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Commercial Deals

Insights on the Transportation Sector

The transportation sector is notoriously litigious, complex, and vital to the global marketplace. The complexities of contracts, regulation, and the constant evolution of the industry can result in expensive disputes carrying high levels of risk. What’s more—these disputes are likely to be cross-border. Burford Capital shares key takeaways from its 2021 Legal Asset Report, which includes a snapshot of the industry as it stands now. First and foremost, the report shows that only 40% of CFOs have robust affirmative recovery programs. That’s a shame, since affirmative recovery can increase profits without a monetary outlay with third-party legal finance. Portfolio funding creates an influx of cash on assets that were sitting dormant—with the potential of more to come later when/if awards are realized. Like many companies, transportation-focused entities would likely benefit from increased collaboration between their legal departments and CFOs. Determining whether litigation assets should be pursued is something to be considered on both a legal and financial level. Currently, fewer than half of transport CFOs have substantial influence in their company’s legal department. This may be why so many litigation assets in the transportation field go unrealized. When calculating risk in litigation, it’s crucial to include duration risk. The more complex a dispute is, the longer it can take to resolve. Legal finance can address this risk by allowing third parties to take on duration risk while the company receives an influx of cash on a predictable schedule. The non-recourse nature of funding means the company pays nothing unless a case is successful.
Commercial Special Features

Key Takeaways from LFJ’s Special Digital Event: Innovations in Litigation Funding

On Wednesday, November 10th, Litigation Finance Journal hosted a special digital conference titled Innovations in Litigation Funding. The event featured a panel discussion on disruptive technologies within Litigation Finance, including blockchain, AI and crowdfunding platforms. Panelists included Curtis Smolar (CS), General Counsel of Legalist, David Kay (DK), Executive Chairman and Chief Investment Officer of Liti Capital, Cormac Leech (CL), CEO of AxiaFunder, and Noah Axler (NA) Co-founder and CEO of LawCoin. The panel was moderated by Stephen Embry (SE), founder of Legal Tech blog TechLaw Crossroads.  Below are some key takeaways from the panel discussion: SE: All of you seem to have an interest in taking litigation funding out of the back rooms and making it more mainstream so that anyone can invest. I want to ask each of you to briefly explain your specific approaches in trying to accomplish this goal. CS: Basically, what Legalist does, is we use artificial intelligence and machine learning to reduce the potential for adverse selection and hazards that may exist in the Litigation Finance field. By reaching out to those who have valuable claims, we’re able to select the cases we want, versus simply having cases presented to us and sold to us. This has been extremely valuable to us, as we get to really pick the best cases based on criteria that we are selecting. DK: I think we’re getting pretty close to it already being in the mainstream. I think adoption has grown a lot over the last ten years. In terms of moving it forward, our view on it at Liti Capital is that we are trying to democratize the availability of Litigation Finance both from the people who finance it and the people who have access to it. CL: What I really see AxiaFunder doing is connecting investors with a new asset class, and at the same time, providing claimants with a new source of flexible funding. AxiaFunder in a nutshell is a funding platform that connects investors with carefully vetted litigation investment opportunities on a case by case basis. The capital is put to work immediately, and then when the case (hopefully) resolves positively, we return the capital with a return. So there’s little or no cash drag. We see it as an obvious win-win. NA: What we’re seeking to do is open Litigation Finance, like some of the other folks on the panel, beyond the institutional space into individual accredited investors and also to retail investors. The additional value add we have, is that we fractionalize the investments as digital assets, or what are sometimes called tokens, using the Ethereum blockchain. We think ultimately that by doing that, we can bring liquidity to the Litigation Finance space and beyond Litigation Finance as well. We’re not the only ones securing this in the private security space. SE: One of the questions we often see with cryptocurrency, whether it’s right or wrong, is that it’s used to hide who is paying what to whom. How does that concept square with the growing concern of many investors (and to some extent, the judiciary) about transparency in terms of funding agreements and the identity of funders? DK: I think the key here is consistency, which is to say ‘who is the funder?’ and I think that’s an important distinction that gets a short shrift from a lot of these discussions. To put it another way, if Liti Capital is the funder, then it’s obviously very important to know who Liti Capital is, and who are any majority or control holders within Liti Capital. And we, like other companies on the blockchain, are still required to do KYC and other rules with our investors to ensure that we’re compliant with domestic and international law. So I think that piece is much ado about nothing. But what I will add, is that I do think litigation funders should be held to the same standard as companies, and whether or not an arbitrator has an investment in our company is important to know, or a decision maker has an investment in our company is important to know. And disclosures in the same way that’s required in US Federal Court makes perfect sense. This is not a new issue. I think where we fall prey to the people that are against litigation funding...we’re falling prey to this argument that somehow everything and everyone must be known—or it’s evil. Access to justice is not evil. Being able to compete with people with large amounts of capital is not evil. NA: I second a lot of the things David said. At LawCoin, we’re selling securities. We’re very upfront about that. That’s a hot button issue in crypto, whether or not a particular token is a security. We have a separate white list that exists off of the blockchain, which might in some cryptocurrency circles lead to criticism that we’re not a decentralized operation in the way that a lot of cryptocurrency evangelists argue that cryptocurrency is most suited for. We embrace the obligations that go with issuing securities, so as a result...there’s no issue with respect to our platform with having anonymous investors that haven’t gone through a KYCAML process. SE: Given the volatility of cryptocurrencies that we’ve all seen...how do you mitigate against a severe price drop or price increase, and what do you tell investors in that regard? DK: How does Blackstone or Apollo mitigate against market crashes or change in the underlying value of their equity? Volatility and movement in price just exist—in terms of value of the corporation. In terms of funding the cases, we’re not funding cases in Bitcoin or Ethereum. We’re not a cryptocurrency, we’re a company that’s listed on the blockchain. Our token trades on the blockchain, but our token represents the underlying equity of the company. The money that we raise, 90% of it is dollars, some small percent is in Ethereum, but...our expenses are paid in dollars, we raise money in dollars, our revenue comes in dollars. There is some currency risk in anything we would keep in Ethereum, but we manage it. ... You really just have to be aware and manage the fact that you’re operating in two currencies. SE: Given the way litigation sometimes drags on, especially in the US, given the unexpected twists and turns—what happens when you have to go back to your investor pool and say, ‘we need some more money?’ How do you manage that and how are the terms structured? CL: There are two aspects to it. First of all, before we actually issue a claim, there’s no adverse cost risk for the claimants or our investors. But once you issue the claim, you potentially have adverse costs risk for the claimants. If the claimants can’t pay, our investors could potentially be liable for the adverse costs risk, which we’re obviously not comfortable with. Before we will fund a case where the claim is going to be issued, we basically get a cost budget through trial, and make sure we have enough money to see the case through to the end of trial. Having said that, the cost-budget is always an estimate. So sometimes you need to come back and get more capital from investors. Litigation Finance Journal produces numerous digital events throughout the year. Please subscribe to our free weekly newsletter to stay informed about future events. 
Commercial Deals

