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Commercial Special Features

Highlights from the 6th Annual LF Dealmakers Conference

From September 26th-28th, LF Dealmakers hosted its sixth annual event in New York City. The three-day conference kicked off with a workshop on navigating the Mass Torts landscape, and an opening reception at the James Hotel. Days two and three featured panel discussions and networking opportunities between key stakeholders in the litigation finance space. Wendy Chou, founder of LF Dealmakers, was extremely pleased with the outcome of the event: "For six consecutive years, LF Dealmakers has sold out, a testament to the growing interest and importance of litigation finance in today's legal landscape. We are immensely proud to have created a platform where the best minds in the litigation finance and legal sectors can come together for powerful connections and productive discussions.” Day two began with a pair of panels on the overall state of the industry and an insider’s approach to getting the best deal. The latter included a panel of experts, including Fred Fabricant, Managing Partner of Fabricant LLP, Molly Pease, Managing Director of Curiam Capital, and Boris Ziser, Partner at Schulte Roth and Zabel. The discussion revolved around the following topics:
  • Getting up to speed on funding & insurance products
  • How to fast track diligence and deal with exclusivity
  • Negotiating key terms and spotting red flags
  • Benchmarking numbers & making the waterfall work for you
One interesting point arose on the issue of judgement preservation in the IP space, where Fred Fabricant explained that he hasn’t seen a lot of insurance products in the pre-judgement section. “There are too many uncertainties, and it is very hard to assess the risk in this phase of the case.”  Fabricant is looking forward to insurance products in this phase. “In post-judgement, much easier for insurance to assess the risk, because you’ve eliminated lots of uncertainties.” Click here for the full recap of this panel discussion. The featured panel of Day 2 was titled: “The Great Debate: Trust and Transparency in Litigation Finance.” The panel consisted of Nathan Morris, SVP of Legal Reform Advocacy at the U.S. Chamber of Legal Reform, Charles Schmerler, Head of Litigation Finance at Pretium Partners, and Maya Steinitz, Professor of Law at Boston University. The panel was moderated by Michael Kelley, Partner at Parker Poe. This unique panel was structured as a pair of debates (back-to-back), followed by an open forum involving panelists and audience questions. On the topic of ‘what is a litigation funder?’ what perhaps seems like an obvious question sparked a passionate back-and-forth between moderator Michael Kelley and Charles Schmerler over whether entities such as legal defense funds and the Chamber of Commerce should technically be classified as litigation funders. After all, the Chamber accepts donations and then uses its capital to file claims—so would donors to the Chamber be considered litigation funders? One interesting point came from Schmerler, who noted that causal litigation is different from commercial litigation—especially from a public policy perspective. So conflating them under the semantic of ‘litigation funding’ isn’t as useful, even if they can each be technically classified as litigation funding. Click here for a full recap of this panel discussion. Day three offered four panels and three roundtable discussions, followed by a closing reception. One panel focused on opportunities in Mass Torts and ABS, and consisted of Jacob Malherbe, CEO of X Social Media, Sara Papantonio, Partner at Levin Papantonio Rafferty, and Ryan Stephen, Managing Partner of Pine Valley Capital Partners. The panel was moderated by Steve Nober, CEO of Consumer Attorney Marketing Group (CAMG). The wide-ranging discussion covered the following topics:
  • Who’s doing what in mass torts? How about funding?
  • How funders are evaluating and working with firms
  • Examples of the ABS framework in action & challenges
  • Pre- and post-settlement funding and time to disbursement
One key point for funders to consider, is that as more funders enter the mass torts space, they need to be cognizant of ethical considerations around marketing, PR, claimant communications—all aspects of a case that are unique to class actions and mass torts. Congress is now taking a look at how law firms market to prospective claimants, and should any lawsuits arise, funders will no doubt be corralled into the mix. Given that, it is critical for funders to mitigate the inherent risks by asking more questions at the outset of case diligence: What kind of advertising is being used, where are the clients coming from, how do I know that the clients are real (ad tracking)?  Funders need to be proactive about managing risk, rather than getting caught on the wrong side of a PR headache. Click here for a full recap of this panel discussion. Additional panel discussions covered topics such as successful models of cost and risk sharing, managing IP risk, and a CIO roundtable featuring investors in the space. In addition to the knowledge-sharing, attendees were able to network with founders, CEOs, C-suite officers, thought leaders and other key stakeholders in the litigation finance space. All of which makes the LF Dealmakers event the ongoing success that it is. Founder Wendy Chou spoke to the core ethos of the event: "At Dealmakers, we believe that connections and conversations are the keys to progress. At this year’s LF Dealmakers Forum, we were honored to host a number of critical conversations, including a thought-provoking debate on trust and transparency. It was a historic moment as we welcomed a representative from the US Chamber of Commerce to our stage, marking their first-ever appearance at a litigation finance industry event. It speaks to our commitment to open dialogue and advancing important discussions within our community.”
Commercial Deals

