Is post-pandemic global inflation a certainty? Probably not. But it’s worth noting that pandemic alleviation spending, quantitative easing by the Fed, and a sizable budget deficit are creating similar conditions to the last large inflation peak—way back in 1947. There are other factors to consider, some of which are difficult to predict. Consumers are excited to spend, travel, and do all of the things the pandemic prevented them from doing. What does that mean for litigation funding?Exton Advisors suggests that we could be looking at a sweeping change in global investing. As the world economy readjusts after COVID, investors may become intensely risk-averse. As interest rates rise and liquidity becomes scarce, capital invested into third-party legal funding could drastically reduce.A dramatic rise in litigation is expected as COVID winds down and businesses reckon with insolvencies. But as liquidity shrinks, funders with the most available cash on hand for deployment may emerge big winners. At the same time, big cases with the potential for massive awards may diminish, shrinking the pool of potentially profitable cases.If inflation continues and borrowing rates stay high, legal funding can come to the rescue of corporates that need to monetize illiquid assets without waiting years for a complicated case to reach its conclusion. As always, litigation funding is poised to adapt to the needs of the modern world.
A sizable class action against Carter Holt Harvey ended abruptly when offshore third-party funders voided the funding arrangement for unspecified reasons.Law Fuel details that the case, which revolved around faulty cladding materials, could have ended in an award of $40 million or more. As of now, Carter Holt Harvey is seeking costs, and has made no offer to those impacted.New Zealand’s Ministry of Education sought compensation upwards of $1 billion over defective materials in more than 800 public schools. The case settled—terms of which were undisclosed.While the case was not thrown out, Justice Matthew Downs determined that Adina Thorn made several misleading statements about potential award size. We will keep an eye on this case and continue to report on it as it develops.
Having closed its $25 million LexShares Marketplace Fund in January of 2018, LexShares’ second fund—targeted at $100 million, is well underway.Crunchbase recently spoke to Jay Greenberg, founder and CEO of LexShares. Greenberg described the value and adaptability of litigation finance, explaining that meritorious cases can be pursued even when plaintiffs lack the resources to fund them.LexShares uses innovative technology to source cases. A single piece of software curates cases for the company—roughly ¾ of all new cases funded by LexShares are sourced using this AI software.Not surprisingly, LexShares and other legal funders have seen a spike in demand from businesses seeking to monetize pending litigation, or open cases without decimating balance sheets. It will be interesting to keep an eye on LexShares' unique approach as the litigation funding market continues to heat up.
Do both sides of a case need to know when third parties have an interest in the outcome of their case? David Levitt of Hinshaw & Culbertson says yes. He has proposed changing the rules in the District of New Jersey to require plaintiffs and defendants alike to disclose information about TPLF agreements.Bloomberg Law explains that the District Court of New Jersey is considering implementing a rule requiring that TPLF agreements be discoverable. Notably, the local rule would allow plaintiffs to self-describe their own agreements.Specifically, the rule would require disclosure of information about funding for attorney fees and expenses. Also, it requires disclosing specifics of any contingent financial arrangements based on any award or settlement amount, or any non-monetary result.Levitt suggests that this proposed local rule doesn’t address mutual discoverability fully enough. He believes that all jurisdictions should mandate the discovery of TPLF agreements. Self-description of funding agreements by plaintiffs may also prove to be inadequate, according to Levitt. He cites the fact that insurance disclosures require producing actual documents for discovery, rather than a vague description.It’s been asserted that like insurance agreements, TPLF agreements don’t have to be relevant to be discoverable. Yet some, including Levitt, have suggested that third-party funders increasingly exert influence over the cases they fund. Although Levitt did not cite any evidence to back up his claim, he maintains that strong public policy should provide both sides of a legal dispute access to comparable information about the other parties, so attorneys will know when non-parties are influencing a legal case based on their own financial interests. Clearly, the disclosure debate around third party legal funding isn't abating any time soon.
