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Commercial Deals

Omni Bridgeway’s Loewith Discusses Canadian Litigation Finance Market

Whilst the North American litigation finance market is dominated by the huge volume of cases in need of funding in the US, the industry’s leading funders are keen to exploit the potential of a Canadian market that is ripe for growth. An article by Law360 Canada provides insight into the country’s litigation funding market through an interview with Naomi Loewith, director of strategic partnerships - Canada, at Omni Bridgeway. Loewith explains that whilst third-party funding is still in its early developmental years in Canada, “the courts are comfortable with it and sophisticated lawyers know about it.” Reflecting on her own career move into the world of litigation finance, Loewith highlights that she relishes “the idea of defining people’s expectations about helping establish the industry, helping clients realize why it’s so attractive and important to them.” Discussing the value that Omni Bridgeway can bring to clients through its team of experienced litigators and specialists, Loewith notes that funders can provide clients with both “capital and assistance if they want it.” Looking at the future of litigation funding in Canada, Loewith states that “another trend we’re likely to see is law firms working with litigation finances to enable them to offer more creative fee arrangements to their clients.” Comparing the developing market with the United States, Loewith says that “many more top tier firms are comfortable acting on a partial success fee basis,” and expects to see that trend reflected in Canada moving forward.
Announcements Commercial Regulatory Issues

Triple-I: Plaintiffs Should Disclose Third-Party Funding Arrangements

Ohio’s defendants should know whether a third-party litigation funding firm is financing a lawsuit against them, the Insurance Information Institute’s (Triple-I) chief insurance officer, Dale Porfilio said, in testimony today before the state Senate’s Judiciary Committee. Third-party litigation funders (TPLF) provide billions of dollars each year to U.S. plaintiffs and their legal counsel, yet only a handful of U.S. states, such as Indiana and Montana, have required plaintiffs to disclose in court whether a TPLF is financially supporting a civil lawsuit. "Without any direct ties to litigated cases and minimal transparency, institutional investors and even sovereign nations are contributing significant amounts of capital toward litigation suits for the sole intent of making a profit," Porfilio stated. "Without transparency, we are not able to provide deep data-driven insights about TPLF’s impacts on consumers and the insurance industry. Therefore, Triple-I supports mandatory disclosure of TPLF so we can study the impacts on consumers and carriers alike." A Swiss Re Institute report published in 2021 estimated more than half of the $17 billion in TPLF monies deployed globally in 2020 were in the U.S. Moreover, while TPLF investments offered internal rates of return exceeding 25 percent, commercial liability plaintiffs who used TPLF firms to finance their litigation saw the settlement proceeds allocated to them decrease by 12 percent, this same Swiss Re Institute report estimated. "The insurance industry retains claim adjusters, litigation managers, and defense attorneys to help settle claims. The portion allocated to defense costs are defined as ’Defense and Cost Containment Expenses’ (DCC). These expense dollars across all P&C (property and casualty) products increased 30 percent from 2016 to 2022, while increasing 60 percent for general liability (GL) products across these same years. GL products are where more of the complex and high-limit litigation occurs for large corporations. Because TPLF is not disclosed in Ohio as well as most other states, Triple-I cannot today quantify how much TPLF is contributing to the increase in DCC and the industry’s financial results," Porfilio testified. Triple-I has been educating and informing consumers about its growing concern with third-party litigation funding under the broader umbrella of what the organization refers to as "legal system abuse." Triple-I defines legal system abuse as policyholder or plaintiff attorney practices which increase costs and time to settle insurance claims. While litigation is considered a policyholder’s last resort, Porfilio continued, legal system abuse exploits litigation when a disputed claim could have been resolved without judicial intervention. Legal system abuse contributes to higher costs for insurance operations and policyholder pricing, Triple-I’s chief insurance officer concluded.
Consumer

American Tort Reform Foundation Calls Louisiana a Judicial Hellhole, Citing Influence of Litigation Funding

Among the critics of the litigation finance industry, some of the loudest and harshest voices are associations representing the businesses and industries, who view funders as a driving force behind the increasing volume of lawsuits targeting American corporations. A press release from the American Tort Reform Foundation (ATRF) highlights its ongoing objections to litigation funding, describing it as a ‘multi-billion-dollar industry influencing legal outcomes with, often, zero transparency.’ The release focuses on Louisiana’s place in the ATRF’s 2023-2024 Judicial Hellholes report, where the state was ranked at no.7, and places much of the blame on outgoing Governor John Edwards’ veto of legislation that sought to impose additional disclosure requirements on litigation funding. Tiger Joyce, president of ATRF, cited the case of law firm McClenny Moseley & Associates (MM&A) as an example of the negative impact of litigation funding. MM&A were sanctioned for fraudulently filing claims on behalf of victims of hurricane damage, having received around $30 million in third-party funding. Joyce described it as “a potentially fraudulent scheme between a Texas trial lawyer firm, litigation funders, and a roofing company.”  Joyce failed to note that, as LFJ recently reported, the two funders who lent money to MM&A are also petitioning to recoup their investments from the law firm. ATRF expressed hope that governor-elect Jeff Landry represented a ‘glimmer of cautious optimism for legal reform,’ and stated that ‘there might be an opportunity for the state to improve its civil justice environment.’ The ATRF’s press release makes clear that it hopes the new governor will reverse his predecessor’s position on legislation reforming disclosure requirements.
Case Developments Commercial

