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Commercial Deals

Only 1-week until Information Management Network (IMN)’s International Litigation Finance Forum

On October 18th, 2022, IMN will host the International Litigation Finance Forum in London. The London edition of this one day summit will draw a diverse crowd of investors, litigation funders, brokers, corporate claimants, law firms and other entities in this developing market. LFJ will be reporting live from the event. So if you can't make it to London next week, check our website for regular updates on the panel discussions, which we will post the day of the event. We will also be live-tweeting from our Twitter account. Hope you enjoy IMN in London!
Announcements Case Developments Commercial

High Court shuts down BHP move to block access to class action

The High Court of Australia has today unanimously dismissed BHP’s attempt to block shareholders who are not resident in Australia from participating in a class action against the company.

The case, jointly run by Phi Finney McDonald and Maurice Blackburn, seeks recovery of investor losses caused by the mining company’s alleged breach of its disclosure obligations under the Corporations Act in relation to the catastrophic collapse of the Fundão dam in Brazil in 2015.

The High Court’s decision ends BHP’s multiple unsuccessful attempts over the last three years to exclude the claims of foreign residents who had invested in BHP Billiton Limited securities traded on the ASX, as well as investors in BHP Billiton Plc securities traded on the London and Johannesburg stock exchanges.

Cameron Myers, Special Counsel at Phi Finney McDonald, welcomed the High Court judgment.

“The High Court’s decision promotes access to justice, and confirms Australia’s class action regime as one of the most flexible and efficient mechanisms for resolving common issues between claimants. It ensures that foreign group members can seek redress and vindicate their claims in Australian courts,” he said.

“This decision has positive ramifications for all manner of class actions with an international element, including environmental claims. It will also benefit defendants who wish to resolve their liabilities, instead of cynically seeking to disenfranchise claimants.”

Irina Lubomirska, Special Counsel at Maurice Blackburn, welcomed the result.

“Despite the almost three-year delay occasioned by BHP’s appeals before the Full Federal Court and the High Court of Australia, we have steadfastly opposed BHP’s attempts to narrow the Federal class action regime. By rejecting BHP’s appeal, today’s High Court judgment endorses Parliament’s deliberate choice of a broader representative procedure which enhances access to justice and aids the efficiency of court processes,” she said.

“This is a welcome result not just for BHP’s shareholders but for all prospective group members, wherever located, who may continue to seek redress through our Federal class action regime.”

In today’s judgment in BHP Group Limited v. Impiombato & Anor (M12/2022), the Court stated, “BHP's construction of Pt IVA ignores the Constitution and the legislation passed by the Commonwealth Parliament vesting jurisdiction in the Federal Court, and rewrites the Federal Court of Australia Act.”

“Who makes the claim and where they live does not determine the jurisdiction of the Federal Court or the claims that may be brought in accordance with the procedures in Pt IVA.”

“BHP's construction would undermine the purpose of Pt IVA by not allowing non-residents to be group members in representative proceedings.”

On 31 May 2018, Impiombato v BHP Billiton Limited was filed in the Federal Court of Australia. The class action alleges that BHP breached its continuous disclosure obligations and engaged in misleading and deceptive conduct in its representations to the market.

Anyone who bought shares in BHP from 8 August 2012 through 9 November 2015 inclusive may be eligible to join this class action. Shareholders do not need to take any action to participate, but can register for further information at: www.bhpclassaction.com

Background

BHP, in a joint venture with Vale SA, owns Samarco Mineração SA, which operates the Germano iron ore mine in Minas Gerais state, Brazil. The 5 November 2015 collapse of the Fundão tailings dam at the Germano mine released approximately 60 million cubic meters of waste water in the largest tailings dam rupture ever recorded.

The mudflow flooded the nearby municipality of Bento Rodrigues and killed 19 people. Over 8,000 fishermen lost their livelihoods and 400,000 people lost access to potable water. The mudflow ultimately travelled 600 kilometres to the ocean, creating a toxic brown plume visible from space.

In the period that followed the dam collapse, BHP’s stock price plunged across all markets, falling 22% in Sydney and 23% in London and Johannesburg between 5 November 2015 and 30 November 2015. The class action will seek to recover losses to shareholders throughout this period, during which BHP’s combined market capitalisation fell by more than $25 billion.

Case Developments Commercial

Omni Bridgeway Funds Class Action Against IG Markets

Class actions that gain access to third-party funding have repeatedly demonstrated an ability to redress the balance of power in favour of individuals against large companies. A newly launched action in Australia looks to continue this trend, as an equity market broker is on the receiving end of a class action representing up-to 20,000 investors. Reporting in the Australian Financial Review details the announcement of a class action being brought against IG Markets, for allegedly marketing contracts for difference (CFDs) to investors without properly detailing the risks, and without proper assessment of these investors' ability to undertake such trades. The class action is led by Piper Alderman and is being funded by global industry leader, Omni Bridgeway. Martin del Gallego, a partner at the law firm, stated that IG Markets was improperly marketing these products to inexperienced investors who could not fully evaluate the risk they were undertaking. This case stands out due to its jurisdictional significance, as the sale of CFDs to retail investors is banned in both Hong Kong and the US. Federal judges within Australia have already previously taken a damming view of CFDs, with Justice Jonathan Beach comparing them to heroin.
Commercial Legal Innovation

Coinbase Funds Lawsuit Challenging United States Treasury Department on Crypto Privacy and Innovation 

