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Commercial

NZ Class Action Secures Funding in Mountain View Case

Residents of Mountain View complex in Mt Wellington, Auckland, are fed up. After a 10-year battle to get the owners to fix rampant leaks, a class action suit is being brought against building consultant Maynard Marks. Stuff explains that the 99-unit apartment complex is currently the largest claimant of the country’s leaky home assistance. They’ve been provided with over $41 million to fix the damages. Various inspections showed leaky cladding and roofs, issues with passive fire systems, and even balconies. Still, Mountain View was certified as being in compliance with existing codes. One man, Paul Running, bought a flat in 2007, but couldn’t live there due to the need for extensive repairs. He intended to rent out the place after repairs were done, but the repair work has been consistently shoddy and expensive. Now that repairs are finished, the corporate body is in conflict with the new owners of the construction company—with residents divided over the case against Maynard Marks. Leading the class action is Adina Thorn, who asserts that owners had paid roughly twice the value of their homes because of the shoddy repairs and unrealistic estimates. Marks suggested that repairs were a more cost-effective option than tearing down and rebuilding—a move that caused an initial $8.3 million estimate to surpass $41 million. The government program offered assistance to the tune of roughly 25% of the total costs—leaving residents stuck with the remainder of the bill. Court House Capital is backing the class action. The Australian litigation funder has not released details, but it’s expected that the funds will be used for experts and legal costs. This is yet another instance of ordinary people caught up in a situation beyond their control. Without the backing of Litigation Finance, the alleged victims would have no recourse to pursue justice. 
Commercial

Institutional Ownership at Burford Capital

There’s a lot you can learn about a Litigation Finance company by looking at at its investors. Insider investment is common in firms that are newer and smaller, while more established players boast large institutions as their major shareholders.   Yahoo Finance explains how this applies to a litigation funder like Burford Capital. Burford is a large funder with institutions as major backers—over 40% in fact. At the same time, the next smallest investor group is made up of ordinary citizens. This bodes well for Burford, since it implies that the company has earned the trust and respect of regular folks, while still being attractive to institutional investors. But what happens if there is a change in how more than one institution views the company? That could spell big trouble for share prices. Burford’s recent short-selling attack is evidence that opinion can alter abruptly.  Burford’s insider investment is significant at nearly 10%. It’s good to have affirmation that those who work for the company also believe in it. One might say that number should climb even higher in the future. Over 6% of Burford Capital is owned by hedge funds. Some say this is potentially problematic. Hedge funds are sometimes known to put pressure on management to make changes, specifically to increase shareholder value. Should this conflict with what’s best for Burford’s clients, trust from the general public might erode—impacting a much larger portion of investors. Meanwhile, just over 5% of Burford shares are owned by private companies. In theory, the same issues could develop. While it doesn't comprise the entire picture, looking at investors can tell you a lot about a company.
Commercial Covid-19

COVID Brings Tech-Savvy In-House Lawyers to the Forefront

Innovation and adaptability are key factors in every business trying to stay afloat during the current pandemic. Many law firm were quick to send workers home while finding remote working solutions to stave off loss of business. But as soon as some issues were managed, others cropped up. For example, the need for cybersecurity was heightened almost immediately. Financial Times explains that savvy lawyers backed away from putting out proverbial fires and started seeking opportunities to reach out to their customers. They began by identifying issues and using creative problem-solving. Solutions included expanding the use of digital signatures for those who couldn’t go out to banks or meetings, and amping up anti-fraud protections to make distance working safer. Legal teams aren’t just innovating, they’re creating as well. WeChat has allowed the development of apps that facilitate digital transactions in bulk, and even allow for price haggling. Westpac, an Australian bank, developed a digital boot camp and training program to better help lawyers analyze and draw conclusions from data. The new reliance on technology and digital problem solving puts the traditional firm model on notice. With rare exceptions, partners with decades of legal experience will not be up-to-date on modern digital solutions. In fact, they may find themselves relying on younger, greener lawyers to help them navigate this new remote working landscape. How will that impact the way firms operate going forward? It’s easy to see COVID as a temporary disruption, even as the months pass us by. But the likelihood is that the changes being implemented now are likely to last. Staffers may continue to want to split time between home and office, while clients may prefer fewer in-person meetings. As security and safety improve, there’s more reason to rely on tech solutions for business concerns. It’s just a matter of finding a balance.
Commercial

Will the ABA’s Litigation Funding Guidelines Do More Harm Than Good?

