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Commercial

Insurers Shift Blame for Rate Hikes to Litigation Funders

Complaints against third-party litigation funding tend to focus on a few oft-repeated points. Increased litigation, class actions in particular, ostensibly cause insurance rates to rise. Funders aren’t always required to disclose their funding agreements, ostensibly hiding a potential conflict of interest. Finally, funders are blamed for a supposed increase in frivolous actions—even though no funder wants to take on a case without merit. Business Insurance details that what often gets left out of these conversations is the risk funders are taking. If a case is unsuccessful, the non-recourse nature of funding agreements means that funders lose their entire investment—often a significant loss. It’s this risk that mandates what are viewed as high percentages for funders. Insurers in particular are unhappy with the funding industry. This is understandable, given that funders have supported many actions that held insurers accountable. One representative from Zurich North America refers to ‘abusive practices’ by litigation funders as leading to hardships for insurers. One partner with Woodruff Sawyer & Co lamented that there’s no need for new ways to sue people. Surely, policyholders whose coverage is in question would disagree. Is it correct to call third-party funding an industry with ‘no regulation and no requirements for transparency,’ as Page Faulk of the US Chamber of Commerce's Institute for Legal Reform does? Not exactly. While regulations for funders vary from one jurisdiction to the next, legislation and precedent are developing further with every new case. Eric Blinderman of Therium Capital Management explains that legal funding eliminates ‘David v Goliath’ cases where small plaintiffs get pushed into lowball settlements, or drag cases on for untenable lengths. Litigation funding is a tool for the little guy—so it’s no surprise that the big guys don’t like it.
Legal Innovation

Addleshaw Goddard Expands to Meet Litigation Funding Demand

The firm of Addleshaw Goddard has long been a proponent of third-party litigation finance, having used it to support clients in an array of diverse jurisdictions. Now they are launching a tailored set of solutions for clients, encompassing third-party funding, damage-based agreements, conditional fee agreements, and after the event insurance. Addleshaw Goddard explains that this expansion promises to be of specific interests to:
  • Those seeking to share risk when filing or defending a claim
  • Parties seeking impartial advice and guidance on funding options
  • Firms new to funding that need to better understand available options
  • Funders looking to develop new ways to structure funding agreements
Consulting with funding experts should be an essential part of due diligence on both sides of a litigation conflict, as it combines expertise from finance, litigation, commercial business, and funding. Mark Molyneux, Head of Litigation, states that this fully rounded approach is exactly what’s most needed in the market. Addleshaw joins a growing list of law firms that are expanding into the lucrative litigation funding market.
Fundraising

Second Fund on Track for Litigation Capital Management

Litigation Capital Management maintains that its team has performed admirably in what has been a difficult and unusual year. On that note, LCM announced its second specialist litigation fund is on track to close this quarter, owing to explosive investor interest. Proactive Investors states that the GAR for its existing fund is currently 76% committed—roughly $115 million of $150 million. Applications for funding increased 10% in the past year, totaling 572. Owing to COVID-related disruptions and due diligence, commitment was down and the case selection process took longer than usual. LCM retains a robust track record, achieving an ROIC of 153% over the last ten years, and an IRR of 78%. It’s no wonder LCM is optimistic about its future.
Case Developments

