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Commercial

First Quarter Update: Erso Capital

Funders and risk specialist Erso Capital has released its Q1 statement, and it seems largely positive. The funders report high demand for single-case funding. It also boasts a strong portfolio of completed transactions in several jurisdictions. Erso Capital details that the it has vetted more than 250 cases for potential funding since its launch in February of this year. Erso’s diverse portfolio of cases, currently in the due diligence phase, includes a wide range of case types, including:
  • Anti-Trust Litigation
  • Business Contract Disputes
  • Auditor Negligence Cases
  • Securities Actions
  • Multiple Large Construction Claims
Erso expects to see continued strong demand for its funding products.
Commercial

RBG Holdings Update

RBG Holdings has recently published its pre-close trading update. This comes ahead of its six-month financial report—expected in September of this year. RBG Group includes several profitable divisions, including those providing commercial and dispute-related legal services, and litigation funding. Polaris details that according to the Board, RBG Group is trading in line with expectations. Because of that, a 2 pence per share dividend will be paid to shareholders on the register before July 30 of this year. RBG Group’s litigation assets include cases for its own clients, as well as two litigation funding arms. LionFish funds third-party solicitors in the UK, which offers the potential for high returns. Convex Capital Limited is a specialist corporate finance entity. RBG Group Holdings also includes pioneering law firm Rosenblatt Limited, and specialist international firm Memery Crystal—together these form RBG Group’s legal services division. LionFish currently has 10 active cases representing an investment of GBP 3.2 million and a total capital commitment of GBP 8 million, if all the cases see trial. This past April saw LionFish record its first successful litigation investment—grossing a two times return beyond the initial investment. This win also seems to confirm the viability of its various portfolio assets. LionFish is well placed to be an innovative funder and a strong alternative to traditional funders. Meanwhile, Convex Capital generated revenue of about GBP 5 million over eight cases. This is lower than expected, due to COVID-related delays. With 25 deals currently in the pipeline, Convex Capital remains confident in its impending success. CEO Nicola Foulston explains that all things considered, the Group had a strong 2020, and demand is continuing as expected. Demand for funding is up with a large increase in corporate and commercial cases. Optimism runs high as economic conditions are poised to improve.
Commercial

How Much is Lionheart Capital Really Worth?

The story of Lionheart Capital begins with John Ruiz and Ophir Sternberg (real estate developer and founder of Lionheart). Sternberg joined forces with hedge fund Elliott Management, turning Miami Heart Institute into a spate of luxury residences. This past May, Ruiz and Sternberg bought Cigarette Racing Team together. California News Times details that as of August 2020, Lionheart Capital raised upward of $230 million. They then set a deadline of 1 ½ years to find appropriate deals. Sternberg later merged with MSP Recovery—a business founded by Miami Lawyer and TV personality, John Ruiz. The business model involves buying Medicaid and Medicare cases from the government, and then determining whether some other party (insurers, employers, etc.) should have covered those costs. The merger deal for Lionheart and MSP Recovery is valued at $32.6 billion. Normally, a deal of this size would be big news, but not this time. The words being used by involved parties include ‘terribly overvalued’ and ‘stunning.’ The valuation was based on 10.5 times the expected revenue for 2023, based on existing claims. MSP Recovery, in a speech presented to investors, said that its rating was on par with Blackstone, Apollo, KKR, and other private equity leaders. Meanwhile, John Ruiz told Financial Times that these statements were not based on the model he helped build. The company could achieve its projected results since as much as $1.6 trillion in annual Medicaid and Medicare overpayments could be collected. Since the agreement was signed in March, three Lionheart Acquisition board members have resigned from the company. COO Trevor Barran also resigned just prior to the announcement of the deal. Ruiz' fees are $70 million out of the $230 million. He claims these charges are reasonable because so many people have worked on the deal for so long.
Commercial

