One of the day two panels at the 7th Annual LF Dealmakers event was titled "Structuring Win-Win Deals". Michael Kelley, Partner at Parker Poe moderated a discussion between Joseph Dunn, Managing Director at Fortress Investment Group, Adam Hudes, Partner at Vinson & Elkins, Sarah Johnson, Head of Litigation Investing team at D.E. Shaw & Co., and Ryan Stephen, Co-Founder of Pine Valley Capital Partners.

The conversation began around structuring deals for alignment and success. Sarah Johnson noted that it's difficult to achieve perfect alignment, but pricing deals with 'good scenarios' in mind can ensure that all parties are satisfied. Of course, deals are bespoke, so this is very difficult. Which is why D.E. Shaw models out scenarios and walks through them with the client - what is a good settlement, what is a satisfactory damages amount? Ensuring that all parties are all on the same page, which goes into the documentation so all parties can agree to the terms upfront.

Ryan Stephen noted that at Pine Valley they are more law firm focused. They operate like a credit shop, in that they protect downside vs. focus on upside. They look at their capital as a de-risking tool, which means there can be a misalignment if the law firm thinks that value must be proven right away so capital can get out the door. They look to ensure alignment with both the plaintiff and the law firm, such that we're on a similar page in terms of what's a good outcome and what's an outcome that we would not accept. Also understanding of what the law firm needs from an operational perspective. The lender wants to continuously be de-risked, but there is a blind spot there, if the lender de-risks too quickly and the law firm doesn't have the resources need to effectively try their cases. So we need to get on the same page regarding operational budgets.

Michael Kelley then brought up the extrinsic factor of time, to which Ryan Stephen agreed that time is the risk that everyone is dealing with in the space. It is difficult to know what defendants are thinking, how plaintiffs will respond and behave. Getting on the same page regarding a variety of outcomes is key. Lawyers, by necessity, are eternal optimists. Everything is high value and coming very soon. Most capital providers know that is just not how it plays out, because you need to make sure that in those edge scenarios the law firms need to be safe, and the capital providers need to be safe as well.

Adam Hudes then spoke to red flags around non-alignment. He pointed to less-than clear exit terms, referencing the Burford / Sysco dispute as a scenario they want to stay away from. When dealing with a funder that can't clarify exit terms at the outset, that is something that his firm walks away from. From a law firm perspective, cases seem to be never-ending, so law firms are increasingly calculate how can we best manage the duration of these cases, and they want funders to understand that and work with them. If a funder is too pushy, that is another red flag. If they're not willing to truly partner with the law firm, then they should probably part ways early.

Michael Kelley asked about the risk of migration of terms, from the time that the term sheet is proposed. Joseph Dunn answered that it depends on the counter party. In this asset class there isn't a one-size-fits-all process for doing deals. There's less of a market, there's less data, there's fewer intermediaries who have seen that exact deal happen 20 times and here's how it's done. So that lends itself to parties re-cutting terms more frequently than in other asset classes. The likelihood of that happening is driven as much by personalities than it is the economics of a deal.

Dunn added: "I've probably never done a transaction where we agreed with the counter party on the value of the financing. So I think it's more about calling the counter party's BS vs. simply structuring the assets. When we structure deals, we ask the counter party what their view of success is. Usually we disagree with that, and we explain that's more of a homerun, and then propose a more downside scenario. If both sides blindly accept the upside case, then you're not keeping people aligned on the downside."

Day two of the 7th Annual LF Dealmakers event featured a 30-min 1:1 interview session between Rebecca Berrebi, Founder and CEO of Avenue 33, and Steven Molo, Founding Partner of MoloLamken. The discussion was titled "Deep Dive: The Ultimate Decision Point - Taking a Case to Trial."

Below are some key highlights from the Q&A:

RB: Various sources report that fewer than 1% of civil cases filed in court actually go to trial. So why should funders care about trial?

SM: It's the ultimate risk. You've funded the case and you're betting on the fact that it doesn't go to trial. If it does, your investment is at risk. If you pay attention to the case the entire time and treat it as though it may go to trial, you're more likely to get a settlement that is beneficial.

RB: How do you choose jury consultants, and what does that process look like?