The Common Ground Between Big Business, Insurance, and Litigation Funding

Among those critical of the litigation finance industry, large corporations and insurers are often cast as two of the chief opponents of third-party funding. However, as a recent article has pointed out, the opposition to litigation funding from these types of organisations is neither unanimous nor consistent in its criticisms. In an opinion piece for the New York Law Journal, G. Andrew Lundberg, managing director at Burford Capital, provides an alternative look at litigation funding’s detractors, questioning whether there is perhaps more common ground than is usually acknowledged. Lundberg first highlights that while entities such as the U.S. Chamber of Commerce and the Insurance Information Institute may vocally oppose third-party funding, the businesses they represent do not have such a one-sided relationship with funders. As Lundberg points out, large corporations are increasingly taking advantage of litigation funding to relieve financial and legal risk, allowing their legal departments to pursue meritorious legal actions without putting additional strain on departmental budgets. Similarly, while there are of course insurers who are concerned about the effects of outside funding on rising legal costs and the size of awards, there are plenty of insurers who are also benefiting from a booming market for litigation risk insurance. Focusing in on the insurers’ perspective, Lundberg uses both judgement preservation insurance (JPI) and after-the-event insurance, as two products that insurance companies offer that have a mutually beneficial relationship with the work of litigation funders. He also highlights that there is so much overlap between the two areas, that even Burford Capital has dedicated resources to its own in-house provider of ATE insurance: Burford Worldwide Insurance. Concluding his analysis, Lundberg argues that the intersection between big business, insurance, and legal finance, demonstrates that “the line between good capital and bad capital isn’t as clear and as fine” as critics would suggest.
Commercial Regulatory Issues

Funders File Petition in Louisiana Disciplinary Case for MM&A

Investments by litigation funders into claims not only represent their belief in the validity of the legal case, but also their belief in the lawyers who will be representing the claimants. When those law firms are revealed to have acted improperly or misused that capital, funders can find themselves having to fight to recoup their investment, as is the case in an ongoing disciplinary matter in Louisiana. An article in the Insurance Journal provides insight into a petition lodged in the Western District of Louisiana by two funders, the Equal Access Justice Fund and EAJF ESQ Fund, over US District Judge James D. Cain’s sanctioning of law firm McClenny Moseley & Associates (MM&A). In August, the judge had ruled that MM&A was not entitled to any legal fees from clients involved in over 200 hurricane-damage claims related to Hurricanes Laura, Delta, and Ida. The funders argued in their petition that they have been prevented from recouping their investments in MM&A, which amount to around $30 million. Judge Cain had sanctioned the law firm after hearings revealed that MM&A had improperly filed claims, by falsely stating they were representing property owners, as well as duplicating pre-existing claims and making false statements to insurers. Judge Cain’s order, barring MM&A from collecting on fees and expenses for the claims, was preceded by a $2 million fine from the Louisiana Department of Insurance, as well as the state’s Bar’s Office of Disciplinary Counsel suspending the law license of R. William Huye III, manager of MMA’s New Orleans office. In their petition to Judge Cain, the funders’ attorneys argued that “neither the lenders nor any other party received notice or an opportunity to be heard regarding the law firm’s interest in case proceeds before the court adjudicated that issue.” They stated that the judge should have consulted the lenders who had a financial interest in these claims and therefore filed the petition “to voice their concerns and defend their interests before this court and/or before a reviewing court.”
Commercial