Why Litigation Funding is Indispensable to the Pursuit of Justice

The financial uncertainties brought about by COVID are one driver for the increased use of third-party legal finance. Businesses are becoming insolvent in record numbers. Even those with strong cash reserves are burning through them at unprecedented rates. How does legal funding help? Outlook India details that realistically, legal proceedings are often influenced by the financial status of the parties involved. Well-monied defendants can drag out a meritorious case until the plaintiff’s resources dry up, forcing a lowball settlement or even ending the case altogether. Litigation Finance removes that disparity, allowing cases to be tried based solely on merit. Litigation funding agreements can vary, but they generally cover costs relating to a case—including lawyer’s fees, experts, and filing fees among other expenses. Money is provided on a non-recourse basis. So if the plaintiff loses, the funder may lose its entire investment, but the client pays nothing. If the case wins, part of the award is paid to the funder at a rate agreed upon in the funding agreement. India, like many countries, does not have a regulatory regime in place to govern legal funding. The practice has been approved in principle, but funders are largely self-regulating. Contingency fee arrangements are still banned in India, which could actually create an increased need for legal finance. There is a dearth of international funders operating in India, and none are looking to fund smaller cases. As such, average citizens, and even the mid-market segment in India, have gone underserved. There is literally one funding company for such clients—which seems to portend the arrival of newcomers to the market. Legal finance isn’t for business-related lawsuits or class actions. Litigation funding can be used in a diverse array of case types including harassment, whistleblowers, privacy breaches, and more. Litigation funding is, when used properly, a win-win for justice and the public.
Regulatory Issues

Pretrial Rulings Regarding Litigation Funding

It’s been said that non-pharma-related patent litigation tends to focus on a few big companies. Most are consumer-facing brands with their own retail outlets, though certainly not all. Those who make a career out of being a non-practicing entity (NPE) know who they are and how to target them. Above the Law explains that litigation funders are standing by to deploy funding to meritorious patent cases they deem worthy of support. Of course, companies used to being on the receiving end of patent lawsuits already have an array of countermeasures in place. The overwhelming majority of patent cases never actually make it to trial. They’re either settled early or stopped by a motion. Still, there’s much to be learned from studying the pretrial steps taken in this type of litigation. The case of Pinn v Apple involves a legal funder described as merely an “investor” in disclosure documents. After in limine motions regarding the size and main office locale of the plaintiff, the court ruled that the size and locations of counsel and their firms is not relevant to the facts of the case. Pinn sought to bar disclosure on litigation funding in the case, but the special master determined that the motion should be granted. Under most circumstances, the court said, matters related to funding should not take up time during a trial. If nothing else, the ruling suggests that disclosure of funding might be relevant in the early stages of a case—but as it nears trial, a discussion of funders and their motives is merely for show. Funders should be relieved to see that in patent cases, judges aren’t interested in focusing on funding agreements. Most courts seem to agree that patent litigation is complex enough without further complicating it with the intricacies of a funding arrangement. The ruling also suggests that defendants will need to be more strategic about how they manage cases with well-funded plaintiffs.
Regulatory Issues

Court Grants Funder Permission to Use Documents Produced for Examination

An important precedent was set recently, involving a decision in LCM Operations Pty Ltd in the matter of 316 Group Pty Ltd (in liquidation) 2021, and the use of documents produced in an examination. What exactly happened? MONDAQ details that a liquidator sold claims to a legal funder in August of 2019—selling for $10,000 and a 15% share of any recovery. After approval, the funder became an eligible applicant and filed to gain access to documents produced during investigations of the debt. Funders required these documents in order to adequately pursue the debt. One debtor, Rabah Enterprises, who owed more than $14 million, asserted that the Harman obligation precluded the funders from using the documents. The court was charged with examining whether the funder required leave to use the documents—and if so—whether such leave should be granted. Justice Steward determined that liquidators are not exempt from Harman. As such, they may not use documents produced for another purpose for their own collateral or ulterior motive. At the same time, the use of the documents, in this case, does not constitute collateral or ulterior purpose and may be used in the pursuit of assets in the liquidation. Funders being eligible applicants, in this case, were granted permission to use the documents in question for the purpose of securing assets. Ultimately, Rabah was ordered to pay costs, and the funders got the ruling they desired. This case sets a clear precedent for insolvency professionals and funders who could find themselves facing a Harman motion.
Commercial

Litigation Funding Sees Increased Use Among Divorcees

We tend to think of legal funding as a tool used by the ‘Davids’ in a David v Goliath matchup. Increasingly, however, litigation funding is being used in divorce cases. IFA Magazine explains that typically, the lower-income partner (often, but not always, the wife) enters a funding agreement wherein legal fees and living expenses are covered until a fair and equitable settlement can be reached. The amount of funding deployed can range from GBP 50,000 to more than 3 million pounds. Funding can allow spouses to retain a better lawyer, and to avoid a low settlement because they’re cut off from bank accounts and in need of income to live. Once a settlement is completed, funders are repaid at an agreed-upon rate according to the funding arrangement. Legal funding is an excellent solution for less-wealthy divorcees when traditional lenders are unavailable. The recent Akhmedov divorce has demonstrated the value of divorce funding as an attractive asset for investors.
Regulatory Issues

Is Third-Party Funding Too Secretive?