Targeting the oft-maligned Real-Time Bidding (RTB), the Irish Council for Civil Liberties is taking IAB Tech Labs to court. The focus is on consumer privacy. This is a potentially far-reaching case as it addresses tactics used by Twitter, Amazon, Google, and Facebook among others.Tech Crunch explains that RTB is, in fact, the largest ever breach of consumer data. Dr. Johnny Ryan, a whistleblower who was once an AdTech specialist, can demonstrate how IAB Tech Lab uses a coding system to track highly sensitive information about internet users. This can include their politics, income, medical issues, substance abuse or addiction, reading habits, and facts about minors living in the user’s household.Dr. Ryan also points out that the inherent lack of security in the RTB process makes it vulnerable to hacking—meaning outside, unnamed parties could gain access to user information. EU law requires that user data be protected from unauthorized use or access.According to Ryan, the lawsuit has become necessary because repeatedly reporting violations yielded no results. He also stated that a complaint lodged with the Airish Data Protection Commission (lead data supervisor to Google in the EU) in 2018 has still not been responded to effectively. The following year, DPC announced the opening of a formal investigation. To date, the case remains unresolved.Dr. Ryan finds himself wishing he’d begun this litigation much sooner. Moreover, he wishes it weren’t necessary at all, and that consumer protection agencies tasked with keeping data safe would do a better job. The focus of GDPR is to protect consumer data so the average consumer doesn't need to become data-savvy, or worse—paranoid about who might have access to their private data.These supervisory entities are taxpayer-funded. So when they fail, it means citizens are not getting the protection they’re paying for.
On Tuesday June 15th, LFJ hosted a special digital event on Australia: The Evolution of a Litigation Finance Market. Moderator Ed Truant (ET), founder of Slingshot Capital, helmed a panel discussion that covered a broad range of issues facing the Australian market. Panelists included Andrew Saker (AS), CEO of Omni Bridgeway, Stuart Price (SP), CEO of CASL, and Patrick Moloney (PM), CEO of Litigation Capital Management. Below are some key takeaways from the event: ET: From my perspective, and I have diligenced many managers on a global basis, the Australian fund managers seem to be the most successful and consistently performing fund managers in the world, can you offer any insight as to why that may be the case? PM: The fact that the panelists here today have been around since the inception of the industry in Australia, it’s given us a long time to think long and hard about not only how we originate these opportunities for investment, but how we undertake the due diligence process, and how we manage those processes.AS: There’s a combination of factors. It’s partly to do with the strength of the legal system here in Australia, involving a sophisticated judiciary. As a second point, there’s historically been limited competition. As a consequence, litigation funders could afford to be more choosy—and cases were generally of higher quality.ET: Another difference in the Australian market is the concept of contingent fees for law firms. Can you comment about why that really doesn’t exist in the Australian market? Is that changing, and what effect may that have?SP: Contingency fees were introduced in 2020 in Victoria, where law firms were able to receive a return/reward of the settlement proceeds. This has really expanded the litigation funding market—providing different forms of litigation funding for plaintiffs—that should be a positive outcome.PM: There’s a strongly held perception in Australia that there’s a conflict of interest between lawyers participating, and having their fees tied to the outcome of a particular dispute resolution. I think that’s one of the reasons Australia has resisted the contingency fee type of charging that has been prevalent for many years in places like the US.ET: Do you find that people consider Australia a market leader in Litigation Finance in terms of innovation? Have you seen examples of Australian innovation cross-pollinating to other jurisdictions?PM: I’m not sure that Australia really has led a tremendous amount of innovation in our industry. Our greatest innovation is in taking this industry and turning it into a business.AS: Australia has been innovative in the evolution of the business, and its coupling with the conducive class action regime we have here in Australia. There are some very good minds around the world within our organization and elsewhere that are taking this industry in new directions. It’s still very much in its infancy, and the next steps for its evolution are going to be interesting and exciting to see.ET: As your business grew, what changes did you witness in terms of regulatory, legislative, etc. And how did those changes affect the market?AS: I’m a recent newcomer to the industry. I’ve been with Omni Bridgeway now for six years. During that period, we’ve seen the growth of the industry and its continued adoption outside the traditional uses of litigation funding. So that’s one of the more significant changes we’ve seen—adoption by corporates, for exploring ways to mitigate legal risk. The other significant issue is the growth of regulation and the industry of criticism that seems to be evolving toward litigation finance, which all started from a very noble social access to justice limb. I think it continues to have those characteristics. But for whatever reason, an ear has been gained for those who are critical of the industry—which will lead to a reassessment of how the industry is regulated and run.PM: I’ve been involved in this industry directly now for 18 years. The greatest shift I’ve observed has been that shift between those who use litigation finance for necessity to those who use it through choice. People who need finances in order to continue their dispute or go through the arbitral process. And the maturing of our industry has now brought it to larger corporates who use litigation finance as an incredibly efficient capital source to run their portfolio disputes and manage risk, and to also bring in an efficient way of managing disputes through to their conclusion.ET: Looking forward, in the insolvency market, there’s an expected tsunami of insolvency claims post-COVID, yet Australia as a country appears to have managed the economic impact perhaps better than the rest of the world. Is the tsunami coming?SP: Australia has done remarkably well on a global scale. Its economy is strong and it seems to have weathered the impact of COVID very well. I’ve been speaking with a number of insolvency practitioners, and they do not expect a tsunami. They certainly don’t expect a large wave—but out of any crisis will always come bad behavior and some insolvencies. So for people who are committed to the insolvency market, when you’re there consistently, you’ll have a relatively consistent stream of opportunities.There is unlikely to be a tsunami—but as ever there will be corporate misbehavior, which can lead to insolvencies.
