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A Prognosis for Civil Litigation in the U.S.

The following piece was contributed by Eric Blinderman, Chief Executive Officer (U.S.) at Therium Capital Management. This piece was originally published on Mr. Blinderman's LinkedIn page.  To learn more about Therium and their U.S. operations, visit them at their website Approximately two weeks ago, the world as we know it changed. Every assumption that governed our daily lives was uprooted. Grabbing a bite to eat with friends stopped. For most, commuting to work ceased. Touching an elevator button became tinged with the fear of contracting an unknown disease. Riding a subway and hearing the person next to you cough caused panic. Stock markets collapsed and businesses across the country simply shut their doors, laying off millions. Courts shut down.
Those who were merely frightened but kept their jobs were the lucky ones. The unlucky ones lost their jobs, or worse, were infected with this mysterious disease called COVID-19 and began an unthinkable journey from which many have recovered but others have not. In spite of these upheavals, businesses are attempting to adapt. Those with jobs are continuing to perform their duties, albeit in large part from home. And life continues. Making sense of these changes and their impact remains challenging but is also important so that people can plan, take steps to minimize harm, and protect themselves and their livelihoods from continued disruption to the extent possible. That is where we are today. But it may help to keep in mind, as California Governor Gavin Newsom has said, that this pandemic occupies only a moment in time. At some point, we will come out the other side. For those who find solace in contemplating that future, here is our prognosis for the short-and longer-term effects of COVID-19 on litigants, law firms, and the litigation finance industry.

Litigants

In the short term: Already, the coronavirus outbreak has given rise to lawsuits tied directly to the disease or to the economic disruptions that have followed. Restaurants and other business simply seeking to survive have filed suit against their insurers to recover some portion of their losses. Class action lawyers have filed suit against Norwegian Cruise lines which allegedly told sales reps to lie about passengers’ risk of contracting the virus. Investors have also sued a biotech company for claiming it could develop a COVID-19 vaccine in three hours, while other class action lawyers have filed suit against Germ X, which made advertising claims that its hand sanitizer protected against coronavirus. These claims represent the smallest fraction of suits that will likely get filed and which lawyers will litigate for years to come. Beyond this immediate burst of litigation, the judicial system needs to begin functioning anew. At present, dozens of federal courts throughout the country are closed or have delayed trials while approximately 30 state court systems and the District of Columbia have followed suit. Indeed, the Supreme Court postponed oral arguments on more than a dozen cases for the first time since the 1918 Spanish flu pandemic. Once the judicial system restarts (and it will), the new normal of how lawyers and clients litigate will change at least for the short term to medium term. Already, courts, arbitration tribunals, and mediators are requesting that litigants refrain from attending in-person hearings or trials in favor of video proceedings. Ignoring the ramification of these closures on the criminal justice system for a moment and focusing on civil litigation, every practitioner has to ask whether such alterations in how the practice of law is conducted will become regularized and how such disruptions might impact the cases they are presently prosecuting. In the longer term: When COVID-19 reached America, half a trillion dollars in M&A deals were waiting to close. All of those deals are now imperiled, with buyers as deep-pocketed as Volkswagen (which had inked a deal for U.S. truck maker Navistar) expressing reservations about going through with them. It appears a near certainty that a massive wave of disputes over the duty to consummate these deals and perform other contracts will occupy the courts for years. Fewer than 10% of force majeure clauses contain a carve out for pandemics, leaving ample room for argument over that doctrine, as well as defenses like impossibility, impracticability, and frustration of purpose. Conventional wisdom holds that economic slowdowns are accompanied by a compensating increase in litigation, which smooths out the economic ride for those connected to the legal profession. These contractual disputes could bear that wisdom out. But they aren’t likely to if courts remain closed for an extended period. Also, while remaining humble about my ability to predict the future, I will point to this unfortunately prescient piece about the impact of a recession on BigLaw, which I wrote in late December. There, I discussed that conventional wisdom did not hold in the Great Recession; demand for litigation was down in 2008, 2009, and 2010. The most likely reason was fear: “As corporate resources become more precious in a recession, general counsel may have been spooked by the thought of spending them on cases – even strong and valuable ones – only to lose.”

