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Commercial

Are Court Delays Better or Worse for Litigation Funders?

There's a debate currently underway in the legal world: Will work stoppages brought about by the COVID-19 pandemic be better for litigation funders, or worse? Will it enhance earnings by increasing demand, or lead to lower settlements and fewer payouts? Can an influx of new cases bolster the legal field, or will it merely increase competition to land lit fin deals? As Bloomberg reports, we don't yet know for sure. Generally speaking, funders bring in excess revenue when cases take longer to resolve, as a spokesperson for Omni Bridgeway (formerly Bentham IMF) explained. Burford Capital also stated that delays tend to benefit them economically, provided the courts remain largely up and running.   A recent case involving an investment by Omni Bridgeway of $1MM illustrates how time plays a part in funder earnings. The contract stated that if the case was resolved within 6 months, Bentham would recoup more than 1 ½ times their investment. If the case took a year, that amount would double. If the case really dragged on, Bentham could have made as much as $4MM. Based on those terms, it's hard to imagine funders weeping at the prospect of long court delays. That said, court delays caused by pandemics are generally not part of existing lit fin contracts. However, Force Majeure may apply in some cases. Contracts are becoming more precise and competitive, as firms spar for funding. Lawyers and clients are now in the process of negotiating what needs to happen during the various shutdowns and delays caused by COVID-19.  But why should lawyers or firms accept a lower percentage when they weren't responsible for delays?  Negotiating these situations is new territory for the parties involved. Should we expect litigation funders to accept lower returns as competition for cases ramps up? Given how long this crisis is expected to last, we're sure to find out eventually. 
Commercial

Litigation Finance Can Perk Up a Down Economy

When the economy takes a downturn, a spike in litigation can follow. Desperate financial times can turn even the most non-confrontational towards dispute—as assets dwindle and every penny counts.  But in an economy beset by losses, slow growth, layoffs, and shutdowns, how are people supposed to fund cases? Enter: Litigation Finance.  As Bloomberg reports, lit funding allows financially strapped clients an opportunity for top-notch legal representation, the best research, and all of the resources needed to reach a satisfactory resolution. This makes lit fin a net gain for firms, clients, lawyers, and anyone who is a fan of access to justice. The practice has also been called a 'force multiplier,' which enhances litigation hedge. Litigation finance can be a vital part of "countercyclical" planning. That is to say, that lit fin provides a way for existing cases to continue, and new cases to be taken on, in spite of bad economic times. This is true of several legal specialties—bankruptcy law, for example.  Macro-economic pressure can spur clients into being more adamant about recouping damages, and make them less interested in compromise or settlements. Litigation funding levels the playing field between the AmLaw firms and those of lesser means. Funding also lowers overall risk to firms, and may therefore allow them to take on riskier cases. By providing non-recourse capital, third party funders remove strain from individual investors, as well as clients and the litigators who serve them. While providing opportunities for low-risk profit, lit fin investors are increasing access to justice and aiding those with meritorious claims. 
Announcements Commercial

Balance Legal Capital Raises New US $100MM Litigation Fund

LONDON, 25 MARCH 2020 - BALANCE LEGAL CAPITAL LLP, a London-based provider of litigation and arbitration finance, today announced it has raised a further US$100 million from 8 institutional investors in a new UK fund for deployment in the UK, Australia and other common law jurisdictions. The investors in the new fund include Balance’s anchor investor, which is increasing its commitment, and 7 further global institutional investors, located across the UK, US, Switzerland and Australia.  They include a university endowment fund, a European asset manager, and a global investment bank.  As with Balance’s prior funding vehicle, Balance continues to have complete delegated authority over its litigation investment decisions.  In addition to the discretionary capital pool, Balance has direct access to significant further co-investment capital from its investors. Balance will use the new funds to invest in commercial litigation and arbitration proceedings with a continued focus on disputes in common law jurisdictions, particularly the UK and Australia.  Balance will continue to invest across all sectors and commercial claim types including contract, tort, shareholder disputes, joint venture disputes, competition, intellectual property, class actions and more. Robert Rothkopf, Managing Partner of Balance Legal Capital, said “These are difficult times but we feel it is nevertheless important to publicise important milestones – being the launch of our new fund, and the next step in the firm’s growth.  The interest we’ve had from investors is testament to the success of the business so far, the calibre of our team, and our ability to provide a great service to litigants and law firms.”  Balance Legal Capital LLP was advised on the establishment of its new fund by Herbert Smith Freehills LLP, London. About Balance Legal Capital Balance Legal Capital was founded in 2015. It is led by a highly experienced team of litigators formerly of Herbert Smith Freehills and Freshfields. Its investment committee includes Lord David Gold (former global senior partner of Herbert Smith and head of its disputes division) and Ian Terry (former managing partner of Freshfields and global head of disputes).  Fraser Shepherd (former litigation partner at Gilbert + Tobin, Sydney) and Nick Gardner (former head of Intellectual Property Litigation at Herbert Smith) are senior advisers to the investment committee. Balance Legal Capital LLP is a member of the Association of Litigation Funders of England and Wales (ALF) where Robert Rothkopf is also a board member.  Balance Legal Capital LLP is also a founder member of the Association of Litigation Funders of Australia (ALFA).  Balance Legal Capital LLP is authorised and regulated by the Financial Conduct Authority. https://www.balancelegalcapital.com
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Announcements Commercial Special Features