Burford Capital Announces Conclusion of Akhmedov Divorce Enforcement

The divorce settlement between Farkhad Akhmedov and Tatiana Akhmedova has been in contention since it was first ruled on in 2016. London’s High Court determined that Akhmedova should receive over GBP 453 million of his more than GBP one billion estate. According to her, that judgment was not enforced. Bolly Inside explains that Akhmedova enlisted help from Burford Capital to enforce the judgment. This led to an asset search that spanned the globe and included art, a superyacht, multiple homes, and a private jet. Sadly, the case even saw Akhmedova suing her son, alleging that he helped his father hide assets from his mother. Ultimately, the court agreed that son Temur Akhmedov should pay his mother GBP 75.9 million, saying he participated in a scheme to keep money beyond his mother’s reach. Since the first hearing in London, Farkhad Akhmedov has claimed that an earlier divorce in Russia predates the later judgment—therefore invalidating the London judgment. The Luna, the family superyacht, remains in the possession of Farkhad Akhmedov. Burford Capital recently announced its receipt of over AU $103 million for its efforts on behalf of Mrs. Akhmedova. Burford funded efforts to enforce the London court judgment in the Akhmedov matter. This payment represents a roughly $20 million addition to 2021 profits. The matter has generated over $70 million in realized gain since its undertaking. Last December, Burford announced that it spent roughly $25 million in its enforcement efforts. An analysis by Canaccord Genuity called the settlement a “good result” for the funder. The Akhmedov divorce case is one of the largest ever in a London court—often called the divorce capital of the world—known for high awards to non-working spouses. Justice Gwynneth Knowles compared the facts of the case to the Tolstoy novel, Anna Karenina, calling the family the ‘unhappiest ever to have appears in my courtroom.’
Commercial

Why Third Party Legal Funding Continues its Rapid Growth

A recent study into the future of legal funding resulted in several interesting insights. These include potential market growth, use of funding by corporates, expense, and strategic input into cases. Alix Partners explains that between 2017 and the end of 2019, assets held by litigation funders in the UK increased 46%. When surveyed, however, more than 90% of respondents say they expect funding to increase in use and expand the types of cases it is used for. Roughly 15% of in-house counsel surveyed have used litigation funding. Private practice solicitors and barristers are more likely to have used it, or worked with those who have used it. Some corporates haven’t used funding because they say they don’t need it. But is that accurate? Or could companies be missing out on the benefits of legal funding because they don’t know how to best utilize it? That is especially possible, given how many misconceptions there still are about third-party funding. Funding your own litigation makes sense if you win—but taking a sizable risk with your own assets is just that—a sizable risk. Betting on a sure thing is nice, but funding allows corporates to take a chance on a less predictable case without risking assets. Working with a funding entity also provides legal expertise from a third party. This can help with strategy, evaluation, and more—yet this is rarely touted as an obvious benefit of the practice.
Consumer

Seth Lovis Struck from Rolls After Double Funding Discovered

Seth Lovis, former managing director of Seth Lovis & Co, has been struck after admitting to failing to meet his obligations to various lenders. An investigation by the SRA determined that the personal injury lawyer accepted funding from multiple lenders for the same case more than a dozen times. Law Gazette reports that Lovis’s attorney argued that this was not a premeditated plan to cheat lenders. Rather, it was ‘a mistake’ made in an effort to save his troubled firm. Lovis is described as having treated litigation funding as a line of credit. In addition to being struck from the roll of trusted attorneys, he’s been ordered to pay GBP 35,000 in costs.
Consumer Special Features

Consumer Legal Funding is Even More Necessary Post-Pandemic

The following piece was contributed by Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding (ARC).  Consumer Legal Funding is when a company provides funds to a consumer who has a pending legal claim, typically a car accident, while their case is making its way through the legal system. The funds are used for household needs such as mortgage, rent, car payments, keeping the light on and putting food on the table. The funds are not used to pay for legal fees associated with the claim or case. This financial product is needed now more than ever as we recover from the pandemic caused by COVID-19. According to MarketWatch, almost half of Americans have saved less than $500 in the past three months. The article goes on to state that 56% are living paycheck to paycheck, and that 48% have experienced an unexpected financial setback in the past three months. In early July of 2021, Wells Fargo shuttered all of its personal lines of credit. This cut off thousands of consumers from accessing funds that they might need in an emergency, such as being involved in a car accident. So where are these consumers to go when, by no fault of their own, they are involved in an accident and become injured and cannot work, and therefore have either no income or limited income. These individuals often fall behind in their financial obligations such as their rent and car payments, and with limited-to-no savings, they are stranded. Banks, such as Wells Fargo, are cutting off their access to financial assistance at a time when consumers need it the most. In addition, according to BankRate “nearly three times as many Americans say they have less emergency savings, versus more since the pandemic”. Consumer Legal Funding is a non-recourse financial product, meaning you only have to meet the obligation if you are successful in your legal claim. This affords consumers the ability to meet their everyday financial obligations, while they make their way through the legal system. Because of COVID-19, legal claims are taking longer to make their way through the process. Even insurance companies are saying that it will take longer to get ahold of them. Consumers should learn more about their options when they have a pending legal claim and not be forced to take the first offer that comes along, just because they are financially stressed. Consumer Legal Funding can serve as a source of financial protection and comfort for consumers with nowhere else to turn—and as we emerge from the Covid-19 pandemic, this type of product is needed now more than ever. Note: When dealing with a funding company, make sure to ask if they follow the industry set of Best Practices that have been set out by ARC and the ARC companies. Eric Schuller President Alliance for Responsible Consumer Legal Funding (ARC)
Consumer

