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Commercial

Morgans Agrees to $5.5 Million Settlement Payout

One of the largest wealth management entities in Australia, Morgans, has agreed to settle its lawsuit with clients. The issues allegedly  stemmed from one Brisbane-adjacent branch of the company that repeatedly caused concern for compliance officers. Financial Review explains that even though Morgans has defended itself against accusations of bad advice and poor management, their own internal investigations were spurred by suspicion of problems at the branch. The case has been active for more than two years. Spokespeople for Morgans maintain that the proposal for a settlement payout is not an admission of wrongdoing or liability on their part. David Wilkins once promoted a scheme called “Income Machine,” before his ASIC reprimand. He’s accused of providing misleading information (for example—that options trading carried almost no risk) and inappropriate advice—such as giving investors of limited means strategies more appropriate to high-end investors. Eventually, Wilkins received a five-year ban from ASIC. It is unclear how many claimants will share in the $5.5 million settlement, though Shane Roberts of Holman Webb has been involved with more than 40 claims with clients regarding the Springwood branch. Of those, 37 shared a similar set of facts and circumstances. If the case were to go to trial, claimants would almost certainly need support from a litigation funder, which means this case may be ripe for funding.   In the last 12 months, Morgans has earned more than $10 million in profit, which is down from the previous year. Spokespeople for Morgans maintain that they have a strong defense against the accusations against them.
Commercial

DLA Piper Looks Toward Cryptocurrency and NFTs

It was only a few years ago that most people thought cryptocurrency was a passing fad. Non-fungible tokens (NFTs) are similarly misunderstood among consumers—but that may be about to change. Financial Times details that trailblazers like Scott Thiel are doing their part to bring cryptocurrencies into mainstream consciousness. Now that bitcoin’s value has increased dramatically and NFTs are pulling in hundreds of thousands apiece, all eyes are on the blockchain. Thiel has suggested that it’s possible to issue digital tokens that are connected to real-world objects like property or art. In effect, that takes any physical asset and makes it tradable on blockchain. DLA Piper has taken this concept and run with it, creating Toko—an engine that can create fractions of physical assets and makes them tradable digitally. This is likely to attract a new class of investors—those who are looking for alternative assets unconnected to traditional markets. Toko’s debut project was a commissioned art piece by Wang Xiaobo. It was divided into 16 shares—each representing a square piece of the painting. Each fraction is the same size and price, though some investors were picky about exactly which piece of the painting they owned. Currently, Toko works with NFTs and digital tokens representing physical assets. But the sky is the limit. DLA Piper is now asking clients how they want to use Toko. Speculation abounds on how illiquid assets can utilize Toko to trade or sell parts of assets with digital tokens. At the same time, digital tokens are a new currency fraught with compliance risks and an unsure status around the world. Do individual tokens have the same status as an investment contract? What are the duties to disclose information with regard to NFTs? We don’t know yet because it’s all too new.
Commercial

Estia Class Action Settles for $12.35 Million

Estia Health announced an agreement to settle a class action over disclosure. Shareholders allege that failure to disclose relevant information to ASX led to inflated stock prices. The Weekly Source explains that shareholders would have paid a lower price for shares had proper disclosure occurred. The case was co-funded by Litigation Lending Services and Investor Claim Partners, and led by the firm Phi Finney McDonald. As the total settlement of $38.4 million was approved by Federal Court—Estia will pay $12.35 million. Estia’s insurers will pay the balance of the settlement.
Commercial

UK Panel on Collective Actions & Litigation Funding

London International Disputes Week recently held a discussion regarding the role of litigation funding in collective actions. As the practice of third-party funding grows in popularity and scope, those in power have been seeking to regulate it.

ICLG.com reports that in 2009, Lord Justice Jackson was instrumental in reforming costs associated with legal cases. Determined to decrease costs as a means to increase access to justice, the Jackson reforms (which became law eight years ago) led to specific regulations about legal insurance and litigation funding. Litigation funding aside, it makes sense that controlling court costs would also increase access to justice for average citizens.

Hausfeld partner Lucy Pert explains that there is no comprehensive class action regime in England and Wales, unlike Australia or the US. However, the Competition Appeal Tribunal holds that an opt-out claim could be used to settle a breach of competition law—and that this would not require active participation by members.

Pert went on to assuage concerns that litigation funding leads to nuisance lawsuits. She explained the many factors that would keep funders from bankrolling frivolous cases—with adverse costs being chief among them.

Senior legal counsel at Deminor, David Walker, noted that in the eyes of funders, cases are economic investments. If the numbers don’t work, funders aren’t interested. A common formula for funders is that the expected payout must be greater than 10 times the funding amount. Funders also consider the book-building process, the legal team and strategy, and finally—the defendants themselves and how their feelings might impact the process.

Elena Rey, a partner at Brown Rudnick, stated that the UK has a better-developed framework than the EU, though that market is advancing and adapting quickly. She believes more syndication deals will be forthcoming in the months and years ahead.

