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Commercial Regulatory Issues

District of New Jersey Litigation Funding Transparency Rule 7.1.1

It’s been nearly seven months since District of New Jersey Local Rule 7.1.1 came into effect. The rule requires disclosure of the existence of third-party litigation funding within 30 days of filing a case. This includes the identity of the funder, a description of the funding agreement (but not the full agreement itself), and a statement regarding whether funder approval is necessary for strategy or settlement decisions. Lexology details that two states and about one-quarter of federal district courts require disclosure of third-party funding. Some proponents of litigation funding suggest that disclosure requirements serve no valid purpose, and may be weaponized against funded plaintiffs. While that concern is valid, so far it doesn’t appear that Rule 7.1.1 is being used punitively, or as a strategy to force settlements. At least not yet. The rule hasn’t even been in place for a year. Why was Rule 7.1.1 adopted at all? It’s been suggested that the rule is a reaction to a ruling in Valsartan N-Nitrosodimethylamine (NDMA) Contamination Products Liability Litigation, 405 F. Supp.3d 612 (D.N.J. 2019). The ruling rejected the idea that judicial trends were leaning toward disclosure of third-party funding. The Valsartan ruling negated multiple other rulings that ordered disclosure of TPLF. The ruling caused outrage among federal judges in the district. This, in turn, occasioned them to draft a local rule that would apply to all cases in the district—effectively using a legislative solution to overcome what some saw as a bad decision on the part of a single judge. In that context, it’s unsurprising that many in the funding community find Rule 7.1.1 to be arbitrary and unnecessary. Indeed, it was a response to a single ruling in one case—albeit one with a ripple effect.
Consumer

ATR Incensed by “Judicial Hellholes”

The American Tort Reform Foundation has recently published a list of jurisdictions that are innovating and expanding protections for the public good. The trouble is, ATR dramatically refers to these enlightened jurisdictions as “judicial hellholes.”  JD Supra details that ATR lists eight “hellholes” to avoid for high verdicts, litigation-finance-friendly rulings, or open-door policies. California, apparently, is number one because a court held e-commerce companies strictly liable for items sold on their sites. Also, the AG took a more expansive view of laws meant to curb public nuisance. New York makes the list because of the large number of ADA and asbestos lawsuits. South Carolina and several Illinois counties also make the list for their stance on asbestos litigation. ATR also maligns what it refers to as a “plaintiff-friendly” atmosphere. The city of St Louis makes the list as a venue known for large “excessive” verdicts. It seems clear that ATR displays a clear bias toward defendants that include alleged polluters, unscrupulous insurers, and those who fail to make legally-mandated accommodations for the disabled. As one might expect, the 2022 “Hellhole watchlist” includes dire warnings about the spread of litigation funding.
Commercial

Leveling the Playing Field with Litigation Funding

Why has Litigation Finance taken off in recent years? There are many contributing factors. The rising costs of litigation certainly play a part in the popularity of third-party funding. The COVID pandemic led to disputes as insurers and corporates battle in lawsuits involving breach, insolvency, and business disruption. The innovation happening in the legal funding landscape has made the practice more versatile than ever. Increasingly welcoming legislation has helped refine TPLF and increase consistency across jurisdictions. Lawyer Monthly details that the benefits of Litigation Funding are myriad. Its use reduces the strain on litigants because the financial risk immediately shifts to the funder. The non-recourse nature of legal funding means companies and individuals alike can take on meritorious litigation without risking their existing capital. Funders investigate cases thoroughly, evaluating them for merit before offering a funding agreement. This ensures that the case is a strong investment while signaling to the opposition that the case is supported and believed to be meritorious. This alone may be enough to convince a defendant to put a reasonable settlement offer on the table. Some data suggests that as many as 80% of cases settle before trial. Hundreds of years ago, it was alleged that champerty and the concept of non-participants funding a legal action were not in the public interest. Modern rule of law disputes this. Gradually, countries around the globe have abolished champerty and maintenance prohibitions, and continue to introduce laws that recognize the value and necessity of legal funding. It’s well established that a society of laws that restrict runaway governments, offer basic civil rights, and punish criminals performs more optimally than societies that don’t. With that in mind, increasing the chances that wrongdoers will face appropriate consequences is a net gain for society. By allowing meritorious cases to proceed regardless of the finances of the plaintiff, litigation funding does exactly that.
Commercial