This week, the ABA’s House of Delegates approved new best practices guidelines for litigation funders. The ABA’s inclusion of third-party funding in their guidelines is a necessary step, given the increasing popularity of the practice. Some say, however, that these new guidelines are not an accurate reflection of how Litigation Finance works.   Burford Capital details proposed revisions to the policy, which they claim will add clarity and context. Still, it’s important to keep in mind that ABA guidelines are merely that - a set of guidelines. They aren’t meant to be the basis for disciplining firms or individual attorneys. According to Burford, context should be added. It should be noted that third-party funding is widely accepted and endorsed by legal communities all over the world. Next, commercial litigation and consumer litigation should be addressed separately. It’s not logical to apply the same guidelines to two such different practices. The same applies to lawyer-directed funding versus that directed by the client. The ABA guidelines do begin by pointing out that these are separate practices with their own issues, yet they don’t seem to recognize common exceptions to this—such as what occurs when an entire portfolio of cases is funded. There’s also a suggestion that paragraphs should be devoted to the NYCBA Committee on Professional Ethics. This is a non-binding opinion from 2018, which was released without an opportunity for public comment. It has widely criticized by legal professionals, and is best left out of new guidelines. Finally, Burford suggests removing or editing any recommendations that do not practically serve clients or attorneys. In particular, amending the idea that funders having oversight of litigation is tantamount to undue influence.
Commercial

Taking a Look at Security for Costs

Over the last 10 years, provisional measures such as security for costs have been requested in progressively higher numbers. In fact, of all the provisional measures asked for, roughly 20% have included security for costs. These requests are rarely granted, however. As it stands, most courts feel that requests for security for costs can only be granted under unusual and specific circumstances.  Burford Capital explains that courts have determined that simply receiving third-party funding does not demonstrate a need for security for costs. That may be even more true now that it’s established that Litigation Finance isn’t just for those in financial peril. Funding is now commonplace, even among well-capitalized firms, since it provides financial flexibility and enables investments in growth. A case from 2019 sheds light on this, as a tribunal rejected a request by the Republic of Panama to secure costs in a funded claim. In their rejection, the tribunal questioned whether or not Panama even had the right to make such an ask. A survey conducted by the ICSID addressed compliance with cost awards, and found that most awards in favor of states were indeed paid. Of those that weren’t, the state tended not to enforce payment orders. The evidence suggests that security for costs requires that the filing party show need, timeliness, and unusual circumstances. In reality, though, many cases funded by third parties automatically request security for costs. Those applications are typically rejected. According to Burford’s 2019 Legal Finance Report, 67% of in-house counsel agree that litigation funding is a good way to reduce the impact of litigation costs. 72% see value in the practice of litigation funding overall. Where once third-party funding was a market of financial instability, it is now indicative of strategic planning and savvy money management.
Commercial Covid-19

What’s Causing the Rise in Trade Secret Litigation?

Intellectual property can become a valuable asset, especially during an economic downturn. That may be why new patent lawsuits have increased over 15% in recent months. Trade secret litigation is likely to follow—which may be encouraged by the overwhelming availability of third-party litigation funding. Therium details that the five most prominent patent litigation plaintiffs in 2020 are non-practicing. Many take this to mean that these companies are using their patent portfolios to finance their claims. When budgets are tight, patent and other types of IP litigation may be pursued, and meritorious claims that might otherwise be discarded can in fact see the light of day.  Experts suggest that several specific factors are driving the increase in trade secret actions. The Defend Trade Secrets Act, signed by President Obama in 2016, makes trade secret law more favorable to plaintiffs. The definition of ‘trade secrets’ has become broader in recent years, and some sizable awards have been issued as a result. Companies are also avoiding the patent process in favor of listing innovations as trade secrets instead. The shift to work-from-home and widespread employee furloughs may cause an increase in trade secret cases—simply because they make trade secret violations more likely. People who are out of work and desperate may be more likely to use an employer’s trade secrets for their own gain. Remote working can also lead to unsecure video chats, while important documents being left unsecured in communal work or living spaces, and a lack of proper encryption, can all lead to a loss of IP. Security overall is down during COVID, as the emphasis is placed on the safety of workers and slowing/negating virus transmission. Anyone pursuing a case involving trade secrets should move quickly. Urgency is of the essence, especially since the loss of IP can be lead to swift and crippling impacts. Trade secret litigation can lead to monetary damages or injunctive relief, either of which would be welcome during these uncertain times.
Consumer

How Did a $440K Law Firm Loan Balloon to $18MM?