Law firm litigation departments

Short term: At the moment, law firms do not have the luxury of thinking far into the future. They are busy staying operational in our current, locked-down state. With so many lawyers and staff working from home, multiple AmLaw 50 firms have experienced network capacity issues. Normally, the impact of slowing economic activity takes time to hit law firms, but this situation appears different. While law firm mergers did not fall off in 2008 or 2009, for instance, the current disruption to the M&A market appears to have hit firms with full force. The merger between Troutman Sanders and Pepper Hamilton, for instance, has been delayed to July 1. Longer term: The expected boom in contractual disputes may provide a cushion of sorts for litigation-focused law firms. But most litigation departments, particularly at AmLaw200 firms, are sitting in a life raft with any number of other practice groups, some of which could get heavy in a recession or depression. This experience will prove a stiff test of how well law firms learned the lessons of the Great Recession. Many responded by diversifying their practice mix and improving their balance sheets. Already, however, law firms are asking banks for credit line increases at a rate six times higher than this time last year. That’s a warning sign that law firms, like their clients, are experiencing cashflow challenges. The biggest outgoing flow, of course, is compensation. Law firms had just begun to loosen the spigot a bit, with promotions increasing 20% between 2018 and 2019. Now, it seems clear that if and when COVID-19 impacts stretch into their fourth, fifth, and sixth month—if not sooner—layoffs will occur and firms that do not maintain strong balance sheets will not survive 

Litigation funding

Short term: For corporate plaintiffs and law firms with claims to prosecute and who are facing immediate and pressing cash flow needs, litigation finance offers a potential to relieve at least some degree of uncertainty. That’s not to say that litigation finance will emerge from the pandemic as the answer to every problem. To this point, investors have been attracted to litigation finance in part because its returns are not correlated to the broader economic cycle. The value of a products liability case, after all, does not depend on what happened to the Dow last week. We’re realizing now, however, that there is a limit on that lack of correlation. The disruption from COVID-19 is so severe—shuttering courts, stopping trials—that it is pausing returns on lawsuits as it pauses the rest of the economy. Longer term: The legal industry has been incorporating novel ways to manage risk while seeking to redefine the billable hour business model for decades. Without doubt, the economic impact of recent events will likely accelerate this shift and provide litigation finance companies an opportunity to partner more robustly in this process with law firms and corporate entities large and small. For example, large firms that had to lay off attorneys may consider litigation funding as a way to further diversify their workload and keep cashflow coming to stave off additional cuts in the future. Similarly, attorneys lacking the security of a big law job and failing to qualify for conventional recourse capital will likely turn to litigation finance companies to seed their practices and to develop entirely new firms. Equally as important, larger corporate entities may begin to see the value of entering into more long-term dedicated facility arrangements with litigation finance companies as a hedge against lean economic times while small mom and pop business rely upon such arrangements to free up cash flow for recovery, growth, and expansion. Ultimately, this is all speculation. COVID-19 has already laughed at the plans many of us had for this year. We know only this: that the virus will pass, and that until then, we very much look forward to the day when lawsuits are our biggest concerns.