Judge Denies Woodsford’s Request for Temporary Restraining Order in Dispute with Hosie Rice

As recently as last week, LFJ reported on the ongoing dispute between Woodsford and Hosie Rice over unpaid fees from a litigation funding deal, as the funder sought to block the transfer of proceeds from the sale of a house owned by Hosie Rice’s founders. An article from Reuters provides an update on the case of Frome Wye v. Hosie Rice, et al. in the Northern District of California, as U.S. District Judge Edward Chen ruled against Woodsford subsidiary Frome Wye’s request for an injunction to stop Hosie Rice disbursing $1.8 million from the sale of the property.  In his denial of the request for a temporary restraining order, Judge Chen stated that Woodsford’s “purely financial” injury should be solved with a damages award. The ruling concluded that Woodsford  “has not shown a likelihood of irreparable injury”, and that the funder “has not submitted any evidence that any or all three Defendants who entered into the funding agreement are insolvent or that they would not be able to pay the amount owed.” Spencer Hosie and Diane Rice, the law firm’s founders, expressed satisfaction with the judge’s ruling and said that they hoped the ruling “puts an end to this long Woodsford saga." However, Woodsford’s Steven Friel noted that the funder would “pursue the debt until full satisfaction”, noting that the case had reinforced the fact that Hosie Rice still owes Woodsford the $1.8 million awarded by the arbitration panel.
Announcements Commercial Deals

Odyssey Marine Exploration Secures Additional Capital as it Pursues NAFTA Claim Against Mexico

As litigation funders are keen to regularly emphasise, third-party financing is not only useful to directly support a company’s legal claims, it is also a valuable tool to allow the business to continue its operations unhindered whilst pursuing meritorious litigation. In a press release from Odyssey Marine Exploration, Inc., the mineral exploration company announced that it has secured a debt financing deal including capital from Drumcliffe Partners, its primary litigation funder. The financing has been secured to support its ongoing operations and strategic initiatives, whilst it pursues an arbitration claim against Mexico over allegations that the country’s government ‘wrongfully denied environmental approval of the ExO Phosphate project in breach of NAFTA.’ The note and warrant purchase agreement was agreed on December 1, with Two Seas Capital leading the financing and additional investors including, Four World Capital Management, and the DP Special Opportunities Fund I, LLC (managed by Drumcliffe Partners). The financing deal includes ‘the issuance of promissory notes with an 11.0% annual interest rate, totaling up to $6.0 million, and warrants that allow them to purchase shares of Odyssey's common stock over the next three years.’ Sina Toussi, founder and chief investment officer of Two Seas Capital, highlighted that the funding would “bridge Odyssey to what we believe will be a just judgment in the arbitration and position Odyssey to pursue several new high-value projects.” James C. Little, CEO of Drumcliffe Partners stated they “continue to believe in the strong merits of the claim and Odyssey’s entitlement to compensation as the result of Mexico’s arbitrary and unfair treatment in breach of international law.”  The arbitration panel’s decision in the NAFTA case is expected in early 2024.
Commercial Deals

Lenders for Indian Airline Considering Litigation Finance Options

Although the litigation finance market in India is currently in a developmental stage, domestic and international funders have repeatedly identified it as a country with huge potential for growth in the adoption of third-party funding. A developing story regarding an insolvent airline suggests that this optimism is well-founded, as the company’s lenders are reportedly investigating third-party funding options to pursue legal proceedings.  Reporting by BQ Prime and Mint provide insight into the legal woes of the bankrupt Indian airline, Go First, whose financial backers are reportedly considering pursuing litigation financing options to fund its legal actions against engine manufacturer Pratt & Whitney. Last month, BQ Prime reported that Go First’s lenders led by the Bank of Baroda were meeting to discuss third-party funding options to support the airline’s litigation against Pratt & Whitney, for its failure to supply engines as contracted.  Following up on BQ Prime’s reporting, an article from Mint suggests that these lenders will move forward with a search for litigation finance providers, with the goal being to secure ‘up to ₹12,000 crore tied up in various lawsuits’. According to an anonymous source who spoke with Mint, the plan would be for the “existing legal costs can be paid off to lawyers by the lenders, and then a credit fund or a large stressed-debt fund can be roped in for financing all the litigation going forward and help Go First win the cases." The source went on to suggest that whilst the actual costs for the various litigation may total “less than ₹100 crore”, the lenders are hoping that “a favourable court verdict may fetch up to ₹12,000 crore."
Commercial