Dispelling Myths About Litigation Funding

As the litigation finance industry continues to mature and we see more widespread adoption across a range of jurisdictions, common misconceptions about third-party funding are still present. Although funders can eloquently dispel these myths themselves, it is equally useful when these misguided assumptions are questioned by law firms who can offer their own perspective on the benefits of litigation funding. In an insights piece from Weightmans, Damien Carter and Jessica Kraja provide some illumination on four of the most common myths surrounding litigation funding, analysing how these concerns are often based on faulty premises. Firstly, Carter and Kraja tackle the idea that “litigation funding is only useful if you can’t afford to fund litigation”, pointing out that it is equally useful for litigants who are keen to offset risk and preserve their own capital rather than devoting it to a lawsuit. As a further example of this, they highlight that third-party funding can be useful for companies who wish to pursue more than one claim, but are limited by legal budget constraints. Secondly, the lawyers dispel the notion that “claimants lack control in their own litigation when using litigation funding”, stating that control over the litigation process will remain, as usual, with the claimant and their legal counsel. Whilst funders will be kept informed of developments during the case, funders are rarely involved in decision-making outside of situations that are specified in funding agreements. Addressing the claim that “litigation funding fails to cover all costs and disbursements involved in litigation”, Carter and Kraja emphasise that all funding arrangements can be tailored to meet the client’s individual needs. Outside of direct funding, clients are still able to work with their lawyers to utilise additional services such as litigation risk insurance. Finally, the article addresses the misconception that “litigation funding is only available for commercial litigation cases”, as the authors explain that funders engage with a wide variety of disputes. They note that funders will primarily assess cases based on several factors, including the merits of the claim and the ability of the defendant to pay any damages, rather than being solely limited to purely commercial litigation matters.
Case Developments Commercial

Judge Orders Permanent Stay in Crypto Class Action Targeting Meta and Google

There are many examples of litigation funders offering essential support to class action cases, providing group members with the capital needed to seek justice from companies or institutions that have harmed them. However, issues can arise where the line between funder and claimant becomes blurred, as we have seen in an Australian class action that was permanently stayed by a federal judge due to potential conflicts of interest. In a judgement from the Federal Court of Australia last week, Justice Elizabeth Cheeseman granted a permanent stay on proceedings in the case of Hamilton v Meta Platforms, Inc. The ruling stated that there was “the very real potential for conflicts of interests to arise and influence Mr Hamilton’ conduct of the proceedings in ways that are to the detriment of Group Members.” Justice Cheeseman concluded that as Andrew Hamilton was both the representative applicant and the CEO of JPB Liberty, the litigation funder supporting the case, this situation could create a “myriad of conflicts.” Hamilton’s class action had represented around 650 group members in the case brought against Meta and Google, alleging that the companies had broken Australian competition law by banning the advertisement of cryptocurrencies. Hamilton had argued that this ban had led to a substantial decline in the value of cryptocurrencies, including a currency called STEEM that he had an interest in through his ownership of Green Freedom Limited. Hamilton had then entered into a litigation funding agreement with the group members through JPB Liberty, having partially funded the litigation “by issuing crypto tokens known as “Sue Facebook Tokens” (SUFB Tokens).” Justice Cheeseman explained in her judgement that she was “not satisfied that the conflicts inherent in Mr Hamilton’s multifaceted interests in the proceeding are capable of being appropriately managed.” Whilst she acknowledged that a permanent stay was “a tool of last resort”, the judge explained that given the conflicts of interest, “there are real concerns about how Mr Hamilton would address them in circumstances where he frames his claim as being primary and those of Group Members as being secondary.”
Case Developments Commercial