As Litigation Finance grows in popularity, more new players are entering the playing field. Some fields, like IP litigation, are considered especially lucrative and are a popular focus for upstart funders. However, success in this landscape is far from a sure thing.TechKee details how a litigator, Rasheed McWilliams, and investor Brian Yates, formed iPEL in 2017. Their intention was to buy up patents and file infringement lawsuits against big companies. iPEL borrowed millions in a startup loan from Direct Lending Investments (DLI). Yates assured investors that patent lawsuits in China would lead to huge awards in the $100 million range. He also promised cases against recognizable names in tech and electronics.Yates’s claims were met with skepticism by many in the patent-enforcement industry. Verdicts in the hundreds of millions do present themselves in the United States occasionally, but in China, IP cases rarely net awards over one million dollars.In November of last year, DLI revealed that it expected to lose tens of millions on its iPEL investment. This led to criminal charges against DLI's chief executive—alleging that he inflated parts of the funding portfolio. DLI has since been sued by the SEC for providing manipulated data.Bradley Sharp, a consultant appointed by the court, sued DLI consultant Duff & Phelps after investigating the fund. Sharp stated that iPEL changed its focus to Chinese patent cases after its US strategy was revealed to be ineffective. DLI also provided funds to Parabellum Capital, another prominent litigation funder. DLT is now in receivership, while iPEL is still actively pursuing cases.
More people than ever now understand the broad strokes of what Litigation Finance is and what it can offer. Investors fund cases through funding entities that are then owed a share of any recovery or award in the case. Litigation funding is non-recourse, so funders can take a higher percentage in exchange for the enhanced risk.Bloomberg details the litigation funding basics with input from Andrew Stulce, vice-president at Longford Capital. In a funded case, the client still maintains control over decision-making, while the duty of the lawyer remains to the client. Funders are passive investors, and while they do have a financial interest in the cases they fund—they are not permitted to make decisions that impact the outcome.In a traditional funding model, lawyers sometimes take a reduced fee so that lawyers and funders both receive a share of any recovery. In a monetization model, funders make payments to the claimant—to cover legal costs and other expenses while a case is adjudicated. Return structures can vary and will be spelled out in the funding agreement.When it comes to due diligence, funders will have very specific requirements that must be met in order to provide funding for a case. This includes having an experienced litigator go over the case to determine its suitability for funding. The strength of the case and the defendant’s ability to pay damages can all enter into the decision-making process for funders. Meanwhile, claimants are encouraged to select funders carefully—understanding their sources of capital, for example, and how the process can affect the timeline of their case.Rules regarding non-disclosure and confidentiality agreements can vary from one jurisdiction to another. But funders will often need privileged information that falls under the heading of confidentiality when deciding whether to fund a case.
A recent order in a case between Laser Trust and CFL Financing is turning heads. The English High Court has made three cost orders against CFL. The court determined that the funder exerted an excessive amount of control over the case it had funded.Pinsent Masons explains that litigation funders can be exposed to adverse costs orders if they overstep boundaries to exercise control over-funded cases. Justice Marcus Smith stated that ordering a non-party to pay costs is highly unusual, and would not typically happen to funders. However, if third parties exert excess control over a case, they may be required to do so. Michael Fenn of Pinsent Masons suggests that this judgment should be considered a reminder to all funders to beware of the influence they exert in the cases being funded. Monetary consequences can follow if too much control is exercised by third-party funders.
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