Talking IP at the 2021 LitFin Dealmakers Forum

This year’s LF Dealmakers Forum was a hybrid conference, combining in-person guests and speakers with virtual ones. It was a balancing act between providing a normal and engaging experience, presenting high-quality content, and keeping pandemic safety rules firmly in mind. Above the Law details that the forum was a smashing success, and suggests that there were three main takeaways about IP and its relationship to Litigation Finance. First, funders are in control of enormous cash reserves. Many are actively seeking cases or portfolios to invest in. Patent and IP disputes continue to be lucrative and popular areas for funder investment. Often, businesses or researchers don’t follow up on complicated IP litigation due to the time, expense, and uncertainty involved. But with legal funding—such cases become opportunities for sizable payouts. At the same time, diversification remains as important as ever. Next, as the litigation funding industry grows more mainstream, funders have adapted to an array of new situations. In the industry's early days, funding was for class action cases or David v Goliath situations. While that’s still an important part of funding, the industry can now engage in insolvency matters, award enforcement and portfolio funding, as well as help businesses monetize existing legal assets. There’s every expectation that the industry will continue to develop new ways to expand access to justice. Third, the increasing number of players in the litigation funding space creates a need for IP-focused legal teams to stay current on what’s happening. As funders develop specialties and relationships with other legal entities, knowing how to find the right funder for one's specific situation is more important—and potentially more difficult—than ever before. It’s been suggested that the IP community do their own diligence regarding funders. As funders learn more about the IP industry to better serve those customers, so should the IP industry study up on the funding opportunities that exist.
Case Developments Commercial

Supreme Court Rules Data Claim Against Google “Doomed to Fail”