SPONSORED POST: Free Webinar Explaining the Latest NYC Bar Report, Hosted by Validity Finance

Understanding the Latest NYC Bar Report on Litigation Funding

Tuesday, March 31, 2020

1:00 pm to 2:00 pm

The NYC Bar Association's Working Group on Litigation Funding delivered a long-anticipated 90-page report concluding that funding agreements between lawyers and funders will benefit litigants, and recommending that the legal ethics rules explicitly permit such agreements. The report also rejected calls for mandatory disclosure of commercial litigation funding agreements in court proceedings. Join Validity's Chief Risk Officer, Dave Kerstein, Portfolio Counsel, Will Marra, along with litigation finance experts Brad Wendel, Ethics and Law Professor, Cornell Law School and Constantine Karides, Partner at Reed Smith for an upcoming webinar that will cover:
  • what does the NYC Bar report means to lawyers today;
  • what we can expect from other bar associations across the country; and
  • how lawyers can secure funding on behalf of clients during these uncertain economic times.
Register for this free webinar by clicking here.
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Commercial Covid-19

How Applicable is Force Majeure in the Wake of COVID-19?

In less than two months, America has changed dramatically as we all pitch in to flatten the curve of COVID-19 infections. This has caused businesses to close or dramatically reduce hours, staff, and output. It has led to supply chain stoppage and the total disruption of life and business as usual. Schulte Roth & Zabel remind us that Force Majeure is an unforeseen event that's out of the control of parties, which prevents them from fulfilling a contractual obligation. Most contracts will contain some kind of Force Majeure clause, and some may mention pandemics specifically. Normally, a word like 'pandemic' would only warrant a glance in a standard contract. After all, how often do we actually have pandemics? But as of March 11, the world has been mired in the midst of a pandemic as declared by the World Health Organization. Is that enough to trigger a Force Majeure clause? If the clause specifies a pandemic specifically, then yes. If not, words like 'contagion' or 'epidemic' or 'viral outbreak' might be enough. Keep in mind that Force Majeure requires that the event in question objectively prevent parties from performing their duties. A researcher who works from home would not be excused from work over a shelter-in-place order.  But what if there is no Force Majeure clause? This situation is a little muddier, but not impossible to navigate. Because contracts also require parties to adhere to the law, orders to suspend business, or other public health orders, can activate Force Majeure even when it's not specifically outlined in a contract.
Commercial Covid-19

COVID-19 is Lengthening Time-to-Settlement, Which Impacts Litigation Funding

Court closures and the absence of many basic services have brought about a major slowdown in the way cases are settled or litigated. As we don't know how long COVID-19 isolation and quarantine will last, it's growing more and more difficult to assess the true cost of the increased time-to-settlement.   As Legal Examiner reports, it is vital to look at all relevant factors when determining how or when to develop a settlement. These should include attorney fees, the possibility of a qualified settlement account, litigation funding or pre-settlement funding, possible liens, and taxes as pertains to settlements. In particular, litigation funding and attorney fees can be the most relevant for clients. Because resolving cases takes more time than usual, the need for litigation funding is greater than ever. While funding rates may seem excessive to some, they're often needed to mitigate the risks inherent to funding individual cases or class actions. And with time-to-settlement growing, the risk to funders is compounding exponentially. Funders typically want to settle quickly and recoup their investment in as timely a manner as possible, which, thanks to the current COVID-19 crisis, is growing increasingly more difficult.  Another thing to consider is the involvement of third-parties, which is a typical aspect of many cases. This might include private or state-funded medical agencies, bankruptcy trustees, guardians, estate executors, lien holders and more.  Medical or other record companies, researchers, and others who are needed to settle or manage cases will be less available as they are needed on COVID-19 related matters.  It's been suggested that settlements will be fewer and further between in the coming months. As cases are delayed and trials postponed, reaching an agreement between parties grows less likely. With that in mind, the litigation funding industry may need to recalculate its investment parameters given the court delays and additional time-to-settlement.  
Commercial Covid-19 Special Features

