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Why Choose a Reliable Legal Funder? Ask Feltex Carpet!

Can failure to provide security for costs derail an otherwise meritorious case? It appears that’s what happened in a New Zealand-based collective action against Feltex Carpets. The case was funded, but stopped abruptly when funders failed to provide security for costs. Why did that happen? Omni Bridgeway details that in a funded class action, defendants are entitled to security for costs. The judge gave a specific “unless” order, stating that the case would end if the security was not filed. An appeal was lodged and it failed. Courts stated that it was against the public interest to allow the case to go forward. The judge stated his skepticism that the funders could meet their obligations to the court. What can others do to avoid the fate of the Feltex case? Here’s what to consider when choosing a litigation funder:
  • Reputation. Is the funder well-suited to the type and subject matter of your case? Are there experts on staff? Will funders assist or encourage the use of investigations or experts?
  • Relationships. Does the funder have experience or connections in the jurisdiction where your case will be tried? Are they connected to a specific law firm or larger business entity?
  • Transparency. Is there adequate capital? What about insurance? Can funders meet their obligations as stated in the funding agreement?
  • Track record. Do they make money for investors? What is their record of choosing successful cases?
  • Peace of Mind. Does the funding agreement seem clear, straightforward, and fair? Are the representatives of the funder listening to you and answering your questions fully and completely?
Asking the right questions will go a long way toward finding a reliable funder in which you can feel confident. The legal funders you partner with are a vital part of the team you’re building, so ensure they meet the above criteria.

Woodsford Promotes Alex Hickson to Senior Investment Officer

Woodsford Litigation Funding has recently announced the promotion of Alex Hickson to Senior Investment Officer. Hickson joined the firm in 2019. Woodsford went on to explain Hickson’s return to Australia to grow business in that market—along with Clare Owen. The firm recently earned its AFSL, allowing it to fund new class action claims under new Australian regulations. That makes Woodsford the first non-Australian based funder allowed to fund such claims in the land down under. 

LCM Funds Carillion Claim against KPMG

Litigation Capital Management is providing capital in a High Court claim against KPMG. The case revolves around KPMG’s audits of Carillion’s financials amid losses of GBP 250 million. Proactive Investors explains that LCM has a long tradition in funding insolvency cases. Some refer to LCM as the ‘insolvency funder of choice’ in the UK. LCM executive vice chair Nick Rowles-Davies stated that the funder is delighted to be supporting creditors who have suffered due to KPMG’s actions. Nearly 200,000 employees lost their jobs when Carillion underwent compulsory liquidation after amassing nearly GBP 1.5 billion in debt—despite receiving a ‘clean bill of health’ from KPMG. The FRC is expected to publish its findings on KPMG’s audits soon.

Federal Equity Receivers Can Improve Recoveries with Legal Funding

Contingency arrangements are often used by federal equity receivers when financial constraints keep them from pursuing litigation against fraudsters. These arrangements can shave off a sizable portion of the expected recovery—up to 50% in some cases. Omni Bridgeway explains how litigation funding can maximize recoveries in a way that’s flexible and adaptable. Portfolio claims in particular—but how else can litigation funding help receivers?
  • Funders often conduct research to confirm the strength of a claim.
  • Sometimes funders can cover fees and expenses pursuant to a preliminary evaluation of a prospective case. This allows limited budgets to be maximized.
  • Estates that use funding have more flexibility in planning and forming a legal team.
  • Hybrid approaches may be used, and portfolio funds may be released on a case-by-case basis.
Portfolio funding is a growing industry that can be applied to estate recoveries to maximize returns. Diversifying the portfolio creates less risk than bundling similar cases, and is more likely to attract funders.

Harvard Law Students Marlon Becerra and Shao-Jia Chang Selected for Validity Finance’s 2021 Equal Access Fellowship

Leading litigation funder Validity Finance has selected Harvard law students Marlon Becerra and Shao-Jia Chang for its 2021 Equal Access Fellowship. The program, in its third year, provides a 10-week paid summer fellowship to first-year law students of diverse backgrounds.