This week, the Supreme Court blocked a data protection claim against tech giant Google—saying that the case was doomed to failure. The court unanimously affirmed the appeal from Google. Law Society Gazette details that in Lloyd v Google, the Supreme Court was asked to overturn an earlier ruling from the Court of Appeal—which held that a representative for millions of iPhone users in England and Wales could file their case outside of the jurisdiction. The High Court disallowed the out-of-jurisdiction filing, though the Court of Appeal reversed this decision the following year. Richard Lloyd began proceedings in 2017 on behalf of anyone impacted by the ‘Safari workaround’ that was in use from August of 2011 through February 2012. Lloyd has said that the recent ruling sets the bar unreasonably high for damages in data rights cases. Lloyd still believes other claims will come forward. The Supreme Court held that damages for any breaches of the Data Protection Act 1998 (section 13) can only be claimed when the alleged breach resulted in material damage or distress to the claimant. Lord Leggatt stated that section 13 can’t reasonably give an individual right to compensation without proof of material damage. This interpretation led the judge to suggest that the claim has no chance of winning because it was framed as a collective action. Without proof of individual damages, the claims cannot hope to win.
Case Developments Commercial

Affiniti Finance Goes into Administration

Last week, one of the largest third-party litigation funders in the UK was placed into administration. According to a notice in the London Gazette, Affiniti has stopped taking in new business. Law Society Gazette reports that Affiniti has not made a public statement, nor have they responded to requests for comment. It’s not clear how the company will resolve the many large funding agreements currently in place. Affiniti was founded in 2014 and began by funding personal injury cases. Affiniti also has a commercial division that focuses on class actions and large claims for individuals. The administrators include Andrew Hosking, Paul Zalkin, and Sean Bucknall of Quantuma Advisory Limited. In the last month, two other firms have been placed on administration: Pure Legal, and Hampson Hughes—both based in Liverpool.
Commercial Regulatory Issues

Canada Embraces Litigation Funding

Like much of the world, Canada’s legal system can be expensive to access effectively. Even well-off Canadians may not be able to afford to follow up on meritorious claims against powerful defendants. Enter third-party legal funding. This practice affords potential clients the financial support needed to pursue meritorious cases without the risk of incurring a huge legal debt. Above the Law details that the non-recourse nature of litigation funding is a powerful tool for leveling the legal playing field. Commonly associated with class actions, third-party funding has evolved into a resource for individual clients, corporates, and even law firms looking to share risk and reap large rewards. In Canada, litigation funding is being used in insolvency proceedings, IP disputes, award enforcement, and more. Portfolio funding arrangements are increasingly common, allowing risk to be shared across a slate of unrelated legal cases belonging to a single company or firm. Typically, funders receive a percentage of an award or recovery if the litigation is successful. If the litigation fails, the funded party is not obligated to repay the funded amount. The funder, on the other hand, loses their investment. This is why new cases are vetted carefully and why these funder fees are much higher than interest from traditional bank loans. Once laws against champerty and maintenance were set aside in Canada, funding was viewed as a necessary aspect of increasing access to justice. Typically, LFAs (Litigation Funding Agreements) do not need court approval in Canada, though this is a recent development. LFAs are rarely made public except in class actions. The Ontario Superior Court of Justice recently affirmed the public policy benefit of legal funding, particularly for those seeking damages from wealthy corporates. Legal funding in insolvency cases has been a boon to debtors trying to save struggling businesses. Funds can help maintain operations by monetizing existing legal assets, benefiting debtors.
Commercial Regulatory Issues

Anti-Money Laundering Law Could be a Boon to Legal Funders

Until recently, there was a $150,000 cap on the incentive for employees to alert authorities when money laundering occurs. This monetary incentive was only for employees of regulated financial institutions, and was paid at the discretion of the feds. Market Screener explains how the law is changing, and what the impact on Litigation Finance might be. Last year’s Anti-Money Laundering Act was passed as part of the National Defense Authorization Act, and created a program that provides awards to whistleblowers who provide evidence of money laundering activities, even in violation of the Bank Secrecy Act. Thanks to the new act, those who voluntarily provide information to the Dept of Treasury, the Dept of Justice, or to their employer, will be eligible for up to 30% of monetary sanctions above $1 million. The information has to be new to law enforcement, and must result in a recovery of at least $1 million. Why the sizable payments? Workers are likely to face retaliation for whistleblowing, including loss of employment or even blacklisting. Though awards are available, they could take years to materialize—if they ever do. Even counsel for the whistleblowers is subject to risk, which is why such cases are often taken on a contingency basis. Legal funding can help whistleblowers survive financially while they seek new work or await an incentive payout. Non-recourse dispute funding can cover legal fees and other costs associated with whistleblower litigation. In some circumstances, funding can be used for living or work expenses, as whistleblowers wait for claims to be adjudicated. When vetting whistleblower cases for funding, there should be an expected award of at least ten times the requested funding amount. The federal or state case must show government involvement and a strong likelihood of success. Finally, the opposing party must have a demonstrated ability to pay any fines levied.
Announcements Consumer

