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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
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.
Commercial Legal Innovation

Initial Litigation Offering is First Tokenized Lawsuit

An ‘Initial Litigation Offering’ billed as the first tokenized lawsuit debuted on Republic in October of this year. In the case against one California county, token holders may receive a stake in any amount recovered. Legal Examiner explains that this ILO began as an initiative by Roche Freedman LLP—a firm also representing the estate of David Kleiman in a case to determine the exact working relationship between Kleiman and Craig Wright during the creation of Bitcoin. Wright has asserted that he is “Satoshi Nakamoto” and therefore owns a huge fortune in Bitcoins. He has maintained his position despite a lack of support from the entire crypto community. Roche Freedman is also involved in multiple class action cases against various token issuers including Civic, Tron, Binance, Status, and Quantstamp. In the ILO case, Apothio is asking for up to $1 billion in damages after the Kern County Sheriff Department destroyed its entire hemp crop in 2019. The Sheriff's department claimed that the crop exceeded the legal THC limit for hemp. The ILO allows investors to buy tokens to fund the case, receiving a portion of the resulting award commensurate with the size of the investment. Republic, a platform known for tokenizing investments normally reserved for high-end investors. Unlike investments that must register with the SEC, this ILO is governed under crowdfunding rules, which are significantly more lenient. The Ava Labs worked with Roche Freedman and Republic to conceptualize and launch the ILO toward the end of 2020. Those who wish to buy tokens in the ILO will first be required to create wallets on the Avalanche platform, which is blockchain-based. Payouts will be automatic through the use of pre-programmed smart contracts which distribute funds once certain conditions are met. The tokenization of litigation funding will allow people of modest means to join the high-risk, high-reward playing field.
Commercial Fundraising

Manolete Secures GBP 35MM Finance Package from HSBC UK

Manolete, the leading UK insolvency LitFin firm, recently secured a GBP 35 million funding package in support of its plans for future growth. The London-based funder focuses on specialist recovery litigation across the UK. Bdaily News details that the company currently manages more than 260 insolvency cases. Part of the incoming package, which includes a GBP 25 million revolving credit facility and a GBP 10 million uncommitted accordion, will be used to invest in new cases over the coming years. Manolete CFO Mark Tavener affirms that a core value of the company is to address inefficiency in insolvency litigation--and to always scale up.
Commercial Regulatory Issues

US Development Sees Relaxed Rules for Law Firm Ownership

Law firm ownership has been changing in recent years. Legal professionals in Australia and the UK are leading the world regarding ownership of legal firms. Recent developments in US states like Arizona, combined with a more liberal approach on ownership from the American Bar Association, means that the tide may be turning on this issue. Other US states are considering similar measures, including California, Utah, Florida, Illinois, and Michigan. Kluwer Arbitration Blog details that every US state has a version of ABA Rule 5.4 in their Rules of Professional Ethics. This rule forbids fee sharing and law firm ownership between lawyers and non-lawyers. Because the District of Columbia is not a state, it is not bound by this rule. As such, DC allows for non-lawyer ownership of firms—though these arrangements are few and far between. In New York state, the popularity of portfolio funding led to questions about whether this amounted to fee-sharing. In 2018, a formal opinion from the NYCBA stated that portfolio funding contingent on the lawyer receiving legal fees in one or more cases is in violation of Rule 5.4. After considerable pressure, the NYCBA formed a Working Group to reevaluate its stance. Ultimately, they concluded that both attorneys and the clients they serve would benefit from less restricted access to funding. At the same time, the Working Group suggested reforms including disclosure requirements and specific types of client consent. Disclosure continues to be a contentious issue in cases that utilize litigation funding. While disclosure of the identity of the funders is becoming an accepted norm, questions regarding conflict between investors seeking to profit from LitFin investments and the clients, whose interests may be wildly divergent. Meanwhile, the benefits and drawbacks of Alternative Business Structures (ABSs) continue to be a popular suggestion—even as many jurisdictions bristle at allowing such an unregulated process.