The Equal Access Fellows spend the first half of their summer at Validity learning basic principles of litigation funding, and the second half working at a legal non-profit of their choice. Validity, which covers Fellows’ salary for the entire 10-week program, is one of the only litigation funders to provide such a program for first-year law students.

Mr. Becerra and Ms. Chang will both work at Validity for the first five weeks of their fellowship, from June 1 through July 3. They will assist in analyzing potential case investments, participating in meetings with claimants and lawyers, and conducting legal research on topics related to litigation and dispute funding. Like many major law firms, Validity is introducing a hybrid return to work, mixing in-person visits to its New York office with remote work, as the rest of its team has been doing in recent months.

“We’re proud to have Marlon and Shao join us as Equal Access Fellows for the summer of 2021,” said Validity Finance founder and CEO Ralph Sutton. “Both have outstanding backgrounds, including personal histories that may not have suggested they’d end up at one of the nation’s top law schools. We’re also pleased to have arrived at a point in the pandemic where we can offer an in-person experience for Marlon and Shao.” The two Fellows were chosen from a pool of 36 applicants from 18 top-tier law schools. Candidates submitted academic transcripts and essays addressing their interest in litigation funding and describing how they have overcome personal challenges. 

Mr. Sutton commented, “Given the past year’s events — pandemic-related and in terms of social justice — there is a heightened need for young lawyers interested in helping to expand equal access to the civil justice system, which is one of Validity’s core mandates as a litigation funder.”

About Equal Access Fellow Marlon Becerra

A native of Jackson Heights, New York, Marlon was the first member of his family to attend college. He obtained his B.A. in Economics from Political Science from Hampshire College and is now a rising second year student at Harvard Law.

Having to return to New York in the middle of his first year of law school, Marlon created an initiative called Civic Engagement and Social Justice for Legal Outreach, Inc. The non-profit teaches New York City high school students of color how to be more proactive leaders in addressing social issues. “As many of the students come from the inner-city, they are particularly interested in addressing the obstacles preventing them from having an equal opportunity to succeed in high school and in college,” he wrote in his personal statement. “I partnered with attorneys from firms across the city to support the students’ efforts to develop and implement campaigns to address their social justice issues.” During the summer of 2020, Marlon worked for the NYC Department of Social Services’ Employment Law Division. As he notes, “I had the opportunity to write a memorandum recommending how COVID-19 guidelines will impact the agencies’ accommodation policies. I saw the importance of considering people’s access to resources and justice, as we focused on urgent issues impacting one of the city’s largest agencies that both hires and serves primarily minority communities.” At Harvard, Marlon is a member and Section Representative of the law school’s chapter of the American Constitutional Society for Law and Policy, which promotes progressive legal change in order to realize economic and social justice. He is also a member of La Alianza, a student-run organization composed of Latinx and Latin American students interested in issues affecting the Latinx community at Harvard Law, and a member of HLS First Class, a student affinity group for first generation law students.

About Equal Access Fellow Shao Chang Shao Chang grew up in a rural Northern California town of only 4,500 residents, where she notes, “few families lock their front doors, and many people proudly leave their keys in the ignition.” She writes of frequent bias against her own parents and her own early struggles with proficiency in English. Shao obtained her B.A. in Psychology and Legal Studies from the University of California, Berkeley, in 2017. She received Dean’s Honors and Highest Honors in Legal Studies, and is a member of Phi Beta Kappa. Following college, Shao spent several years as a field representative and aide for Napa-area Congressman Mike Thompson. She recalled taking on projects and facing circumstances that were considered too difficult to accomplish in rural parts of the district, which included her hometown. Motivated by a desire to increase equity and access, she asserts, “I did not believe that infeasibility is a reason not to try, especially when it came to the neediest area in the district.” 