Sean Callagy's law firm, Callagy Law, has been involved in several contentious lawsuits in recent months, in part due to defaulting on loans from Legal Capital Group. The LCG agreement was made with George Prussin, an old friend of Callagy. Their friendship fell apart after several professional differences that became litigious. Legal Newsline reports that Callagy borrowed nearly $600,000 to pursue routine medical malpractice claims, and other cases. One case in particular descended into legal chaos when Callagy sued his co-counsel. Another case involved international litigation for the proceeds of the lawsuit in a 2006 plane crash that killed more than a hundred people. That case was the stuff of tabloid news—also involving a Mexican firm owned by a non-lawyer, legal legend Benton Musselwhite, and the IRS. Callagy now claims he owes $18MM to LCG, with an effective interest rate of 90% per year. LCG has taken legal action against Callagy.  While regulations regarding litigation funding can vary from state-to-state, on the federal level, funding is treated differently than loans. The main difference is that funding is non-recourse, and therefore only repaid when the case yields a payout.
Announcements Commercial

District Court in Poznań Grants Third Injunction against Mariusz Świtalski to Secure Forteam Investments’ Claims

WARSAW, Poland, August 5, 2020 -- Forteam Investments Ltd., an investment company controlled by U.S. private equity firm Delta Capital Partners Management LLC (“Delta”), which is seeking over PLN 300 million from Mariusz Świtalski and companies he controls, has secured a third court injunction.

The District Court in Poznań granted the injunction against Druga-Sowiniec Capital sp. z o.o. S.K.A., a company controlled by Mariusz Świtalski, and Krzysztof Belcarz.

The injunction secured by Forteam concerns a claim that seeks to declare as invalid agreements to sell stakes in Czerwona Torebka S.A. (24,758,600 and 9,707,588 shares, respectively), executed in March 2020 between Świtalski FIZ and the entities facing this injunction.

Under the injunction, Forteam has secured another Czerwona Torebka shares. In total, by force of the first (granted in February 2020) and third injunction, 48.44% of the Czerwona Torebka shares have been secured. Currently, 35.5% of the Czerwona Torebka's shares have been already seized by a bailiff, while the procedure is on-going for the remaining 12,94% of shares.

Christopher DeLise, CEO of Delta, said, “We will make full use of the latest injunction issued by the court that enables us to participate in the oversight of Czerwona Torebka. We have already begun such involvement by exercising our rights to safeguard the interests of the shareholders and to protect the company’s commercial interests and assets.This includes an extensive review of the price, trading volume, and history of Czerwona Torebka’s securities. We also intend to exercise our rights to meet with and hold fully accountable the Management Board and to obtain all essential information and detailed plans concerning the company’s future. We also intend to express our concerns regarding the way the company appears to be mismanaged for the benefit of certain parties rather than as required by law and consistent with the fiduciary duties of the Board”

The transactions between Świtalski FIZ, Druga-Sowiniec Capital and Krzysztof Belcarz took place in March 2020 after the District Court in Poznań’s February 21, 2020 decision that granted Forteam an injunction against Mariusz Świtalski and companies from Sowiniec Group under his controls (with the exception of Druga-Sowiniec).

As a result of that ruling, Mariusz Świtalski’s assets are frozen until the case is concluded. These share sale transactions illustrate Mariusz Świtalski’s attempts to sell and conceal his assets to make it more difficult for Forteam to satisfy its claims.

This newest injunction is yet another positive court ruling for Forteam, following the court’s June 25, 2020 dismissal of an appeal lodged by Mariusz Świtalski on February 21, 2020. Moreover, Mariusz Świtalski previously failed in his attempt to exclude all judges working at Poznań-based courts from all cases between him and Forteam.

At the end of April 2020, the court, in connection with potential detriment being suffered by Forteam as a creditor, decided to secure Forteam’s claims on parts of the assets of Mariusz Światalski’s children: Mikołaj, Marcin, Mateusz (President of the Management Board at Czerwona Torebka S.A.) and Natasza (Proxy at Czerwona Torebka S.A.). The court’s decision concerns investment certificates in fund Świtalski FIZ, which Mariusz Świtalski had transferred to his children.