Key Takeaways from Boeing Bankruptcy Discussion with Aerospace Experts

Boeing is one of the cornerstones of the global aerospace industry, yet the company is experiencing tumultuous times. The grounding of its 737 Max airplane in the wake of the Coronavirus outbreak caused the company to book over $20Bn in charges, and some are worried about liquidity issues, and even bankruptcy. On Thursday, LFJ hosted a panel discussion with a pair of experts on the Aerospace industry regarding the fate of Boeing, and the future of the industry. The experts included Scott Hamilton (SH), Managing Editor of Leeham News and Analysis, and Richard Aboulafia (RA), Vice President of Analysis at Teal Group. Both are experts in Aerospace, and frequently cited as Aviation experts by major media outlets. The panel was hosted by LFJ Founder, Jason Redlus (JR). Below are some key takeaways: JR: On a macro basis, what is your expectation regarding Boeing specifically, and the Aviation sector more generally?  RA: I think there is this impression that it's a bailout of Boeing, and I just don't see it as that. The overwhelming footprint in terms of jobs and even money for a jetliner are not in the supply chain. The question becomes 'do we keep that supply chain going or don't we, and face the consequences of mass layoffs and a real hit to the economy? If Boeing wants to save itself, it would take the expedient route by stopping all production." SH: I don't think Boeing will go into bankruptcy unless the capital markets completely dry up…which is what we saw to some degree after 9/11. The airlines just didn't have access to liquidity and that's why you had the Air Transportation Stabilization Bill created, which in its own right wound up picking winners and losers. My concern about the supply chain is deeper than my concern about Boeing at this point. I think that Boeing is probably correct that the supply chain is more at risk than Boeing is. RA: There is a liquidity crisis…but does this mean this is an instant bankruptcy? Far from it. It just means they have to watch themselves. The question of an aid package is whether terms and conditions can be applied that guarantee they'll keep paying people and suppliers...less about avoiding bankruptcy and more about avoiding an economic collapse in that sector.  JR: In the litigation finance community, who gets in trouble on something like this?  If the government just gives Boeing a check and lets them use it at their discretion, doesn't that create a kind of litigation through the supply chain? Where do you see litigation as the fallout from this crisis in the aviation industry? SH: Lawyers can find reasons to litigate about anything (laughter). Somebody somewhere would object to how the money is disbursed. Of course, we don't know what the bailout language would look like. How does the mom and pop supplier at risk of going out of business also get a piece of the pie? How do they afford a lawyer if they're already on the edge? How would Boeing determine who the winners and losers are? RA: How much litigation is needed depends upon how well the lawyers and legislators do their jobs upfront. If they construct an architecture to come up with something that lays out the framework for disbursing that aid, we probably won't have a litigation problem. The more likely scenario is that the money is provided to Boeing and a couple of others, and then they'll be in charge of letting that cash trickle down. Some suppliers will feel aggrieved. What do you do in the case where a vital Boeing supplier is based in France? Then you get people screaming that US funds are going abroad. In global businesses, will we be matched by a similar European program—so does this become a back door to subsidization? So let's make it targeted, equity should not be allowed. I absolutely believe that government help is justified...for the supply chain. But how do you distribute it and how does Boeing become the arbiter of that money? It's gonna be a real mess. JR: Where are you seeing points of stress or opportunity during this crisis? SH: I'd be looking for buying opportunities to strengthen my supply chain. Does it make sense for the government to give money to Boeing only to see that turn around; to spend $4.5 billion on a company with a market value of $1.2 billion? Is that deal in jeopardy? JR: Any final closing comments?  SH: Everything we've said in the last half hour will probably be out of date in five minutes (laughter).
The LFJ Podcast
Hosted By Justin Kuczmarski |
In this episode, we sit down with Justin Kuczmarski of NAV Valuation and Advisory. Justin discusses the value-add that an independent auditor and valuation expert provides, why litigation funders shouldn't necessarily rely on the plaintiff firm's valuation, and what quantitative and qualitative metrics he uses when determining a claim's valuation. [podcast_episode episode="5153" content="title,player,details"]
Commercial

Insiders Are Buying Shares at Burford Capital. What Does That Indicate?

It's no secret that insiders will buy up shares of companies they anticipate will outperform. It's also no secret that the economic havoc being wreaked on the global economy by COVID-19 is bound to have legal (and litigation funding) repercussions. Could Burford's insider share purchases foretell positive times ahead for the world's largest litigation funder?  According to Simply Wall St, Jonathan Molot, CIO of Burford, bought nearly GBP 3MM in shares.  He also bought them for well over the current price. While it's not advisable to buy shares based solely on what insiders are doing—it makes sense to think Burford is a great investment when an informed insider (the term insider here referring to someone who reports their stock transactions to regulators) makes a purchase of that size. Meanwhile, no Burford insiders were known to sell shares last year.  But does insider share buying at Burford align with that at other companies? Insiders own less than 10% of Burford shares, which is nowhere near as high as some other publicly-traded firms. Yet given the fact that insiders have made large investments above current pricing, it seems safe to say that Burford insiders are predicting a stock price increase.