What You Need to Know About Pre-Settlement Lawsuit Funding

As litigation funding expands and adapts to the needs of consumers, it is becoming known by an increasing array of names: lawsuit loans, car accident loans, pre-settlement funding, etc. That’s because third-party funders are always developing new ways for non-recourse legal funding to help those in need. National Law Review explains that pre-settlement funding can be a boon to those who have been hurt in an accident and have a pending case. Even if the case is a slam dunk, it will take time for a settlement or judgement to be achieved. In the interim, there are bills to pay and lost wages to contend with. This kind of funding, which does not require good credit, can provide much-needed wiggle room to plaintiffs waiting to be compensated. The caveat is that their eventual payout could be much less than it would have been if a funding agreement was not in place. Funders use a variety of criteria when selecting who to fund:
  1. Litigation often must be active and be handled by a lawyer.
  2. Cases should be likely to end in a judgement for the plaintiff.
  3. Personal injury cases are among the most commonly funded.
  4. Client is in a funding-friendly jurisdiction.
  5. Potential for a high settlement.
  6. Defendant has the ability to pay an award to the plaintiff.
  7. The plaintiff and attorney should both be committed to a positive outcome.
A pre-settlement advance differs from a structured settlement in a few key ways. Structured settlements benefit defendants, as they’re used when defendants cannot pay the full award at once. Specific terms may vary depending on various factors. Pre-settlement funding is provided in a lump sum before a case is settled, benefiting the plaintiff. Given the inherent benefits to investors and plaintiffs alike, it’s likely that pre-settlement funding will continue to grow.  
Commercial

IP Dispute? Legal Funding Makes a World of Difference

Not all companies are enthusiastic about filing an IP lawsuit—even a highly meritorious one. Such cases are costly, complicated, and may not resolve for years. At the same time, the potential for a large recovery is high.

Omni Bridgeway suggests that Litigation Finance may be the key that allows companies to defend their intellectual property without tying up working capital. When a case is likely to succeed, using non-recourse funding to pursue it is an ideal solution that keeps operating funds free for running day-to-day operations.

A look at some recent cases illustrates the high recoveries that are possible with effective IP litigation. Last year saw an unparalleled spate of high awards in IP cases—some reaching $100 million, and a few even surpassing $1 billion. Similarly, cases involving trade secrets have also yielded large awards, with several moving from state to federal courts thanks to the provisions of the Defend Trade Secrets Act.

Of course, there’s more to litigation funding than just handing out cash. Funders apply due diligence to cases being considered, with an eye toward possible recoveries, expected time frames, and the ability of defendants to pay. Even if a funding agreement is not reached, consulting with a funder can give plaintiffs a clear, unbiased idea of the strength of their claim.

Litigators speak to the ‘unexpected benefits’ of funders underwriting patent litigation. To wit, the involvement of funders is likely to improve the quality of the case. Funders will pose many of the same questions that will be asked in court—such as the plaintiff’s efforts to protect their IP or to keep it restricted to secure networks. Ultimately, consulting with a legal funder is a net gain for plaintiffs.