Consumer

California Lawyer Joseph Hoats Avoids Prison Time After Perjury

Joseph Hoats, a California attorney, has been stripped of his ability to practice law following a guilty plea for perjury. He will, however, avoid prison time after lying to a judge about his knowledge of a lawsuit filed in his name. Prosecutors sought a 15-21 month sentence for the crime. ABA Journal explains that Hoats’ wrongdoing comes as part of a fictitious settlement with auto giant General Motors. Two of Hoats’ clients, Christopher and Susan Hammatt, solicited litigation funders seeking funds based on a non-existent settlement of over $16 million from GM. The couple received $30,000 of $75,000 promised in a signed funding agreement in 2016. Lawyers for Hoats characterized his illegal actions as ‘an aberration,’ and lauded his long career in law. They pointed out that Hoats spent his time in law improving the legal response to the intellectually disabled, and by taking on pro bono work. Hoats himself stated that his actions were ‘foolish’ and a sad ending to a long career. Justice Paul Gardephe of the Southern District of New York determined that leniency was appropriate, because Hoats did not directly profit from the crime.  These events might lead one to wonder if laws are needed to protect third-party funders from those who would seek funding based on lies.
Commercial

Tech Giant Apple Embroiled in Class Action Asserting App Store Overcharges

Apple has been accused of flouting UK competition laws by overcharging UK customers for products from its app store. The London case, filed in the Competition Appeal Tribunal today, involves about 20 million customers in the UK. Global Legal Post explains that third-party litigation funder Vannin Capital is backing the case. The legal team includes barristers from Brick Court and Monckton Chambers, and is led by specialist firm Hausfeld. Hausfeld partner Lesley Hannah notes that Apple has a captive market that they’ve exploited for years. The legal team claims that the fees Apple charges are excessive and do not reflect the costs associated with providing services. Apple has called the claim “meritless.” A spokesperson claimed that 84% of available apps are free—conveniently omitting that they are in fact ‘freemium’ games that offer extensive in-app purchases with fees passed down to consumers. Another Hausfeld partner, Antony Maton, speculated that last year’s class action against Mastercard—which also dealt with overcharging--has opened the door for collective cases in the UK.
Commercial

Shattercane Decision Appealed

Claimants have launched an appeal in the Shattercane class action. The Queensland Supreme Court decision came down last month in the case, which involved contamination by shattercane weeds in seeds sold to produce sorghum. Queensland Country Life details that in April of this year, the court ruled in favor of Advanta Seeds on the question of accountability. One key question in the case was whether Advanta’s duty of care was negated by a disclaimer. Should a disclaimer alleviate responsibility for selling contaminated products? Lawyer Dan Creevey says no. Creevey said this would prove to be a key point in the appeal. He is adamant that a disclaimer should not allow the company to avoid repercussions for the contamination—which impacted farmers financially for years after the initial planting. Another point may revolve around the cause of contamination. The class action is funded by Balance Legal Capital. Barry Croker of Advanta stated that the company will be defending the appeal—but would not make further comments about the case, as the appeal is in progress.
Commercial

India Confronts Litigation Finance

Members of the IALF Working Group met to discuss seven agenda items including filling leadership positions within the organization. Seven members attended via video, and six via Email. Indian Association for Litigation Finance details their minutes including a reading of the charter. Alain Grec expounded on his feeling that self-regulation may not be the best path for Litigation Finance. He asserted that core issues facing the industry should be deferred to a non-participating entity. Most attendees agreed that there are benefits to external regulation—credibility of the industry being a vital concern. Caveats were discussed as well. Overregulation was an ongoing concern for many members, as was unnecessary bureaucracy that could hinder efficiency to the detriment of clients and cases. Matters impacting collective action cases were discussed here as well. Agenda item #2 concerned capitalizing on the momentum COVID has given the industry, and how that can be used for growth. Item #3 discussed whether the IALF should be a non-profit company. Most members agreed that it should. Division of responsibilities and leadership within the organization made up agenda item #4, while #5 addressed scheduling for document placement for discussion by members. If litigation funders plan to welcome external regulation, agreeing on regulator qualifications is crucial for success. Litigation Finance is a complex and nuanced industry that requires sophistication and experience in the legal and financial fields. Agenda item #6 involved suggestions for leadership roles and committees. This included a board of advisors, directors, judicial and regulatory liaisons, public relations, education, global affiliations, and handling concerns from members of the community at large. Finally, members celebrated the successful launch of the organization—noting the significant industry interest in joining the organization. This includes law firms, legal services providers, and funders. The IALF is expected to formally accept applications for membership in the near future.
Commercial

Nike Counterfeit Case May Define US Court Reach Against Foreign Banks

Between 2013-2015, sportswear giant Nike won court battles against more than 600 counterfeit shoe sellers based in China. Assets were ordered frozen by a US court. While Nike did win, every counterfeiter defaulted on the judgment. Reuters details that it’s at this point that things become less clear. Nike sold the judgment to a subsidiary of third-party funders Tenor Capital Management back in 2017. The subsidiary subpoenaed various Chinese banks that allegedly held accounts for the counterfeiters—holding them in contempt for refusal to comply with the asset freeze. However, US District Judge McMahon determined that the banks were not in contempt because it was unclear whether the freeze applied to them under New York’s ‘separate entity rule.’ On appeal, lawyers argued that banks were using the separate entity rule to avoid accountability. Attorney Robert Weigel correctly pointed out that there’s no valid policy reason for courts to allow banks to encourage users to break the law or ignore a court order. Weigel also suggested that Chinese banks receive transactions from New York every day—suggesting that they are not, in fact, separate entities—but facets of the same entity working in concert. Meanwhile, lawyers for the banks asserted that routine banking was not the same as active participation in crimes. A three-judge panel will determine whether the banks are in contempt.