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Commercial Deals

US PE Investors to Buy UK Law Firm in the Coming Year

It’s predicted that several sizable UK law firms will find themselves in the hands of private equity investors in 2022. These investors will likely focus on large firms that are utilizing damages-based agreements (DBAs). Legal Futures explains that some firms, such as Rosenblatt, are expecting returns of 4-5 times the amount invested in various DBA cases. Regulations governing DBA cases led to many firms deciding not to utilize the practice. Steve Din, founder of Doorway Capital, details that legal professionals are increasingly investigating DBAs as an exciting new way to fund litigation. Din claims that investors aren’t interested in any specific firm or case. Rather, investors want to invest in large law firms. According to Andrew Leaitherland, former CEO of DWF and founder of Arch.law, US private equity funds will flock to UK-based firms, and create value the same way others have done with portfolio investments. One benefit of private equity investment is that investors can look at many different models and apply only the ones that already work. ScaleUp, a UK private equity firm, took a 35% stake in Keystone Law—and has successfully achieved a return on investment of 11x. There’s every reason to believe the financial sector will increase its investments in funding entities and legal firms going forward.
Announcements Commercial People Moves

Woodsford announces further international expansion, with a number of key strategic hires

Woodsford, the global litigation finance and ESG business, has announced further expansion with the appointment of Hon. Michael Barker QC to its Investment Advisory Panel and Deborah Mazer, Hugh Tait, Diane Chisomu and Oscar Moore to its global executive team.

Michael Barker was a Judge of the Supreme Court of Western Australia from 2002 – 2009 and the President of the State Administrative Tribunal of Western Australia from its foundation in 2005 until 2009. From 2009 – 2019, he was a Judge of the Federal Court of Australia.

Deborah Mazer is a U.S. lawyer and former litigator with a broad range of trial and appellate experience.  Her expertise includes complex commercial, bankruptcy, mass tort, securities, tax controversy, and IP litigation. Before joining Woodsford as an Investment Officer, Deborah worked at Davis Polk & Wardwell in New York. She is a graduate of Yale Law School.

Hugh Tait is an Australian qualified lawyer who has worked on a diverse range of complex, large-scale disputes, including class/collective actions in both Australia and England. Before joining Woodsford as an Investment Officer, Hugh was employed at Hausfeld in London, and before coming to England, was employed at one of Australia’s leading law firms, HWL Ebsworth.

Diane Chisomu and Oscar Moore have both joined Woodsford’s London team as Junior Investment Associates.

“From our foundation as a third party funder that helps level the playing field in David v Goliath litigation, Woodsford has grown into a successful ESG business, holding major corporates to account when wrongdoing occurs.  Whether it is helping consumers achieve collective redress, ensuring that inventors are properly compensated when Big Tech infringes intellectual property rights, or helping shareholders in escalated engagement with listed companies, our team is committed to access to justice. These exceptional appointments will help support continued growth in our key international markets.” said Steven Friel, Woodsford’s CEO.

Michael Barker commented, “I’m excited to have joined a flourishing business that has ambitious future plans, particularly in Australia, my home turf. I hope my expertise will facilitate further growth both here and beyond.”

About Woodsford  

Founded in 2010 and with a presence in London, New York, Philadelphia, Minneapolis, Toronto, Singapore, Brisbane and Tel Aviv, Woodsford’s team blends extensive business experience with world-class legal expertise.

Woodsford is a founder member of both the International Legal Finance Association (ILFA) and the Association of Litigation Funders of England & Wales (ALF). Woodsford’s Chief Operating Officer, Jonathan Barnes, sits on the board of both organisations.

Woodsford is continuing to grow, and we welcome approaches from experienced litigation lawyers and other professionals who are interested in joining our team.

Interviews, photos and biographies available on request.

Case Developments Commercial

Lloyd v. Google – What Have We Learned?

A Supreme Court decision was handed down in the Lloyd v Google appeal. And Google has a lot to be celebrating. In short, the question at hand was whether damages could be sought in a collective action over “loss of control over data,” without specifically listing the monetary or punitive damages of each individual claimant. Requiring individual loss statements from every claimant in a case impacting millions seems untenable. What happened here? Omni Bridgeway explains that the issue being decided is less about the individual damages and more about the type of claim filed. In the case, Lloyd, believing Goggle had secretly tracked millions of users’ internet activity. This was allegedly done without consent and for commercial purposes. Lloyd asserted a breach of section 13 of the Data Protection Act—which required evidence of damages. Lloyd argued that it was acceptable to ask for the same damages for all claimants without showing the particular losses of individual claimants. The Court of Appeal called this a “lowest common denominator” approach, saying some claimants would not recoup their full damages if such a pragmatic approach was taken. Lord Leggatt made several clear points in his decision, all suggesting that the representative claim was not the best way to pursue damages. First is the opt-out nature of the representative route when the group litigation order is better equipped for opt-in claims. Next, because the claims were of low value individually, it wouldn’t work to seek a declaration before moving forward to the quantum stage. Finally, it’s just not realistic to expect courts, attorneys, or funders to pursue loss declarations from millions of potential claimants. Obviously, it makes more sense to deal with a single representative. What we see here is clear evidence of the need to demonstrate damages in a misuse of data case.
Commercial Deals