At Harvard Law, Shao is the External Vice President of the school’s Mock Trial Association and Willem C. Vis Moot Team, and is a sub-citer for the Harvard Journal on Legislation and the Harvard Negotiation Law Review. She is also a member of the Social Committee of the Asian Pacific American Law Students Association at Harvard, a member of the Reproductive Justice Team of the Mississippi Delta Project at Harvard, and serves on the board of the Women's Law Association.

About Validity Validity is a commercial litigation finance company that provides non-recourse investments for a wide variety of commercial disputes. Validity’s mission is to make a meaningful difference in our clients’ experience of the legal system. We focus on fairness, innovation, and clarity. For more, visit www.validityfinance.com

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KBRA Assigns Preliminary Rating to TVEST 2021A, LLC Note

Kroll Bond Rating Agency (KBRA) assigns a preliminary rating to one class of notes from TVEST 2021A, LLC, an asset-backed securities (ABS) transaction collateralized by litigation finance and medical receivables serviced by Experity Ventures LLC ("Experity"). TVEST 2021A represents Experity’s second ABS transaction collateralized by litigation finance and medical receivables, following the issuance by TVEST 2020A, LLC in August 2020. Experity, formed in April 2019, is the parent company of the various receivable originators including Thrivest Legal Funding, LLC, a direct to market pre-settlement legal funding company with a history of originations dating back to 2009 and ProMed Capital Venture LLC, a leading medical lien funding company that has been originating since 2017. Experity is also the parent of six other litigation finance receivable originators that were formed in connection with strategic financing and operational partnerships with third parties. The portfolio securing the transaction has an aggregate discounted receivable balance ("ADPB"), of approximately $70.3 million as of the April 30, 2021 cutoff date. The ADPB is the aggregate discounted cash flows of the collections associated with the TVEST 2021A portfolio’s litigation funding receivables and medical receivables. The discount rate used to calculate the ADPB is a percentage equal to the sum of the assumed interest rate on the Class A Notes, the servicing fee rate of 1.00%, and an additional 0.10%. As of the Cutoff Date, medical receivables comprise 56.7% of the portfolio by advance amount and have an average advance to expected settlement case value ("Expected Case Worth Ratio") of 22.84%. Litigation receivables comprise the remaining 43.3% of the portfolio by advance amount and have an Expected Case Worth Ratio of 7.92%.
The Receivables are sold by the various originators, and two special purpose vehicle affiliates, to the seller who then sells the Receivables to the issuer. The Class A and B Notes are issued pursuant to an indenture under which the issuer pledges the Receivables to the trustee. The Class A Notes benefit from credit enhancement in the form of overcollateralization, subordination and a cash reserve account. Click here to view the report. To access ratings and relevant documents, click here. Disclosures Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above. A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here. Information on the meaning of each rating category can be located here. Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com. About KBRA Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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Delta Capital Partners Management Launches Delta Defense Solutions – Lit Fin Industry’s First Comprehensive Set of Funding and Risk Mitigation Solutions for Defendants and Respondents