NorthWall Sees €210m Profit Following Grammercy Investment in Pogust Goodhead

Beyond the traditional funding of individual cases, one of the biggest growth areas for litigation finance continues to be direct financing of law firms. Following on from this weekend’s announcement of a huge investment partnership for a UK law firm, we are seeing the benefits for funders who engage in the practice of lending to law firms. Reporting from Bloomberg reveals that NorthWall Capital has achieved significant returns on its investment in Pogust Goodhead, after the latter received a landmark $552.5 million secured loan from Grammercy Funds Management. According to the investor letter seen by Bloomberg, NorthWall Capital garnered a €210 million profit as a result of Grammercy’s loan, which refinanced the €178 million that NorthWall had previously provided to the law firm.  The final total profit from NorthWall’s investment into Pogust Goodhead may still increase, depending on the outcome of ongoing claims led by the law firm. The article also explained that the €210 million profit has bolstered a number of NorthWall’s funds, including the GCF II legal assets fund, which has now achieved a 100% net internal rate of return. Bloomberg’s reporting on the investor letter highlights a comment from Fabian Chrobog, Founder and Chief Investment Officer of NorthWall, who stated that the company was “incredibly pleased to generate outsized returns for our investors from a project set to deliver justice to millions of individuals affected by environmental disasters.”  NorthWall’s capital growth does not appear to be slowing down, as it is in the middle of raising funds for another European Opportunities Fund, with €300 million in committed capital to date. Bloomberg also highlighted that the investor letter revealed NorthWall’s plans to announce a third legal assets fund in the near future.
Commercial Regulatory Issues

Analyzing the Impact of the PACCAR Ruling on Insolvency Practitioners

As the industry continues to monitor the fallout from the Supreme Court’s ruling on the classification of litigation funding agreements (LFAs) as damages-based agreements (DBAs), it is important to note that the effects will not be felt equally across all areas of legal funding. One sub-sector that may have a unique path forward is insolvency litigation, where the differing arrangements between funders and insolvency practitioners could minimize the impact of the PACCAR decision. In a recent post on Lexology’s Dispute Resolution Law Blog, Marieta van Straaten and Chantelle Tang, from Kingsley Napley, explore the potential impact of the Supreme Court’s judgement on insolvency practitioners.  One of the key points highlighted is that it is quite commonplace to see these practitioners assign or sell their legal claims to third-party funders, rather than engage in more traditional funding agreements to support them as they pursue a claim. As a result of this trend, van Straaten and Tang suggest that many insolvency practitioners will not see significant effects from the PACCAR ruling, as these agreements “are constructed differently to LFAs and are believed to fall outside the definition of ‘claims management services’.”  However, they also highlight that there are many situations where an insolvency practitioner will seek funding rather than assignment for a claim, including those situations where the practitioner is “appointed as a trustee in bankruptcy office holder claims”. In this example, under the rules of Section 246ZD of the Insolvency Act 1986, the insolvency practitioner is not permitted to assign claims and therefore may seek outside funding to support the legal action. In these situations, as with all other parties involved in LFAs, insolvency practitioners will need to work with funders to ensure that any new or ongoing LFAs are compliant with the DBA regulations.
Commercial Regulatory Issues

Malaysian Government Minister Calls for Review of Arbitrators and Litigation Funders