Delta Capital Partners Management Announces New Senior Executive

April 6, 2020, Chicago IL--Delta Capital Partners Management LLC, a global private equity firm specializing in litigation and legal finance, today announced the hiring of a new senior executive. Gabriel Olearnik has been hired as a Managing Director to lead Delta’s business in Europe and is based in London and Warsaw. Prior to joining Delta, Mr. Olearnik was the General Counsel of a major private equity firm in London and was previously a Partner and Chair of the Private Equity Practice Group at Kochanski & Partners, a leading independent European law firm. Prior to these roles, Mr. Olearnik was an attorney at Dentons, Mayer Brown, and Clifford Chance in London and Continental Europe. Christopher DeLise, Delta’s Founder, CEO and CO-CIO, stated, “Delta continues to meet key business objectives for 2020 by hiring top-tier professionals and building out our geographic footprint. These developments continue to strengthen Delta’s business and competitive advantages in key markets. The hiring of Gabriel Olearnik materially enhances our capabilities across Europe and demonstrates our ongoing commitment to providing unparalleled service to claimants, law firms, professional service providers, and other end-users of litigation and legal finance in those important regions. We are pleased to have someone with Gabriel’s talent and experience joining Delta’s senior management team.” Mr. Olearnik is joining Delta at a very important time as the firm continues to expand to meet the growing liquidity and other financing needs of law firms, businesses, private investment funds, and individual claimants affected by recent macroeconomic developments, including those resulting from the COVID-19 pandemic. Demand for Delta’s proprietary liquidity solutions (DLS) has skyrocketed over the past month, including those involving litigation-collateralized loans (LCLs), term loans and draw-down facilities. About Delta Delta Capital Partners Management LLC is a US-based global private equity firm specializing in litigation and legal finance, judgment enforcement, asset recovery, and related strategies serving claimants, businesses, private investment funds, law firm and other professional service firms across the world. The firm provides capital and expertise that enables such parties to de-risk, significantly enhance the probability of a successful and timely resolution of claims, and/or maximize the effectiveness of their businesses.

James Foster joins Litigation Capital Management (LCM) in London

AIM-listed Litigation Capital Management Limited, a leading international provider of litigation financing solutions, is pleased to announce the hire of seasoned disputes practitioner and third-party finance expert James Foster as an Investment Manager based in London. James brings to LCM more than 25 years of experience of litigation and dispute resolution in the building and construction sector and has been involved in some of the world’s most challenging construction projects in major commercial hubs such as Dubai, Hong Kong, Saudi Arabia and Vietnam. Before transitioning to litigation finance, James was a partner of the international law firm Gowling WLG and has more recently held the title of head of international arbitration with a London-based litigation funder. Commenting on James’ hire, LCM’s Executive Vice Chairman Nick Rowles-Davies said: “James has a formidable reputation in the market and having known him for several years, I am delighted to welcome him at such an exciting time of expansion for LCM, which includes our recent close of a new US$150m third-party fund.” Chief Executive Officer Patrick Moloney adds: “The hire of James presents a significant opportunity for LCM in relation to single-case funding, but, more particularly, as a valuable asset in considering corporate portfolio applications. Presently, LCM is receiving a large volume of applications for corporate portfolios from the global building and construction sector and James brings a particular skillset to LCM which will assist us greatly in considering those applications.” James Foster commented: “I am delighted to be joining LCM at such an exciting point in its growth and development. I know the LCM team both from my time in private practice and from their outstanding individual reputations in the market and so I am very pleased to be part of that team going forward. LCM’s international and sector focuses are a strong match for my own experience as a law firm partner and in the litigation finance field. I am very much looking forward to the opportunity to contribute to the continued success of the business.” Last week, in its first step towards a management relocation to London, LCM appointed Mary Gangemi as its new London-based chief financial officer and announced that Patrick Moloney is to relocate to London from Sydney later this year. In March, LCM closed a new US$150m third-party fund backed by significant global blue-chip investors. The fund marks LCM’s return to managing third-party funds, following its building of a permanent source of balance sheet capital through the equity markets. Contact: Angela Bilbow Global Head of Communications abilbow@lcmfinace.com +44 (0)20 3955 5271 Litigation Capital Management (LCM) is a leading international provider of litigation financing solutions. This includes single-case and portfolios across; class actions, commercial claims, claims arising out of insolvency and international arbitration. LCM has an unparalleled track record, driven by effective project selection and robust risk management. Headquartered in Sydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker LIT.