It’s no secret that litigation funding has its share of detractors. Some are still suspicious of the increasingly regulated practice, despite evidence that it’s a net gain for clients, legal teams, investors, and those who have been harmed by a well-monied entity. Transport Topics News asserts that funding is “mostly” done in secret. In reality, disclosure requirements are becoming increasingly common for funders. Accusations that investors are turning courts into profit centers are exaggerated to say the least. According to the American Property Casualty Insurance Association, the US funding market has more than $13 billion in capital currently deployed. While some call this cause for concern, others refer to the success of legal funding as a sign that the practice is useful, welcome, and increasing in acceptance. Calls for transparency in litigation funding are increasing. Federal courts in New Jersey now require disclosure of third-party funders, along with a summary of the funder’s interests in the case. Other stated concerns regarding third-party funding include the worry that funders will exercise undue control over decision-making. While that is possible, professional funding organizations are adamant that funders should not seek to control strategy or settlement decisions in the cases they fund. Similarly, it’s been suggested that lawyers, when paid by funders, could place the interests of funders ahead of those of clients. To put it another way, funders might be blamed for the actions of unscrupulous attorneys. According to the ABA Best Practices for Third-Party Litigation Funding, the industry remains largely self-regulated—which is often presented as inherently suspicious. This creates legal uncertainty and a lack of uniformity between jurisdictions. Nationwide laws governing the practice might be a good idea—provided the new legislation is written with input from professional organizations with deep knowledge of how funding works.
Commercial

Cormac Leech on Litigation Funding as an Investment

AxiaFunder is a new and innovative investment platform that focuses on litigation funding as an asset class. Founded by Cormac Leech, the UK startup caters to sophisticated investors. UK Investor Magazine explains that as an asset class, the main strength of litigation funding is its lack of correlation to the larger market. For the most part, the need for litigation is not dependent on any specific economic conditions. The following are some key takeaways from the podcast episode with Leech:   Q: Are there [investment] solutions for people who are looking into funding? CL: Absolutely, there are. Litigation funding is a relatively new asset class. As an industry it’s really only been active in the UK for around 15 years or so. It’s certainly grown strongly over the last five or ten years. Most of the providers of litigation funding are operating on a traditional model where they have a permanent pool of capital...they’re really only catering to private equity firms, which means lots of sophisticated investors cannot get access to the asset class. Q: How are cases vetted?  CL: So far, we’ve funded 12 cases based on having looked at over 300 cases. We have a very high rejection rate in terms of the number of cases we accept.  We talk through the process of how we vet cases. The first thing we look at are the legal merits of the case. The way we think about legal merits—there are two parts: we want to make sure that the claimants have the high moral ground. It has to be a case where you look at the story of the case, the claimants and the defendants, and there’s a clear indication that the defendants treated the claimants badly. You know it when you see it. The second question is to make sure the legal technical merits stack up. Other aspects include whether the defendant has money, and the ability and willingness to pay if there’s a settlement or judgement. There’s no sense winning the case if the defendant doesn’t have any money. We also look at the case economics to make sure that the value of the claim is big enough compared to what it’s going to cost to litigate. There needs to be a solution for adverse costs risk.  Q: Litigation funding is classed as an alternative asset class. One of the attractions typically is the low correlation with traditional assets such as stocks and bonds. How is that seen in the real world? CL: It’s interesting in terms of investor’s perceptions. It’s a very unusual period right now because equities have had a very strong run recently, and residential properties have had a strong run. Virtually every asset class has been increasing in value. Forward looking investors will probably realize that there’s limited upside for equities, and arguably limited upsides for property, at least on a real, inflation-adjusted basis. These asset classes have already had a tremendous run. I think smarter investors will be looking around for alternatives. It does make sense for investors to make some allocation into litigation funding—2% up to 5% of their portfolio. It is non-correlated, and the returns are very substantial.