New Burford Q1/22 Quarterly

Buford’s new quarterly for the first quarter of 2022 has been published. Flush with global uncertainty from the evolving pandemic, Burford’s quarterly aims to explore litigation finance growth opportunities.   Downloading a copy of the quarterly will provide concept blueprints that explore value generations powering 2022 litigation finance. The quarterly expands upon enterprise building techniques, and expert contributors digest upcoming challenges which many will face across the global industry. Here are some topics that Burford’s Q1/22 Quarterly Covers: 
  • Best practices for delivering effective diversity campaigns in litigation finance.
  • Worldwide antitrust competition insights.
  • Asset recovery trends. 
  • International arbitration trends. 
  • Patent and IP litigation trends. 
  • Insolvency and bankruptcy trends. 
Burford issued 30 highlights to the quarterly, containing some interesting points that stand out.
Commercial Regulatory Issues

Aussie Funders Want to “Save Class Actions”

There is a third party funding battle playing out in Australia. The argument Omni Bridgeway, Vannin Capital, ICP, Litigation Lending and Balance Legal Capital are making Is that the Australian government’s proposed 30% cap on litigation investment compensation is egregious.  SaveClassActions.com.au is the fund created to “Save Class Actions” in Australia. The 30% litigation funding cap has yet to receive a robust review by the Australian Parliament. Proponents of the cap tease a design to give courts more power to oversee class action award distribution.  Save Class Actions has an entirely different outlook. SaveClassActions.com.au is a modern, media rich campaign to safeguard Australian litigation finance innovation, according to the site.  As this ongoing debate develops, we will continue reporting on the unfolding ligation finance developments out of Australia. 
Commercial

Is Litigation Funding the Cause of Social Inflation?

In 2020, an estimated $17 billion was invested in litigation funding globally. More than half of that was in the United States. According to some, like Swiss Re, this is the cause of higher insurance premiums and availability, as well as social inflation. But is that accurate? And if it is, is that necessarily a negative? Risk and Insurance details that a report from Swiss RE suggests that third-party legal funding incentivizes claimants to begin and even prolong lawsuits. The assertion is that higher awards drive insurance costs and reduce coverage—leading to more uninsured people and businesses.   The accusation that third-party funding causes social inflation is missing one important detail: No funder wants to financially back a losing case—in other words, one without merit. The impetus for third-party legal funding involves expanding access to justice, funding cases that impact the environment, social justice, and governance issues—and, ultimately, turning a healthy profit. Let’s look at some figures and what they might mean:
  • Judgement size has grown by 26% between 2010-2019 for general liability cases. That doesn’t seem like an inappropriate amount of growth for a ten-year period—especially considering corporate profits during that same time.
  • Plaintiff costs have grown from 26% to 38%, ostensibly because of the share that goes to funders. Of course, without funding, these cases may never see the inside of a courtroom.
  • Last year, 38% of legal funding deployments went to mass tort, 25% to personal injury cases, and 37% to commercial litigation. Is that a negative? Or is it a natural outcome of increasing access to justice for those who were once grossly lacking the means to bring claims forward?
Is TPLF the cause of social inflation, or a natural outcome of leveling the legal playing field? Perhaps the answer depends on which side of the legal claim you happen to be on. 
Commercial Legal Innovation

Is Litigation Finance Really so New?