Experity Ventures Acquires Anchor Fundings

Experity Ventures LLC (EV) the parent company for several technology driven specialty finance business units that are focused on the litigation finance space has acquired 100% of the equity of New York based Anchor Fundings. The financial terms of the transaction were not disclosed. Experity Ventures Founder and Chairman, Joseph Greco commented, "We are pleased to complete the acquisition of Anchor Fundings. We have watched Anchor closely and continue to be impressed with their growth, discipline and approach to the space and are excited to help them continue on their success trajectory as part of our industry-leading platform” Anchor Fundings Founder and CEO, Charlit Bonilla commented, "We are very excited to partner with the Experity Ventures team and platform to continue our growth and outstanding performance. The Experity platform enables us to offer additional services and solutions to our valued clients and partners as well as being able to leverage their innovative technology and efficient capital structure. Anchor Fundings has built a strong brand in the marketplace and we will continue to build momentum and recognition for the Anchor brand under the Experity platform”. Experity CEO, Ryan Silverman added, “Charlit and his team have built an impressive business and the pairing of Anchor inside of Experity is very complementary and strategic. We believe that Anchor is an important ingredient in our plan for continued growth, performance and leadership in the legal funding and finance space”. About Anchor Fundings Anchor Fundings is a New York City based consumer litigation finance firm founded in 2013 by Charlit Bonilla. Anchor provides immediate and value-added liquidity solutions for plaintiffs, attorneys, and healthcare providers. Anchor is differentiated by their experience in workplace accidents which allows them to participate in some of the largest most complex litigation. Since inception, Anchor has become a go-to capital source for plaintiffs, attorneys and medical providers nationwide. About Experity Ventures Experity Ventures, founded in 2019, is the parent company for Nexify Capital and Nexify Solutions, MedSolve Financial Group, ProMed Capital and Thrivest Legal Funding, LLC / dba Thrivest Link. Nexify Capital has entered into several strategic financing and operational partnerships with legal funding companies in the United States. Nexify Solutions develops and markets best in class enterprise and work flow software for the legal funding market place, which is designed to automate pre-settlement funding from intake to decision analytics, to servicing and payoff, while offering full accounting and reporting capabilities. MedSolve and ProMed capital are leading providers of medical receivable funding solutions to healthcare facilities. Thrivest is a direct to market pre-settlement legal funding company that has successfully provided thousands of non-recourse advances to individuals with pending litigation, predominately in personal injury cases. Experity has offices in Philadelphia, New York, Nevada and Florida. For more information on Experity, please visit www.experityventures.com
Consumer

Legal Funder Under Fire for Cash Advances in NFL Concussion Case

Craig Mitnick, a New Jersey lawyer who represented hundreds of NFL players in a concussion settlement, has asked a federal judge to vacate the award to a litigation funder. Balanced Bridge Funding (formerly Thrivest) provided advances to former players while they waited for settlement monies. Mitnick has been ordered by an arbitrator to repay more than $2 million in loans. Legal Newsline details that in his filing, Mitnick claims that Balanced Bridge, along with lawyers at Fox Rothschild, committed ethics violations. However, much of this stance has already been rejected by arbitrators. The Consumer Financial Protection Bureau has long had a bee in its bonnet about Litigation Finance. Recently, the CFPB was instrumental in multiple funding agreements being ruled invalid due to prohibited assignment of benefits. This was reversed in 2019, but other issues came to light. Specifically, that lawyers were encouraging clients to obtain advances on settlements from firms in which they hold financial interests. Mitnick encouraged former NFL players to sue the league over its alleged failure to inform players about the risks of brain injuries. After a consolidation of the lawsuits and a dispute with another firm that entered a fee-sharing arrangement with Mitnick, Fox Rothchild and Mitnick ended their relationship—leaving tens of thousands of dollars unpaid. Despite making $1.9 million in repayments, the amount owed is still over $2 million. Ultimately, Mitnick was ordered to pay Balanced Bridge $2.3 million in back interest, as well as a further $150,000 in fees and expenses. Mitnick’s firm asserted that the contracts couldn’t be enforced, as they were non-recourse in nature. But the agreements stipulated that if the firm defaulted, the creditor may pursue the debtor’s assets to recoup the outlay. These events have been touted as evidence that litigation funders are greedy. In fact, what this case may illustrate, is the importance of standardized contracts and clarity of expectations.