to the Court of Appeal. "We have taken a cautious stance by reducing the carrying value of that case to zero until we know the final outcome of the appeal process."
Case Developments Commercial

Litigation Lending Class Action Secures Compensation for NT Stolen Generations Survivors and Family Members

Class actions are often thought of as a method to address ongoing or recent grievances against a corporate or public entity, but they also have the potential to provide legal redress against historical wrongdoing. This has been most recently illustrated by the NT Stolen Generations class action in Australia, which secured a $50 million settlement for family members and deceased estates of those Aboriginal children who were forcibly removed from their families by the government. The case which was funded by Litigation Lending in partnership with Shine Lawyers, which sought to compel the Commonwealth Government to not only compensate Stolen Generation survivors but also to their Kinship Group Members and the deceased estates of both groups. The settlement, which is awaiting approval by the NSW Supreme Court, began in April 2021 and will see compensation provided to all class action members. Warren Mundine, an Aboriginal leader and LLS board director, highlighted that while this settlement could not compensate survivors and their families for the damage caused, it is a valuable step in moving forward with the healing and reconciliation process.
Commercial Deals

Late-Stage Funding Offers Solution to Law Firms’ Fee Struggles

The issue of financial risk and cost overruns during litigation is not just one that affects entities pursuing legal action, it also has serious implications for law firms whose business model relies on client fees. This situation frequently requires law firms’ pricing teams to balance fixed fee arrangements with contingency fee structures, providing an imperfect solution to the problem. In a recent piece of analysis, Brendan Dyer, vice president of business development at Woodsford, argues that litigation funding can represent a more beneficial solution and reduce capital and cash flow risk for law firms. Moreover, Dyer points out that funding need not always be in place from the beginning of a case, and that late-stage financing can be utilized by pricing teams to offset the issues with accidental contingency fees. Dyer also raises another key benefit, that later engagement with a funder can reduce the size of the financing required when it is solely being used to mitigate cost overruns and ensure ample capital to reach the end of proceedings. This type of funding not only solves a core issue for law firms, but also reduces the likelihood of what Dyer describes as ‘fee fatigue’ from clients, who may otherwise consider ending the litigation prematurely to avoid sinking deeper into additional costs.
Commercial People Moves

Trends to Watch in Litigation Funding Recruitment

As the demand for litigation funding continues to rise, industry insiders are seeing a parallel rise in the demand for skilled and experienced litigation professionals who these funders are eager to recruit. As the sector continues to mature, more and more experienced litigators are considering a move from private practice to the commercial litigation finance business In a blog post by the specialist legal recruitment firm, Marsden, senior consultant Megan Williams takes a look at the key factors for both hiring managers and prospective hires to consider. Williams places a particular focus on the need for a mind-set shift from those coming from law firms into the world of litigation funding, with an emphasis on bringing a commercial and analytical perspective with which to assess cases. Williams also highlights that the uptick in ESG and group action cases is causing funders to look for individuals with experience in these areas, as these areas come to dominate much of the third-party funded case volume. However, Williams argues that the switch is not just restricted to those with decades of experience, and funders are keen to bring on junior lawyers who are able to embrace an approach centered around growth and fast-paced decision making.
Commercial Deals

Antitrust Cases Represent Attractive Investments for Litigation Funders

Litigation funding is primarily considered as an advantage in commercial litigation for its ability to remove the financial risk for companies that would otherwise have to fund their own claims. However, third-party funding also places the plaintiff in a position of strength by mitigating the negative effects of prolonged proceedings, and increases the likelihood of a favourable settlement. In an article on MarketScreener, Omni Bridgeway recaps its recent webinar and dives into why these advantages are particularly useful within antitrust cases. Jason Levine, investment manager and legal counsel at the funder highlighted that beyond the cost of antitrust litigation, it is the complexity and length of proceedings that make antitrust an ideal area of focus for third-party funding. He also notes the regularly high value of settlements, and that these cases have a particular tendency to settle more so than other claim types. Joining the funder for this webinar was Priyanka Timblo, a partner at Holwell Shuster & Goldberg LLP, who argues that the reliance on expert testimony in antitrust cases is so vital, that having the requisite funds to secure such experts is of paramount importance. Furthermore, Timblo highlights the advantages of different funding models, whether utilising single-case funding or a funder advancing working capital to solve a client’s liquidity issues, which can then be recouped through returns on future claims.
Case Developments Commercial

Court of Appeals Case Raises Questions for Funded Patent Suits

Patent infringement suits have been increasingly viewed as valuable prospects for litigation funders willing to foot the bill and go toe-to-toe with large corporates accused of infringement. However, a recent case making its way through the federal court system has implications for future funding arrangements and the resulting consequences should funders fail to recoup their investment. Bloomberg Law highlights the ongoing matter of Uniloc, which took on a funding facility from Fortress Investment Group to finance its claims against Motorola, Apple and Google. After losing these cases in district courts and failing to repay its loan to Fortress, according to the terms of the agreement, Uniloc gave Fortress rights to sublicense its patents.  And now, having been refused standing to sue in two lower courts due to no longer being the sole exclusionary patent holder, Uniloc is taking its case to the US Court of Appeals. Matt Warren, founding partner at Warren Lex LLP, suggests that this case will have a tremendous impact on future funding agreements for patent infringement cases. If Uniloc fails in its appeal, then other patent holders will be keen to avoid such security clauses in future agreements. This would also put a strain on similar ongoing funding arrangements, which represents a significant danger given that patent suits comprise 29% of all funding agreements, according to research by Westfleet Advisors.