All three injunctions were obtained in anticipation of a conclusion in a civil proceeding against Mariusz Świtalski that relates to his breach of a guarantee agreement executed with Forteam Investments in 2015.

Reminder: On May 8, 2015, Forteam purchased a 100% stake in Małpka S.A. from Czerwona Torebka. Małpka was the owner of the Małpka Express chain. In settling the transaction, Forteam sold its stake (16.18%) in Czerwona Torebka. Upon signing the sale agreement, the parties were aware of Małpka’s difficult situation. The agreement, itself, noted that the parties realize that further considerable financing would be needed for the company to reach the break-even point.

Because of this, Mariusz Świtalski and Sowiniec Group also executed a Guarantee Agreement with Forteam, which provided Forteam with a guaranteed return on the Małpka investment if the Małpka Express store chain was later sold to a third party. Mariusz Świtalski submitted a written declaration that his personal assets were sufficient to perform the Guarantee Agreement.

When Forteam attempted to sell Małpka Express in 2018, it was unable to obtain consideration at or above the minimum sale price, despite engaging a respected independent investment bank to run a robust sales process. Mariusz Świtalski has not exercised his preemptive rights and did not buy Małpka for the guaranteed amount.

Accordingly, Forteam notified Świtalski on December 28, 2018, of his obligations to remit the monies owed to Forteam pursuant to the Guarantee Agreement. Notwithstanding, Świtalski and the companies have failed to pay any amounts due and owed to Forteam, which, in turn, necessitated the filing of the injunction and civil lawsuits. As a result of Mariusz Świtalski’s actions, Forteam was forced to take additional steps to secure part of his children's property and other entities to which Świtalski transferred owned assets.

Krzysztof Belcarz has been affiliated with Mariusz Świtalski's various businesses for years. In the course of his career, he has served as Development Director at Świtalski FIZ, Management Board Representative for Commercial Affairs in Czerwona Torebka and Expansion Partner at Świtalski & Synowie S.A.

Announcements Consumer

KBRA Assigns Preliminary Rating to TVEST 2020A, LLC Note

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a preliminary rating to one class of notes from TVEST 2020A, LLC, a $123 million securitization collateralized by litigation finance and medical receivables serviced by Experity Ventures LLC (“Experity”). The TVEST 2020A, LLC notes (“Notes”) represents Experity’s first ABS securitization collateralized by litigation finance and medical receivables. Experity, formed in April, 2019, is the parent company of the various receivable originators including Thrivest Legal Funding LLC (“Thrivest”), a direct to market pre-settlement legal funding company with a history of originations dating back to 2009 and ProMed Capital Venture LLC (“ProMed”), a recently acquired leading medical lien funding company that has been originating since 2017. Experity is also the parent of four other litigation finance receivable originators that were formed in connection with strategic financing and operational partnerships with third parties. The portfolio securing the transaction has an aggregate discounted receivable balance (“ADPB”), including assumed prefunding, of approximately $160 million as of the May 31, 2020 cutoff date. The ADPB is the aggregate discounted cash flows of the collections associated with the TVEST 2020A, LLC portfolio’s litigation funding receivables (“Litigation Receivables”) and medical receivables (“Medical Receivables” and, collectively, “Receivables”). The discount rate used to calculate the ADPB is a percentage equal to the sum of the assumed interest rate on the Notes, the servicing fee rate of 1.00%, and an additional 0.10%. As of the cutoff date, Medical Receivables comprise 83.20% of the portfolio by count and 67.44% by advance amount and have an average advance to expected settlement case value (“Expected Case Worth Ratio”) of 22.06%. Litigation Receivables comprise the remaining 16.80% of the portfolio by count and 32.56% by advance amount and have and Expected Case Worth Ratio of 8.77%. The Notes benefit from credit enhancement in the form of overcollateralization, a cash reserve account and a capitalized interest account. The transaction also features a $20 million prefunding account that may be used to purchase additional Receivables during the three months after closing, subject to certain eligibility criteria. Click here to view the report. To access ratings and relevant documents, click here Disclosures Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above. A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here. Information on the meaning of each rating category can be located here. Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com. About KBRA KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.