Economic Uncertainty? Consider Litigation Finance

The Coronavirus is impacting every industry, not to mention affecting all of us personally. This leads to economic anxiety on a massive scale. It can also mean that the sizable recoveries some firms are counting on may not be viable once this crisis is over—and for some time afterwards.  With everyone scrambling to stay afloat, Ted Farrell of Litigation Funding Advisers LLC has some thoughts. As Farrell writes in Bloomberg Lawlitigation finance might be one of the most impactful ways to stem losses, no matter where you are in the world. At this moment, billions of dollars in capital can be made available to firms struggling to keep balance sheets in balance. Nine-figure investments are not as rare as one might think. Individual partners in law firms are paid a monthly draw, which is different from a salary in terms of bookkeeping. These draws are based on profits predicted for the year. So if the books don’t balance at the end of the year, partners can be liable to pay some of that money back. With that in mind, firms would do well to consider litigation funding, particularly for high-end cases. Once you have that capital, what do you do with it? Step one should be calculating existing risk, then selling off as much as you can. Now is the time funders are seeking promising cases in which to invest. A popular strategy involves pooling contingency cases and allowing funders to invest in them together. This type of arrangement makes for good deals, allowing firms to take a healthy portion of recovery while still making funder investments worthwhile.

What Every GC Needs to Know About Monetization

2019 was a year of change and growth in the legal field. Monetization was of particular interest to in-house legal teams. This practice allows firms to de-risk portfolios and exert greater control over receivables by essentially converting an impending recovery into working capital.   As Burford Capital explains, their goal as a funder is to empower in-house counsel to be proactive in securing recoveries, while reducing their costs. Burford reveals that General Counsel from various companies share many of the same questions. Why, for example, is lit fin preferable to companies simply using their own funds? It’s often to a company’s benefit to leverage funding to assure liquidity of funds and to manage balance sheets. Monetization also frees up funds sooner than a post-trial collection—and sometimes, timing makes all the difference.  How is working with a funder better than hiring a legal team on contingency? This seems like a sensible question. The answer is about more than simple finance. It’s about the caliber of legal team one can hire on contingency versus the type of strategy that can be developed using a powerhouse firm backed by an experienced litigation funder. Burford wants you to know that this difference is significant—and can be the deciding factor when it comes to getting the resolution you want, and settling for something far less.  What about control?  How much say do funders have on decision making or settlements?  While every funder is different, Burford acts as a silent partner; providing capital is where their input ends. At the same time, should a client request additional support, a worthy funder will work with clients to devise a strategy in everyone’s best interests. 

Lit Fin as an Alternative Finance Solution

Many law firms and even in-house counsel are feeling the pinch from court closures and delays due to the COVID-19 outbreak. Depending on how long this disruption lasts, many legal entities may find themselves scrambling to fund in-progress claims or take on new ones. As the risk of insolvency grows, maintaining healthy balance sheets is of the essence.  As Pinsent Masons reveals, the types of cases brought about by COVID-19—breach of contract, for example—are unlikely to result in the sizable recoveries firms will need to stay afloat. When times are lean, it makes sense to hold back reserves and use third-party funding to take on new cases. This leaves more money in the operating budget, and less risk on balance sheet. Even when cases are clearly meritorious, it can take months or even years for firms or clients to see a return.   Mark Roe, partner at Pinsent Masons, explains that using a preferred supplier arrangement allows them to provide better terms to clients. Their funder, Augusta Ventures, has declared their commitment to funding the infrastructure sector—which is an unusual focus for third-party funders. They also promise transparency in terms and standardized documentation so clients can sign with confidence. 

Got Litigation Claims? Don’t Forget to Monetize!

It cannot be denied that this is a time of stress, uncertainty, and delays. The legal field feels this more acutely than other industries, and it’s already showing in how cases are conducted. We all have a choice: react to what happens, or try to get ahead of it through diligent planning. One key factor in said planning comes in the form of monetization. As ACC Docket reports, monetization involves utilizing legal claims as collateral to gain working capital. This might be calculated as a multiple of the monetized amount, a percentage of the total recovery amount, or some combination of the two.  Monetization funds are provided for the purpose of working capital. That means they can be used to pay legal fees, under specific conditions. Monetized funds can be used in conjunction with traditional funding, which allows lawyers to be compensated as sort of a hybrid-contingency platform. Coronavirus constraints may make this an attractive option for firms and counsel whose budgets are impacted. In addition to slowdowns in most courts, there are other factors impacting the closing of cases—like the inability or unwillingness to take remote depositions impacting discovery. With that in mind, a firm experiencing budget constraints during COVID-19 would do well to consider monetization.

