At the recent General Counsel Forum on Litigation Finance, both funders and lawyers came together to discuss a variety of topics facing the industry. One of those is defense-side funding. What are the options for defense funding? How can defense cases be monetized? Is this really even a thing? The answer to that last question is a resounding 'yes.' Defense-side funding is most definitely a thing - though not as straightforward a thing as plaintiff-side funding. Monetization is clearly an issue for defense funding. A successful defense of a claim often results in a lack of monetization - that is to say, the party wins the case and doesn't pay out a dime. So what incentive is there for funders to take part? Well, there are several creative workarounds here. One option is for a funder to take a percentage of an asset over a select portion of its lifetime. For example, should a funder finance a defense-side IP claim, the funder may accept a percentage of the IP over a certain number of years, or up to a certain clawback benchmark. Additionally, one other (even more creative) option is to redefine what constitutes a 'successful' defense. A firm being sued for $1B, for example, may feel that a $200MM settlement or court award would constitute a success. A funder could finance the claim and take a portion of anything under that 'successful' threshold. In this scenario, there would have to be controls in place to ensure that the client isn't incentivized to take a higher settlement offer, simply in order to avoid paying out the funder's fee capture. Although the most traditional means of defense-side funding remains bundling them into a portfolio of cases. As Reed Oslan of Kirkland & Ellis mentioned, "The only effective way we've found (for defense-side funding) is to pair defense-side with plaintiff-side." Michael German of Vannin Capital was quick to point out that "it's a stretch to call lumping defense and plaintiff-side cases together 'defense funding.' Defense funding is a narrow universe, as there are only a narrow set of cases that can be funded." German may be correct, but that doesn't mean that defense-side funding isn't getting done. Oslan explained that his firm (Kirkland & Ellis) has told clients to give them $50MM of defense work in exchange for $25MM of fees. So the client is saving $25MM off the bat. In return, Kirkland gets a steady stream of plaintiff-side work which they perform on a 100% contingency basis. So it's a win-win for both the firm and the client. The fact that law firms are utilizing alternative fee structures such as this should buoy the hopes of funders looking to get in on the defense funding game. Defense-side funding may take some creativity to get off the ground, but it is certainly a viable tool in every funder's arsenal.

PHOENIX, May 10, 2019 /PRNewswire/ -- Pravati Capital, a leading litigation finance and law firm consulting company, announced today it has named Adam C. Tubbs as Director of Business Development for the Company's New York City office.

Mr. Tubbs joins Pravati Capital from Skadden, Arps, Slate, Meagher & Flom (Skadden), where he was a litigator in the firm's New York office for 10 years. While at Skadden, Mr. Tubbs specialized primarily in mass torts, products liability, class actions, multi-district litigations, and e-discovery, representing Fortune 500 companies in state and federal court.

In his new role, Mr. Tubbs will be responsible for leading the growth and expansion of Pravati Capital's New York office, and working with law firms and corporate clients to evaluate and manage legal risk for potential investments in large, complex legal matters. He will report directly to Alexander Chucri, Chief Executive Officer of Pravati Capital.

"We are extremely pleased to have Adam join us to build our brand and lead our growth initiatives in the important New York market," commented Mr. Chucri. "Adam brings extensive experience and insight as a litigator, as well as deep relationships with major New York law firms and in-house general counsels. He immediately gives us a strong advocate to educate the legal community on the significant benefits of litigation finance - from growth opportunities, to risk management, to increased success rates on recoveries and settlements."

"This is an exciting time for Pravati Capital, as litigation finance continues to gain traction across the legal industry as a competitive business resource," said Adam Tubbs. "Pravati Capital's collaborative team, disciplined underwriting process, and 16 years of experience with all types of litigation enables us to create financing strategies that minimize risk and maximize impact for both law firms and corporations on the most complex matters. I look forward to being part of a dedicated team that is helping to educate and bring positive change to the business of law."

Pravati Capital's primary business is commercial litigation finance, which focuses on providing capital to support both law firms and corporations pursuing high merit cases. Through its law firm consulting group, Pravati Management Group, the company works with law firms to access, deploy, and manage growth capital for partner and practice acquisition and build a scalable financial infrastructure to drive growth.