Attorneys say Financial Terms are Most Important Factor when Selecting Litigation Funding

For attorneys looking to pursue litigation financing, whether it is for the first time or as a repeat user, these professionals must consider a wider range of factors when choosing the right provider to work with. A new survey reveals some of the most pressing factors and concerns that attorneys are focused on when assessing their third-party funding options. An article from Bloomberg Law highlights findings from its recent State of Practice Survey, which found that the financial terms offered in a funding agreement are the most important factor that lawyers consider when pursuing litigation funding. 26 of the 31 attorneys who responded to the survey’s question about factors considered when assessing litigation funders, answered that the ‘financial terms offered’ were ‘very important’ or ‘somewhat important’. When looking at the top concerns raised by first time users of litigation funding, those attorneys surveyed answered that ‘high financing costs’ alongside ‘maintaining control over the litigation’ were two of the most prominent areas of concern. As the article goes on to note, these answers ‘make sense in light of the high financial stakes in litigation matters that tend to draw the interest of funders.’ The State of Practice Survey included answers from 450 attorneys across a range of topics.
Case Developments Commercial

Woodsford to Receive $7.8M from $26M Settlement in Ardent Leisure Class Action

As LFJ reported in August, a class action backed by third-party funding and brought against one of Australia’s largest leisure companies has reached a settlement agreement. New court documents reveal the court’s approval of the settlement, as well as the details of the final payout to the litigation funder. A court order posted by the Federal Court of Australia on 30 November provides confirmation that the settlement in the case of Colin Graham Ingram & Anor V Ardent Leisure Limited & Ors has been approved and will move forward to distribution. The settlement, which will bring the class action brought in June 2020 to a close, will see Ardent Leisure pay ‘$26 million for compensation, legal fees and disbursements, without admission of any liability.’ The group members were represented in the class action by Piper Alderman, with Woodsford providing litigation funding. The order also includes ‘Deductions from the settlement for the purposes of the SDS (Settlement Distribution Scheme)’, which lists the court approved deductions from the $26 million sum. Of note, is the $7.8 million in “Funder’s Commission”, which will see Woodsford secure a significant return on its investment in the class action. The deductions also include just over $5 million for “Legal Costs Reimbursement Payments” and $737,836 for the “Funder’s Insurance Costs”, the latter of which will cover costs associated with After-the-Event (ATE) insurance cover. The class action focused on allegations that Ardent had misled its shareholders over safety measures at its Dreamworld theme park in the lead-up to the 2016 Thunder River Rapids Ride accident, which led to the deaths of four people.  The final settlement accounts for roughly 10 percent of the $260 million that shareholders lost in the aftermath of the incident in 2016. The full settlement notice can be read here.
Commercial

Examining the Issue of Agency Costs in Litigation Funding

In the ever-present debate around the pros and cons of litigation funding, it is always valuable to step back from highly charged opinion pieces and look at more rigorous academic examinations of the key issues that are contested between third-party funding’s advocates and critics. A research paper from the Vanderbilt University Law School authored by Brian T. Fitzpatrick, professor of law, and William Marra, director at Certum Group, tackles the topic of ‘Agency Costs in Third-Party Litigation Finance Reconsidered’. In the paper, Fitzpatrick and Marra seek to question the oft-repeated critique that third-party funding ‘can increase agency costs for litigants’, suggesting that ‘much of the concern in the third-party litigation finance literature over exacerbated agency costs and who controls the litigation has been mistaken.’ The authors argue that the assumption that the funder will ‘meddle in the lawyer litigant relationship’ is incorrect. They point out that because funders are unable to control litigation ‘due to the ethical rules’, they instead ‘try to align their interests with both the interests of the lawyers and the interests of the litigants.’ As a result, Fitzpatrick and Marra highlight that this approach avoids any need for a funder to try and control the litigation process, as it is much more preferable for a funder to ‘let the invisible hand of incentives do the work for them.’ The paper takes a methodical approach to unpacking the issue of agency costs in third-party funding, firstly by examining the most common criticisms of the practice and the claim that litigation finance ‘will exacerbate lawyer-client agency costs.’ Fitzpatrick and Marra then walk through the standard funding arrangements and the use of the ‘hybrid-fee formula’, before going on to show how this formula is ‘superior to the hourly fees or contingent percentages that clients would otherwise pay without financing.’ Before concluding, the paper also tackles the issue of, ‘if the hybrid formula is so favorable,’ why the legal market does not utilise this formula even in situations with third-party funding present. The full paper can be read here.