Forbes Ventures Plc – Board Changes and Operational Update

Forbes Ventures announces that Kirk Kashefi and Igor Zjalic have resigned as Non-executive Directors of the Company with immediate effect.  Additionally, Igor Zjalic has resigned as a director of Forbes’ subsidiary, Forbes Ventures Investment Management Limited.  The resignations of Kirk and Igor are by mutual consent and follow Forbes’ announcement of 2 March 2020, which confirmed that the Company’s future strategy would focus on the securitisation of litigation funding assets, via the establishment of a Securitisation Cell Company (SCC) in Malta.

Forbes expects to appoint additional directors to the Board as the Company’s strategy progresses.

Peter Moss, Chairman of Forbes, commented, “We would like to thank both Kirk and Igor for their service to Forbes over the last couple of years and wish them both the very best in their future endeavours.  We at Forbes are extremely excited about our new direction and the establishment of our securitisation capability in Malta.  The set-up of our Securitisation Cell Company is progressing well, and we do not foresee any delays in the process, despite the Covid-19 virus.

While global markets may remain volatile in the short term, we believe that securitised litigation funding assets, with appropriate credit support, will prove to be popular with institutional credit investors when the current market volatility subsides.

The Directors of Forbes accept responsibility for the contents of this announcement.

Delta Capital Partners Announces Liquidity Solutions for Law Firms, Businesses and Individual Claimants

Chicago, IL, March 30, 2020 -- Delta Capital Partners Management LLC (Delta), a private equity and advisory firm specializing in litigation and legal finance, today announced its ability to provide bespoke liquidity solutions to law firms, businesses, private investment funds, and individual claimants affected by recent macroeconomic developments, including those caused by the COVID-19 pandemic. As the world economy has slowed due to the COVID-19 pandemic, liquidity has become a major concern for all economic actors and many traditional sources of liquidity will be tapped out very shortly. As a result, many law firms, private investment funds, businesses and individual claimants will not have access to capital to fund their needs.  Delta can provide liquidity to such parties based on their litigation or arbitration claims, judgments, awards, alternative fee engagements (i.e., contingency or success based), outstanding accounts receivables or work-in-process, or a combination thereof. Christopher DeLise, Delta’s Founder, CEO and Co-CIO stated, “In the face of horrible healthcare and economic challenges, we are still able to go forward and be helpful, we hope, in a troubled marketplace. As Delta’s core business is the pricing of litigation, enforcement and recovery risks, we are able to timely provide lending and liquidity solutions based on our assessment of such factors.” Delta provides such solutions to meet the needs of law firms, private equity firms, businesses and individual claimants through a variety of arrangements, including litigation-collateralized loans, draw-down facilities, and term loans. Each of these arrangements can be customized to suit the particular needs of borrowers, are competitively priced, and can be backed by a variety of assets and/or enhancements. These flexible solutions ensure that Delta can effectively meet the needs of a broad range of professional service firms, businesses, and individual claimants and thereby improve their financial situations during these unprecedented times. “While Delta has offered such bespoke credit-oriented solutions for many years, these products typically accounted for only a small percentage of its total business. However, we have already started to see that demand for such products is rapidly increasing and we anticipate that this demand will continue to significantly escalate as traditional sources of liquidity will dry up and/or the rates being offered by traditional lenders will materially increase. We are grateful to be able to play a constructive role in helping firms, especially troubled ones, keep their heads above water. Accordingly, we have allocated more resources and capital to meet this growing demand, and will continue to do so as we expect high demand now and for the foreseeable future as the aftereffects of the pandemic are felt around the world,” stated Mr. DeLise. Learn more at www.deltacph.com or contact Delta Capital Partners via email at liquidity@deltacph.com