SM: Some people think that the venue is the most important thing, and some are particularly skilled or experienced in certain types of cases and they've developed a lot of data over time. Each of those things come into play. People do different types of research - phone surveys (I'm not sure how valuable they really are), focus groups, min-trials or mock trials (I think the concept of this is overblown). It's really about coming up with a plan for the case, understanding the venue, and if it's a big enough case hiring multiple consultants. You should be informed by-but not imprisoned by-the research.

RB: How important is it to have a lead trial lawyer with subject matter expertise?

SM: What's important is trial advocacy. Who can go before a judge and jury and lead trial information forward, rather than just pounding them over the head with information. Having expertise is important, but you don't need to be the world's foremost expert to lead a trial.

RB: How important is the selection of local counsel when your primary trial team is in one location and the trial is out of town?

SM: A lot depends on the venue. Those who have funded patent cases in Texas, you know there are the usual players that line up on either side of the case, and that's how the process works. I think you can overweight that - this fear of 'getting homered' where the local judge is in the pocket of the local lawyer. It can work the other way too - that judge might not like that lawyer! The general rule we try to follow is 'get good local counsel.' Don't worry about being overshadowed by local counsel.

I've found that most judges around the country get a kick from having a lawyer from out of town come into their courtroom. It's something interesting and it's a break from their day to day. As long as that lawyer behaves themselves, it can become a positive situation.

RB: Trials obviously include witness, and often the outcome of a case can depend on the witness' performance. What can the funder do to ensure the witness' ability to perform?

SM: Obviously with privilege issues, you don't want to be in there preparing the witness. But you can assess somebody as a communicator, and there's no reason why you can't have a conversation with the plaintiff in the case to let them know what you think about this person.

Beyond that, you can impose a structure on witness preparations with counsel. Will it be a written Q&A, if so, that Q&A might have to be produced at trial. Also where will you do the preparation? We have some courtroom-like settings, and having someone sit in a conference room is not the same thing as having them sit in the witness box. Best to bring the witness into the courtroom so they can experience it before going into trial for the first time, which is a very stressful situation. Also structuring the timeline of the preparation, so it's not done the night before. Also getting an experienced lawyer in your firm to do the mock cross examination, so there is a tension there that wouldn't otherwise be there if they're being mock-crossed by someone they know and are familiar.

Setting up the structure beforehand is something funders can address without running into privilege concerns.

In a panel titled “Getting Paid: A Breakdown of Recent Settlements”, Max Doyle, Chief Strategy Officer at Consumer Attorney Marketing Group moderated a panel between Sam Dolce, Vice President at Milestone, Jennifer Hoekstra, Partner at Aylstock, Witkin, Kries & Overholtz, Michael London, Founding Partner, at Douglas & London, and Eamon Walsh, President of North America at Advoc8se.

Jennifer Hoekstra began the conversation by offering a broad overview of the mass torts space, the types of cases that make their way through the sector, and the various case durations spanning the rare rapid recovery on one end of the spectrum, and the decade-long battle royal on the other end.

Michael London commented on the 3M claim, where they faced a massive 10-figure judgement and just days later declared bankruptcy. He then mused about tobacco cases, how "if you want to make it onto the front page of the New York Times, you try tobacco cases. If you never want to get paid, you try tobacco cases."

London then recounted war stories around lifestyle products, including several pharmaceutical companies which settled claims there their drugs contained symptoms that were not listed on the label, mesh cases, firefighting foam cases, 3M cases, etc. "There's always going to be something. Wait, keep your powder dry, and don't chase the marketer. Just use the smell test and common sense test of what makes sense."

Sam Dolce represents Milestone, a claims administrator, which helps people get paid. He spoke to administrative duration, which occurs on the backend of a litigation, and can be as much as months or even years before the payments actually go out. Milestone streamlines those processes so everyone gets paid much faster. Many top tier mass torts firms have not optimized their settlement duration procedures, so they are missing out on efficiencies once the case concludes.

Eamon Walsh points out that funders should have a robust checklist which scores everything from origination to settlement administration. That gives way to a secondary market where you can trade things more easily, and also makes you feel bulletproof in the sense that when you get to the negotiating table, you aren't suffering from the Achilles heel of incomplete information.