Adam C. Tubbs, Director of Business Development

Adam Tubbs spent a decade as a litigator in the New York office of Skadden, Arps, Slate, Meagher & Flom before joining Pravati Capital. Mr. Tubbs' tenure at Skadden involved managing all phases of litigation – from discovery through trial and appeals – for high profile and complex cases on behalf of the world's largest companies in class actions, multi-district litigations, and individual actions. He has also dedicated a significant portion of his practice to pro bono work on behalf of indigent clients, receiving the New York City Bar Association's Jeremy G. Epstein Award for outstanding pro bono service in 2013.

The class action against the New South Wales Department of Defense, alleging contamination of the chemical PFAS which originated at a nearby Air Force base, has been delayed until next year. IMF Bentham is funding the Shine Lawyers-led claim. As reported by ABC News, the action was supposed to commence in August of this year, with Justice Jagot presiding. However the justice can no longer hear the case, and Justice Lee has taken over in his stead. Justice Lee vacated the trial date for a new one next year, as yet undetermined. The underlying case involves thousands of claimants who allege that a chemical leak at an Air Force based damaged their land and property. A trio of townships are involved in the claim, which is being funded by IMF Bentham and led by Shine lawyers. The Department of Defense has earmarked $50MM to fight the class actions. Meanwhile, angry residents await recompense, and the case is locked up for at least an extra four months longer than originally planned. Since no trial date has been set, there's no telling how long the claimants - along with Shine and IMF - will have to wait for their day in court.

At last week's General Counsel Forum on Litigation Finance, several panel discussions covered a broad array of industry topics. In his opening remarks, co-chair Scott Mozarsky of Vannin Capital promised a diverse set of opinions on the industry - including from those who are skeptical (to put it mildly) of the benefits the industry poses to the broader Legal Services market. The first panel of the day failed to disappoint. The subject was the in-house question: what are the benefits of funding for in-house counsel? After stating the obvious - that costs are skyrocketing and there is downward pressure on legal spend budgets - the panel diverged from a discussion of benefits into one of risk assessment. In the end, panelists highlighted the potential pitfalls of funding from both a private practice and in-house perspective. Matt Atlas of Vannin Capital chaired the panel, which included a diverse cross-section of industry participants: John Salomon, Managing Member of Winchester Consulting Group, Charles Schmerler, Partner at Norton Rose Fulbright, and Linda Zabriskie, VP and Associate General Counsel at Take-Two Interactive Software, a video game developer. And by 'diverse' I don't just mean career-wise; the panel held a contradictory viewpoint on the industry relative to what one would traditionally find at a conference aimed at the funding community. Schmerler illustrated this at the outset by posing the risks associated with funding. He pointed out that just in the past few days, a funding agreement was nullified by the 6th Circuit Court in Kentucky. And even though the 3rd Circuit overturned the nullification of funding agreements in the NFL Concussion Case, the specific language used in the decision left the door open for industry opponents to continue to challenge the validity of the funding agreements in question. These rulings, Schmerler argued, pose a fundamental risk for any corporation who engages with a litigation funder. For even if the case is successful, the funding agreement itself may be voided by the court; a ruling which would then spark a lengthy appeals process, which could in turn delay any settlement or court award payout. Zabriskie added to Schmerler's concern by pointing out there is a concern from in-house counsel regarding issues such as privilege, as well as deeper ethical concerns. "Will conversations with funders come to light in a discovery motion?" she asked. This was a chief concern of her team, given that she once discovered both the existence of a funder and the conversations which took place between plaintiff and funder in a case where Take-Two Interactive was a defendant, after a discovery motion was filed and that information was not deemed privileged. The information discovered "made a difference in the outcome of the case," according to Zabriskie (although not in their case strategy going forward). Additionally, Zabriskie posited another chief concern: "Will plaintiffs counsel use a funder as a way to make an hourly fee for the next two years?" In other words, what is the possibility that your law firm essentially turns into a broker, only bringing the case and delivering motion after motion because the whole thing fully-funded, not because the chances of winning are particularly stellar? When questioned by Atlas as to whether that tension exists anyway, regardless of the presence of a funder, Zabriskie affirmed that indeed it does, "But funding can amplify that risk." Given that her team deals heavily with IP claims, which are already quite time-consuming and costly, Zabriskie is extra sensitive to any potential issue that might elongate a case. Zabriskie also pointed out that there exists a cultural reticence in the Gaming industry towards bringing IP litigation against other players in the space. It is a small world, after all, and the company wants to focus on its core strategy of developing games, not targeting competitors with litigation. That said, there will always be a need for funding in any industry - Gaming included - by small players in the space, thanks to high cost of litigation. After all, the David v. Goliath context is how litigation funding first gained shape, and even though the industry has since broadened its horizons, the need for funding by the David's of the world remains a structural foundation within any industry. Schmerler then capped off the discussion of risk assessment by highlighting the issue of control. He worries that funders may include restrictions in the funding agreement, whereby if a funded party rejects a reasonable settlement offer, the funder has rights to terminate the agreement. Of course, what is considered 'reasonable' may be up for debate. Schmerler argues that if funders experience a pattern of what they deem to be non-cooperation from their client, they may exit the case. He further posited that if a lawyer were to accept $10MM in funding, "Are you really going to tell the funder you're not going to do what they want?" The question weighed heavy as the panel came to a close. One of the points of this panel - indeed of the entire event - was to expose both funders and industry participants to all sides of the funding coin: the good, the bad, and the downright ugly. It's not like funders haven't already heard and deliberated on these concerns, so discussing them openly and forthrightly with industry skeptics can only be a wonderful thing as the sector matures. The first panel certainly succeeded in illustrating some critical concerns of both private practice and in-house lawyers in regard to litigation funding. Stay tuned for further coverage of the event, including panels on defense funding and the industry's utilization of AI / Legal Tech.