Hedge Funds Continue to Be Major Investors in Legal Funding

We already know that litigation funding is growing by leaps and bounds. This industry is a little over a decade old, and by 2019, had become a global industry worth nearly $40 billion. As the reach of funding grows, more businesses are learning the ways in which legal funding can monetize existing litigation assets while sharing risk. Bloomberg Law explains that the non-recourse nature of litigation funding leads to funders exercising exceptional due diligence when vetting cases for potential funding agreements. Even with some firms turning away 90% of funding applicants, industry growth has not slowed. One Australian funder, Omni Bridgeway, estimates that the addressable market for legal funding is $100 billion globally. The potential for large awards is one of the main factors attracting hedge funds to Litigation Finance as an alternative investment. Profits for funders can take months or even years to realize. But when everything goes according to plan, the results are significant. Burford Capital funded the divorce case of the Ahkmedovs, a Russian oil family. Ultimately, Burford made a return of $103 million after a settlement.   Hedge funds aren’t the only ones investing in legal funding. College endowments and sovereign wealth funds are getting in on the action. Litigation funding investment is also attractive for ESG investors, since the main byproduct of funding is increased access to justice—particularly for those who can least afford it. Additionally, the uncorrelated nature of funding means it’s protected from the fluctuations of the market. This makes it an excellent way to diversify an investment portfolio—which has been more important than ever in the wake of COVID. All that said, Litigation Finance is fraught with risk and unpredictable timelines. Understanding those risks before investing is essential.
Commercial Regulatory Issues

Do Undisclosed Funding Agreements Imperil the Justice System?

All eyes are on Bank of America Corp v Fund Liquidation Holdings LLC, because of the issues the case is bringing before SCOTUS. In this instance, an upcoming decision has led the US Chamber of Commerce to lament the oft-repeated (but unproven) assertion that the American justice system simply cannot withstand undisclosed funding agreements. Reuters details that in an amicus brief, SCOTUS was advised that the 2nd Circuit Court of Appeals was inviting untoward conduct by litigation funders when it approved Fund Liquidation Holdings to become a plaintiff in a rate-manipulation class action in a case against international banks. But did they? The hedge funds who filed the case have since dissolved, giving their litigation rights to Fund Liquidation Holdings. This was not spelled out in the initial class action filing. Later, it was learned that Fund Liquidation Holdings was the real plaintiff, and had been controlling litigation from the outset. The judge ruled that Fund Liquidation Holdings did not have standing to sue, thus nullifying the class action. A subsequent appeal found that the initial filing need not end the class action, because Fund Liquidation Holding did have a constitutional claim when the case was filed and revealed themselves in time to assert that claim. The appeals court determined that there was no reason to spend on filing a new complaint due to what it deemed a ‘technical error’ in the filing. The banks have petitioned for SCOTUS review, referencing a 2002 decision in Zurich Insurance Co vs Logitrans Inc. In it, a case was nullified due to a mistakenly filed subrogation suit. The 6th Circuit Court found that they could not swap in the insurer as a plaintiff. The 2nd Circuit court denied that this approach would not result in unscrupulous conduct by funders. The Chamber of Commerce does not agree.
Commercial Deals

GLS Capital to Launch Patent Licensing Subsidiary: Celerity IP

Legal funder GLS Capital has announced plans to finance a licensing and enforcement campaign for patents owned by Asustek Computer Inc. The patents are related to cellular networks—specifically 3G, 4G, and 5G tech. Bloomberg Law details that the patents in question are owned by Asus and Innovative Sonic Ltd, which was developed in 2006 as a trust company to hold patent assets. While the exact terms are undisclosed, GLS Capital has a financial stake in the patent enforcement campaign and will receive a portion of the award if successful. GLS Capital is run by three former employees of funding giant Burford Capital. Patent disputes are particularly attractive to funders because of the potential for very high awards—sometimes 2-3 times their initial investment. At the same time, the non-recourse nature of litigation funding means that funders take on significant risk. This arrangement demonstrates the maturation of legal funding as an industry, and illustrates a growing acceptance in the global market.
Commercial

Manolete Points to COVID as Cause of Dismal Profits

Typically, a business focused on the insolvency sector can expect to be busy. During COVID, insolvencies were predicted to skyrocket. But as governments stepped in to alleviate financial peril for businesses, those counting on insolvency to keep their own businesses afloat were left wanting. Law Gazette details that according to Manolete Partners, firm revenues were down over the last six-month period. Unadjusted operating profits were down by 52%, to GBP 3.2 million. Total revenues represented a 15% increase over the previous six-month period—but are 46% lower than the same period last year. It is perhaps ironic that during a pandemic in which so many businesses shut down, a litigation funder focused on insolvencies experienced such a marked drop off in revenue.
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.