Third parties funding legal cases is certainly not new. In fact, the practice has existed since the middle ages. Once called ‘champerty and maintenance,’ third party funding of claims was banished by much of the globe until just a few decades ago. Comparatively, legal funding isn’t that different than the types of third-party financing used by individuals and businesses to meet normal business needs. Validity Finance details that third-party legal funding can take many forms, including pro-bono litigation. Insurance subrogation is another form of funding that assists claimants and increases access to justice. Notice that neither pro-bono litigation nor insurance subrogation are considered flaws or bugs in the legal system, but rather, necessary and helpful features. Corporate claim holders make use of litigation funding, even though they have enjoyed access to capital markets for some time. Even fledgling companies may be able to raise funds by selling litigation assets—such as patent cases. While not every company has a need for third-party legal claims, most could benefit from the practice if they so choose. Looking at the available evidence, it’s clear that third-party legal finance levels the playing field to a great extent. Big businesses have less of an advantage over smaller ones, and even less over individuals or a class of claimants with a meritorious case. Limiting or banning litigation finance would widen the chasm between the haves and have-nots. In the legal landscape, that leads to rampant injustice for those who can afford it least. The fact remains, third-party legal funding has been part of the legal system for almost as long as legal systems have existed. Modern litigation funding is a natural evolution that now includes monetizing claims and awards, enforcing judgements, and getting collective actions off the ground. In the end, anything that increases access to justice is a net gain for society.
Commercial Fundraising

Calumet Capital Expands with $300 Million from Alternative Investment Firm

Calumet Capital, known for investing private capital into contingent fee law firms, recently announced a $300 million commitment from a global alternative investment firm. This is coupled with already ongoing expansion plans. Reported Times explains that Calumet’s expansion began after company headquarters moved to Miami in 2020. It retains resources in Charlotte, Cincinnati, and Chicago as well. Calumet also boasts a new Senior Director overseeing sales and marketing—Matt Rimmer. Calumet founder, Dan Carroll, states that these expansions will allow the company to meet the rising demands of the market.
Commercial Legal Innovation

Data Security Damages Paid in Advance?

NYCCoin and New York-based Stacks pose a billion dollar question: Are Hong Kong data rules the same as China data rules?  We recently reported that former Communist China has not been known for access to justice. In fact, recent protests in Hong Kong sprung up due to China’s Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation. Yet Communist China is experiencing a Social Spring (a transformation from Communism to Socialism). What role will China’s Communist roots play in future access to justice?  The Cyberspace Administration of China (and Hong Kong) issued new guidance on third-party products and services that cause damage to users. According to the Cyberspace Administration’s guidance, users can request Internet platform operators to pay compensation in advance for data violations.  Hong Kong is the data hub for Stacks, where internet platform operators shall assume data security management responsibilities for third-party products and services connected to their platforms. Hong Kong mandates clarity of data security responsibilities for third parties through contracts and other forms, and urges third parties to strengthen data security management, and adopt the necessary data security protection measures.
  • Stacks’ strong third-party presence in Hong Kong extends to China. One of Stacks’ board members has served as a leader of a Shanghai based incubator. 
  • Stacks maintains a legacy of top investors based in China. With a Hong Kong data warehouse, it is safe to say that NYCCoin powered by Stacks raises a few cybersecurity concerns. 
  • The looming question is if Proof of Transfer (PoX) Stacks’ extension to Proof of Burn (PoB), where miners compete by 'burning' (destroying) a Proof of Work (PoW) from an established blockchain, is allegedly illegal in Hong Kong, under the Cyberspace Administration’s new guidance. 
PoX, when used for participation rewards (Such as with MIA Coin, NYCCoin and STX), could lead to miner consolidation. Because miners that also participate as holders could gain an advantage over miners who do not participate as holders, miners would be strongly incentivized to buy the new cryptocurrency and use it to crowd out other miners. In an extreme case, this consolidation could lead to a centralization of mining, which would undermine the decentralization goals of the public blockchain.  China, along with Hong Kong, has outlawed various forms of threats to international peace and security. Hence, Hong Kong likely will support all reasonable TPF ligations up for consideration.