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Ask the Experts: What to Do When Deals Go Wrong

September 29, 2022

Ask the Experts: What to Do When Deals Go Wrong

In the final panel of the conference, Michael Kelley, Partner at Parker Poe, moderated a discussion on lessons that can be learned from past deal issues. Panelists included Chip Hodgkins, Managing Director of Statera Capital, Tracey Thomas, CEO of IP Zone, and Erika Levin, Partner at Fox Rothschild. This panel highlighted several stressors and break points that occur in funding relationships and transactions. One issue that often comes up is that communication problems arise. For example, there can be reporting requirements that firms forget to bring up at the start of a relationship. It’s often difficult to communicate all of the various burdensome filing requirements. Another issue that can arise is economic inefficiency. Sometimes an inversion occurs, where a lack of attention to the budget arises, or a secondary counsel comes in and there’s an issue there. These things can cause obvious problems, given that lawyers just aren’t that great at budgeting, according to the panel’s perspective. The panel recommends transparency, and addressing issues instead of burying them, which is often the temptation. For example, on budgetary issues, often counter-parties might not even be aware of where they are in the budget, so a lot of times avoiding problems just comes down to sharing information before a dislocation occurs. Another interesting point: sometimes the relationship between law firm and funder becomes too cozy, and it’s no longer aligned with the client’s best interests. Tracey Thomas of IP Zone pointed out that in such situations, they’ve had to terminate the relationship, and they’ve found that termination is in their best interests in such circumstances. On case management, sometimes funders can try to take control of the budgetary decisions of the case. One example that was brought up was when a funder told a client to ‘shut up and dribble,’ and follow their lawyer’s advice on where to spend money. While that may have been in the best short-term interests of the case, it fractured the relationship. Not to mention the fact that it was borderline unethical. At the end of the day, the relationship between a lawyer and client should be sacrosanct. Once funding enters the relationship, things can get murky, and this can present ethical considerations that are very problematic. So this will be an ongoing source of contention as the litigation funding industry continues to mature.

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Privilege Expert Argues TPLF Agreements Are Not Automatically Shielded From Disclosure

A new comment letter to the Advisory Committee on Civil Rules contends that third-party litigation funding (TPLF) agreements do not automatically qualify for protection under the attorney-client privilege or the work-product doctrine — directly challenging one of the funding industry's central objections to a federal rule mandating disclosure.

According to AskAboutTPLF, an initiative of Lawyers for Civil Justice, the letter was authored by Bradley partner and privilege specialist Todd Presnell, who takes no position on whether a disclosure rule should be adopted. Presnell argues that TPLF agreements fail all four requirements needed to trigger attorney-client privilege: they are not communications, they are not between a client and lawyer, they lack confidentiality because funders are not parties to the litigation, and they do not contain legal advice or strategy. On that basis, he writes that he does "not perceive the attorney-client privilege or work-product doctrine as a barrier to adopting a mandatory-disclosure rule."

Two recent rulings are cited as support. In *Entangled Media, LLC v. Dropbox Inc.* (N.D. Cal., April 13, 2026), a court permitted a funded plaintiff to seal specific financial terms after in camera review while ordering production of the remainder of the agreement. In *A Co. Hungary KFT v. Bespalov* (Cal. App. 2d Dist., April 22, 2026), an appellate court affirmed $8,000 in sanctions against a judgment debtor who asserted work-product privilege as a blanket objection, holding that privilege claims over funding records must be made document by document.

The campaign argues these cases show courts already redact, seal, and log privileged materials routinely, and that TPLF agreements require no different treatment.

Commercial

Coalition Urges Congress to Curb Foreign Third-Party Funding Targeting the Energy Industry

A coalition of 21 organizations led by the American Energy Alliance (AEA) has called on congressional leaders to close a tax provision that allows third-party litigation financiers to treat their profits as capital gains rather than ordinary income. The group argues the loophole enables foreign investors to extract effectively tax-free returns from U.S. court outcomes, with the American energy sector squarely in the crosshairs.

According to the American Energy Alliance, the letter was sent on June 22 to House Speaker Mike Johnson, Senate Majority Leader John Thune, and the tax-writing committees in both chambers. The coalition contends that foreign sovereign wealth funds and geopolitical rivals have deployed substantial capital into U.S. energy-related litigation, creating national security vulnerabilities through undisclosed financing arrangements.

"Foreign nationals and foreign corporations with no U.S. presence pay no U.S. withholding tax on these gains," said AEA President Tom Pyle. The letter frames third-party litigation funding as a high-yield alternative asset class and warns that foreign entities are weaponizing it in disputes over climate claims, intellectual property, mergers, and environmental regulation.

The campaign reflects the growing convergence of litigation finance, tax policy, and national security in Washington. While the letter does not cite a specific bill, its focus on capital gains treatment signals that funders' tax positions — long a secondary concern in the disclosure debate — are emerging as a distinct front in the broader fight over third-party funding.

Commercial

Irwell Backs Addept With Expanded Legal Expenses Insurance Capacity

Irwell Insurance Company has agreed a five-year capacity partnership with managing general agent Addept Insurance Services, significantly expanding the legal expenses insurance (LEI) capacity available to the UK specialist. The deal builds on an arrangement first struck in April 2025 and is designed to give Addept longer-term planning stability as demand for LEI cover accelerates.

As reported by Insurance Business, the expanded capacity will allow Addept to underwrite a greater volume of business, though financial terms were not disclosed. "Securing strong, quality capacity is a key strategic priority to maintain our pace of growth," said Addept managing director Richard Finan. Irwell chief executive Giles Reading said the partnership is focused on "delivering products that offer fair value to policyholders."

The agreement comes against a backdrop of mounting pressure on the UK's employment tribunal system. Caseloads reached 68,192 at the end of January 2026 — a nearly 50% year-on-year increase — while total outstanding claims now exceed 500,000 and disposals have fallen by roughly 20% over the same period.

Sweeping legislative changes are expected to drive claim volumes higher still. The Employment Rights Act 2025 will extend the claim time limit from three to six months in October 2026, and from January 2027 the qualifying period for unfair dismissal claims will drop from two years to six months, with the compensation cap removed. For LEI providers, the reforms point to sustained demand — and a growing need for the kind of durable underwriting capacity the Irwell-Addept deal is intended to supply.