The Abu Dhabi Global Market Courts (ADGM) has released its Litigation Funding Rules, which explain the requirements a funder must meet in order to be officially recognized by the UAE government. As reported in Mondaq, Abu Dhabi - like Dubai - is cozying up to third party funding as a means of jumpstarting its status as a regional arbitration center. In order for entities to qualify as third party funders in Abu Dhabi, they must have at least $5MM of capital and regularly engage in third party funding (of either litigation or arbitration). Law firms and lawyers are prohibited from owning any part of a funder that is funding their client's case, and funding agreements must not include any terms that might induce a law firm or lawyer to violate the ADGM's professional code of conduct. Several other provisions mandate that funders not move to discover privileged information between attorney and client, and that funders include all termination clauses in the contract. Litigation funding is still in its embryonic phase in the UAE, so it is unclear how a court will react to any challenge of a third party funding document. That said, the ADGMs release of its Litigation Funding Rules goes a long way to assuage any concerns that courts might set aside a funded case's settlement on the grounds that third party funding is in conflict with the UAE's code of conduct.

Cleveland-based law firm McDonald Hopkins is starting its own litigation funding division, with ex-Longford director Marc Carmel leading the charge. According to Crain's, the law firm is one of the first in America to open a litigation funding arm. UK law firm Rosenblatt announced during its 2018 IPO that it would dip its toe into the litigation funding waters, and has already begun to finance several cases. Should the model prove successful, expect a deluge of law firms to enter the funding fray. Carmel - who served as a bankruptcy attorney with Kirkland & Ellis and Paul Hastings prior to his Longford tenure - said investors will look to capture at least a 100% per year return on their investment, over what will optimally be a 2-3 year lifecycle of the investment. It is so far unclear how much capital McDonald Hopkins will allocate to litigation funding, and what types of cases they will pursue. Given Carmel's pedigree, we can surmise that insolvency claims are at the front of the line.