Delta Capital Partners Management LLC, a global private equity firm specializing in litigation and legal finance, is pleased to announce the launch of a new venture, Delta Defense Solutions ("DDS"). DDS offers defendants and respondents funding to pay the legal costs associated with their defense, including professional fees, experts, tribunal costs, and the cost of any utilized risk mitigation solutions. Much like a typical plaintiff-side litigation funding arrangement, Delta typically provides DDS solutions on a non-recourse basis such that if the defendant loses then it is not obligated repay Delta its capital investment. There are many ways that defense solutions can be structured, and each solution offered through DDS is unique and highly customized. Defense solutions are quite versatile and can be used by a range of defendants and respondents, including those in cost-shifting jurisdictions and whether involving court-based litigation or arbitration. Defendants benefit from DDS by obtaining funding and gaining access to risk mitigation solutions that otherwise may be very difficult and/or costly to obtain, including customized insurance solutions and structured financial products offered through Delta's venture partners.  Additionally, if a party is involved in multiple pieces of litigation (whether as a defendant, respondent, or plaintiff), then DDS offers portfolio financing solutions that provide more favorable terms compared to individual case funding arrangements for defendants or plaintiffs. Christopher DeLise, Delta's Founder, CEO, and CO-CIO, stated, "Delta's years of experience and success with offering litigation funding solutions for plaintiffs has enabled Delta to develop proprietary solutions for defendants and respondents.  By partnering with top-tier insurance and structured finance professionals, Delta is pleased to be able to offer bespoke, comprehensive, cutting-edge defense solutions across the globe.  As the market continues to evolve, we believe defense-oriented legal finance solutions will become very popular and we are proud to be the first in the industry to offer a comprehensive set of funding and risk mitigation solutions for defendants and respondents." About Delta
Delta Capital Partners Management LLC is a global private equity firm specializing in litigation and legal finance, judgment enforcement, asset recovery, and related strategies. Delta provides capital and related services to individuals, businesses, private investment funds, law firms and other professional service firms across the world that seek to hedge their financial exposure, reduce legal spending, enhance the probability of a successful and timely resolution of claims, and maximize the effectiveness of their core businesses.
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Appeals Courts Clarify Litigation Funding for Bankruptcy

At present, the United States has about 40 litigation funding entities actively funding cases. Assets under management are estimated to be close to $10 billion. In the bankruptcy arena, some say legal funding isn’t growing. But there are two recent appeals court decisions that may change that. Pullman & Comley detail the two relevant appeals decisions. First, Dean v Seidel, in the US District Court for the Northern District of Texas. Courts approved a legal funding agreement where $200,000 was given to a trustee to prosecute claims. The recovered funds would be distributed in order: trustee commission, reimbursement of the advancing creditor, a 30% return on investment, and finally the balance would go to creditors. The arrangement was challenged as unfair to creditors, as one would receive a larger share, and again because the recovery was not strictly for the benefit of the estate. Courts were unmoved by these arguments and pointed out that the trustee did attempt to reach an agreement on a contingency fee arrangement, but was unsuccessful. Ultimately a lack of applicable case law meant that despite legitimate concerns in regard to ethics, there was no actual wrongdoing. In another case, Valley National Bank v Warren, funders sought to finance litigation against the bank for its role in fraudulent transfers, and for aiding and abetting breach of duty. Courts approved what many considered an unusual funding agreement in which funders would cover monthly expenses, and would later be reimbursed plus a whopping 85% of any recovery. The bank objected to the agreement, saying it would hinder efforts to liquidate and negotiate a settlement. The appeals court held that the bank did not have standing to appeal, and that in fact, the bank was not aggrieved because it wasn’t directly impacted by the approval of the agreement. In all likelihood, litigation funding in bankruptcy will increase in usage.

How Might Cryptocurrency Impact Litigation Funding?

It was big news last year when Ava Labs debuted an ILO or Initial Litigation Offering. The ILO was released through the open-source platform Avalanche. Without going into minute details, Avalanche provides the ability to connect existing blockchain platforms into a single ecosystem in which digitized assets can be bought, sold, or traded. FRT Services details that these ILOs are similar to better-known Initial Coin Offerings. But instead of being applied toward digital coins or services, ILOs are used to directly fund litigation. In essence, it’s a micro-investment in a lawsuit. Ava Labs is currently working out the regulatory details. How might this impact the industry on the whole? For starters, micro-investors will likely choose cases to fund based on trends or subjects rather than by the individual merits of a case. ILOs might also lead to more funded cases with a larger funding pool. For now, all eyes will likely be on the first ILO-funded case, Apothio LLC v Kern County et al. Time will tell how blockchain impacts litigation funding on the whole.