Sam Dolce added that firms that take the time to build the payment infrastructure can maximize efficiencies on the backend. Law firms should have workflows built into their business the way any other business would, and funders should look to fund such law firms. Every law firm is a business, after all.

Jennifer Hoekstra added that the individual you may be speaking with when interacting with a law firm might not know all the details of a case, but the firm knows all the details (someone else at the firm can answer those questions), so don't get put off if the individual you're speaking with doesn't have all of the answers off-hand.

Michael London spoke to the 3M verdicts which saw 8-figure verdict after 8-figure verdict, which 3M kept fighting and losing. In other cases, the defendant can't write a check quickly enough, so it depends on the defendant and how much pressure you can put on them, and whether they are eager to reach a resolution or not.

London also noted that the Bayer Monsanto claim is a $10 billion liability that keeps getting bigger. Yet London noted he believes there may be a pause in Bayer paying out its claims. "At some point you've got to let that golden goose take a break from laying its eggs, and let that company stay alive."

Finally, Sam Dolce recommended that investors in the space look to the firms who are already succeeding and investigate what is working for them. Don't make the mistake of looking at the aggregate payouts - some firms get very large checks while others do not. Understand what separates the most talented firms from those in the second and third tiers.

Jennifer Hoekstra echoed that sentiment. "I keep my ear to the ground on projects I don't work on. I look at everything across the board, even if we're not involved with it." Looking at cases that aren't moving forward towards a rapid settlement can give you an idea of what types of cases aren't working. If timelines and milestones aren't being met, then defendants won't feel pressured to reach settlements.

In other words, do your homework before embarking on investment within this very complex sector.

Day one of this year’s LF Dealmakers event featured an entire day focused on one of the most prominent legal sectors within the litigation funding sphere: Mass Torts.

In the keynote session, titled “Mass Torts at a Crossroads: Is Wall Street Money a Catalyst or Complication?”, Seth Meyer, Managing Partner at Meyer Law Firm moderated a discussion between Steven Weisbrot, CEO of Angeion, and Harris Pogust, Founding Partner of Pogust Goodhead.

The conversation focused on Wall Street money’s impact on the litigation funding sector. The key question being if the influx of capital is a catalyst or complication.

Harris Pogust began the conversation by stating that there is no clear answer to that question. Many lives have been changed for the better thanks to the emergence of mass torts funding. That said, there are simply too many plaintiffs, and those plaintiffs that do get money aren’t seeing enough of it. “When I have to call some family whose family member died of cancer, and they’re supposed to get $100,000, but after attorney fees and all the other fees, they’re only getting $30,000, that makes me puke. That’s not what I got into this industry.”

While Steven Weisbrot does agree that the quantity of damages often isn’t reflected in what is deserved, he places the blame on access to capital, and the lack of optimization around bringing these types of cases in a more efficient manner. “I think capital really helps where you have a hard-to-reach target audience, whether they’re incarcerated or in geographically disparate locations. But we can’t just have attorneys settling saying ‘give me $1.2 billion and I’ll carve it up as I see fit.’”

Ultimately, there are four groups here: investors, funders, law firms and clients. Unfortunately, the people getting hurt the most are the clients. All other parties seem to be doing well. “There are firms that take $10 million and aggregate cases, and they make millions of dollars and they are happy,” explains Pogust, “but I’m a trial lawyer, not a businessman. I want to try good cases, not just make money.”

Pogust wants to see Wall Street be more careful with whom they give money to, so they don’t bring garbage cases and give the sector a black eye.

Wiesbrot agrees that vetting the firm and understanding their communication strategy is key. Also understanding if their strategy is about litigating vs. just aggregating. “Nurturing those relationships means less client attrition, and it’s also good because I can’t tell you how many random pieces of evidence have come out of those conversations. It’s good to hear from your clients directly about their experiences.”

In the end, Pogust was proven correct, in that no clear answer to the question of whether Wall Street money is a net positive or negative emerged. One can make a case either way, and as mass torts funding continues to accelerate in the coming years, it is doubtless this debate will continue on.