On Wednesday, May 1st, funders, lawyers and in-house counsel gathered to discuss litigation funding at Momentum Events' inaugural General Counsel Forum on Litigation Finance. The event featured a diverse array of panelists and topics covered. We'll be reporting on those separately in future articles. For this first installment, we'll be profiling the opening remarks from co-chairs Scott Mozarsky of Vannin Capital, and Ralph Sutton of Validity Finance. Mozarsky kicked off the event by asking why another industry event like this one is needed. His answer was that this event aimed to be different: rather than just a conversation between funders and lawyers, Momentum aimed to bring in-house counsel into the mix. To wit, Mozarsky then explained why funding should be attractive to in-house counsel. Apart from the obvious and oft-repeated mantra of helping remove legal spend from the books and freeing up working capital, Mozarsky highlighted the shift in strategic thinking that takes place when an in-house department transitions from a cost center to a revenue generator. "In-house groups are perceived to be service groups," said Mozarsky. "They're the keepers of 'no'; the ones who say 'you can't do it.'" Mozarsky was referring to the fact that often an in-house counsel's job is to tell other departments they can't pursue certain actions, as they might pose a legal threat to the company. "Legal finance enables in-house groups to be strategic; to be positive." According to Mozarsky, that psychological transition from "the keepers of 'no'" to a positive force within the company (via revenue generation from monetizing legal claims) is one which in-house counsel should cherish and cultivate. Funders offer in-house the opportunity to be a positive, proactive force within the company - and there's more to that notion that just P&L; funding enables in-house to think strategically, as opposed to strictly on the basis of risk assessment. With that, Mozarsky handed the microphone off to Ralph Sutton of Validity Finance. Sutton began by highlighting the need for greater collaboration amongst industry professionals, stating rather bluntly, "I don't think funding is well-developed yet." That development will come as a result of increased collaboration between industry participants and experts. Sutton likened the evolution of the legal finance industry to the nine innings of a baseball game ("legal finance" seems to be the term du jour for the industry. We still use 'litigation finance' and 'litigation funding,' even though arbitration funding is included in the terminology).  According to Sutton, the first three innings of the industry's existence were predicated on the 'David vs. Goliath' mantra. That is how the industry rose to prominence. The next three innings are best illustrated by the rise of portfolio funding, which signals the industry's establishment as a long-term partner of both law firms and corporations. The final three innings, according to Sutton, can be represented by a brand new mantra: "Goliath vs. Goliath." Essentially, Sutton sees the industry evolving into a tool that is wielded not just by the David's of the world - those being the small companies looking for access to justice - but also by the Goliaths - large companies who are pursuing litigation or arbitration against other large companies. When Goliath takes on Goliath, and both Goliath's are packing litigation funding in their scabbards, that's when you'll know the industry has officially matured. Sutton predicted that mainstream in-house adoption of litigation funding is a good 3-5 years away. "That conversation," Sutton said, "is starting today." Sutton finished off his introductory remarks by revisiting a handful of predictions he made six months ago. In late November, Sutton issued five predictions for the funding industry in 2019. He wanted to candidly review those predictions to see which have come true, which are on the way to coming true, and which were simply wrong and need to be retracted. The first prediction was that more players would enter the market. As Sutton himself said, "you didn't need a crystal ball to see that coming." Obviously, as more capital enters the space, so too will more industry players. Prediction #1 was an easy lay-up for Sutton which proved correct. Prediction #2, however, was more forward-looking. Sutton predicted that we would begin to see "the green shoots of defense funding." That hasn't quite happened yet. As Sutton himself admits, "our products are not ready for that." Sutton opined that events such as this conference are an opportunity for the industry to learn and grow, and help mold products such as defense-side funding into a service that is highly-responsive to the needs of clients. Prediction #3 was that there wouldn't be a federal rule requiring disclosure as an amendment to the Federal rules of Civil Procedure. "It's a bit early to say," Sutton mused, "but I'm standing by that." Prediction #4 Sutton readily admitted he is retracting. That is the notion that the industry will self-regulate. Sutton now believes the industry is not suited for self-regulation, and any regulatory measures are likely to come from external forces (the courts or the legislature). Prediction #5 was that the NYC Bar would revisit (or possibly even fully retract) its controversial opinion that litigation funding violates Rule 5.4a, which prohibits fee-sharing between lawyers and non-lawyers. That hasn't happened yet, but Sutton stands by his assertion that the opinion has no teeth, and remains far from the existential threat many felt was posed to the industry in the direct aftermath of the opinion's release. Sutton did end with an interesting observation about the current state of the industry: that there is too much capital putting downward pressure on funding terms. He sees the emergence of large hedge funds as having a meaningful impact on the upper end of the market, increasing volatility and the likelihood of a bidding war for claims. Sutton views the industry fragmenting along claim size: with one sphere being the $2MM-$15MM claim size market (by 'claim size' we mean the size of the investment into the claim), which is where Validity currently operates. The larger claim size market, according to Sutton, is where the impact of new entrants such as hedge funds and large family offices will be felt most. Yet another bold prediction from Sutton - it will certainly be interesting to see how this one pans out.