The dispute between the Malaysian government and the Sulu heirs has been one of the most high profile international arbitration cases in recent times, raising issues around state sovereignty and the role of third-party funders in international arbitration. At a recent industry gathering, one of Malaysia’s top government ministers spoke about the country’s ongoing efforts to have the multi-billion dollar award annulled, as well as the need for reform of the international arbitration system. Reporting by The Edge Malaysia provides an overview of recent comments made by Datuk Seri Azalina Othman Said, the minister for Law and Institutional Reform in the Prime Minister’s Department, at the London International Arbitration Colloquium 2023. In her keynote address at last week’s event, Azalina called for “a review of the conduct of arbitrators and for oversight of third-party litigation funders, including exploring transparency and disclosure obligations by the relevant parties.” The minister’s comments come at the same time as Malaysia continues to seek the annulment of the $14.9 billion award, which was issued to the Sulu heir claimants by a Spanish arbitrator. These efforts follow Malaysia's successes in securing favourable rulings from both the Paris Court of Appeal and from The Hague Court of Appeal in June of this year, which respectively upheld Malaysia’s challenge to the award and refused the Sulu heirs’ attempt to have the award enforced. During the speech, Azalina also highlighted that the Kuala Lumpur-based Asian International Arbitration Centre (AIAC) had entered into a memorandum of understanding with the Arbitration and Dispute Resolution Centre at SOAS, “to foster teaching and research activities related to alternative dispute resolution in alignment with international best practices.” Citing the Malaysian government’s experience in the Sulu case, she emphasized that “the sanctity of the arbitration process must always be upheld” from abuses such as forum shopping or frivolous claims.
Announcements Commercial Legal Innovation

Finitive Selects DealBridge.ai to Power its Litigation Finance Marketplace

DealBridge.ai, the inventor of the modern Deal Relationship Management (DRM) platform, is delighted to announce its strategic partnership with Finitive. Finitive, a leading marketplace that excels in facilitating deal-making within the private credit space, has selected DealBridge.ai's cutting-edge technology to help power its litigation finance business. DealBridge.ai's DRM solution revolutionizes the way you handle origination, due diligence, and distribution of private assets. With its user-friendly interface, you can effortlessly set up your own customized instance and unlock the future of seamless deal management. Say goodbye to the cumbersome barriers of traditional, labor-intensive processes. DealBridge.ai enables sellers and buyers of alternative products to effortlessly connect at the deal level, eliminating unnecessary hurdles. This streamlined approach enhances the overall human experience, allowing you to focus on building and nurturing valuable relationships. Finitive's founder & CEO, Jon Barlow, shared their perspective on this exciting partnership, stating, "Our decision to select DealBridge.ai as the technology partner in the litigation finance sector was driven by a shared commitment to innovation and efficiency. This collaboration will empower us to provide borrowers and institutional investors with a faster, more seamless transaction experience." Joshua Masia/Jon Burlinson, Co-founders & CEOs of DealBridge.ai, expressed their excitement about the partnership, saying, "We are thrilled to collaborate with Finitive on this ground breaking project. Our technology will enable Finitive to streamline operations, reduce time-to-market, and offer a world-class platform to institutional investors interested in litigation finance. Together, we aim to redefine the industry." Maximize your revenue potential by automating the tedious tasks involved in deal-making with the industry's first DRM. With DealBridge.ai, you can free up your time and resources, enabling you to focus on what truly matters – growing your relationships and boosting your bottomline. Experience the power of automation and elevate your deal-making capabilities with DealBridge.ai, the ultimate DRM solution for private markets. ABOUT DEALBRIDGE.AI DealBridge.ai is a cutting-edge SaaS Deal Relationship Management (DRM) platform that revolutionizes the way private assets are originated, due diligenced, and distributed. With a user-friendly interface and powerful automation capabilities, DealBridge.ai  empowers market participants to streamline deal management processes and unlock new revenue potential. By removing traditional barriers and focusing on building valuable relationships, DealBridge.ai transforms the private markets industry. For additional information, please visit DealBridge.ai's website at https://dealbridge.ai. ABOUT FINITIVE Finitive is the leading data-driven private credit marketplace. Through its tech-enabled platform, institutional investors access a multi-trillion-dollar market of private credit opportunities across multiple asset classes and structures, including specialty finance, online lending, marketplace lending, and private credit funds. Borrowers gain efficient access to capital via a global network of investors who are actively allocating to private credit. All regulated activities are conducted through Private Brokers LLC, a registered broker-dealer and member FINRA/SIPC. For additional information, please visit Finitive's website at https://finitive.com.