Brian Armstrong (CEO and Co-Founder of Coinbase) recently announced litigation funding of a new lawsuit that questions the integrity of the United States Treasury's sanctions of Tornado Cash privacy software. Coinbase's litigation investment aims to vindicate six individuals who were added to the United States' sanctions list as part of banning Tornado Cash.  According to Coinbase’s blog, Tornado Cash's open source software design offers a valuable personal privacy protection utility. Coinbase claims that Treasury may have overreacted by sanctioning the entire Tornado Cash software program protocol technology.  Coinbase suggests that law-abiding citizens have a right to privacy, and that congress has not entitled the Treasury to sanction open source software. Coinbase also is concerned that Federal sanctions on open source software may preclude future software innovation.  Coinbase's hope is that the Treasury will reverse the personal sanctions attributed to the six individuals who are the subject of the claim. Additionally, Coinbase hopes to signal the firm's approach to protecting personal privacy and pure cryptocurrency innovation. 
Case Developments Commercial

Funder Purchases Claim Against Medical Company Accused of Fraudulent Restructuring

In the current financial climate, and with many companies still struggling to recover from the effects of the pandemic, the risks of malpractice and wrongdoing by these insolvent companies’ directors and their financial backers has reached the spotlight. In a new case set to be heard before the High Court, a medical company is facing claims that it illegally restructured in order to avoid paying creditors, including victims of a previous lawsuit. Detailed in an article by Yahoo Finance, Hospital Medical Group (HMG) along with its lender, Barclays, and its solicitors, Wilkes, are facing a £40 million claim for allegedly defrauding creditors. The legal action claims that both HMG and Barclays knew that the restructuring was illegal, but carried on regardless with the intention of not repaying outstanding loans. The claim is being brought by Henderson & Jones (H&J), a litigation funder which bought the claim from HMG’s liquidators. This case is sure to gain significant attention for two reasons. Firstly, HMG’s creditors include hundreds of women who successfully brought a claim against HMG for supplying defective and dangerous breast implant prostheses. Secondly, the claim highlights the potential liability for banks who are involved in restructurings, and emphasises the need for these financial institutions to ensure their client’s restructurings are not designed to defraud creditors. Henderson & Jones was co-founded by Philip Henderson and Gwilym Jones in 2016.
Commercial Deals

Cryptocurrency Fraud and Scams Represent Niche Opportunity for Funders

The boom in both interest and investment in cryptocurrency over the last few years has been synonymous with extraordinary stories of massive returns on investment, as well as an equal and growing number of instances of investors falling foul of scams and fraudulent schemes. For most retail investors, there has been relatively little hope of recourse, due to the capital requirements to fund litigation against these crypto schemes. As a result, victims are now looking to funders to finance their claims. An article by Cointelegraph Magazine examines this new trend and highlights specialised funders who are emerging to meet this niche demand, including Nemesis, a new litigation funder. Founded by Jason Corbett, previously a managing partner at Silk Legal, this start-up aims to finance claims against those crypto schemes and projects in order to secure financial compensation for victims, and Corbett argues, to ensure that this niche industry becomes a more secure and trustworthy market. Bill Tilley, managing partner at LegalTech Investor, highlights that these efforts are not without their difficulties, due to the often near-impossible task of pinning down which jurisdiction these defendants can actually be taken to court in. This is reflected by Corbett, who states that the best jurisdictions to bring claims are still those which have more established and broader third-party funding industries, such as the UK, US and Australia.
Commercial

LionFish’s Managing Director Takes Aim at the Voss Report

Since the approval of the Voss Report by the European Parliament last month, which included more stringent regulatory reforms to third-party funding, there has been severe backlash from funders and legal professionals alike, who have argued the suggested proposals would do more harm than good. As LFJ has reported in recent weeks, these critiques have come from across multiple jurisdictions, including industry leaders in Canada who are keen to avoid any emulation in their own country. An opinion piece in The Law Society Gazette by Tets Ishikawa, managing director of LionFish, offers a detailed critique of the Voss Report and argues that it is flawed both in its central premise and the data used to support its proposals. Tackling the report’s claim that funders are frequently seeing returns of over 300% and even reaching 3,000%, Mr Ishikawa highlights that this is based on outdated and out-of-context data points. Instead, he points to the latest data from Burford Capital, which suggests such returns represent a fraction of actual investments by funders, and that a more statistically representative average would be closer to 69%. LionFish’s Ishikawa also argues that while the report’s proposals claim to be in service of protecting consumers, these measures do little to achieve that. Instead, he suggests that the European Commission consider implementing an obligation for losing defendants to pay the funder’s costs, as this would wholly protect claimants from exploitation. Finally, Mr Ishikawa notes that while the report uses Australia as an example of a jurisdiction that has implemented stricter regulation on litigation funding, we have seen in the last few months that Australian courts and now the government have actually reversed course and are implementing reforms to widen access to third-party funding.
Commercial Regulatory Issues

Canadian Litigation Funding Leaders Argue Against Increased Regulation

The evolving state of litigation finance regulation continues to be a key issue for funders around the world, and while the demand for third-party funding is on the rise, certain jurisdictions are looking to tighten regulatory oversight of the industry.   In an article by Canadian Lawyer, law firms and funders alike are speaking out against suggestions that their own jurisdiction would benefit from industry regulation via legislation. Omni Bridgeway’s chief investment officer in Canada, Paul Rand, argues that oversight from the courts already fulfils the function of such regulation, and that creating further restrictions does not solve any tangible problem the industry faces. Leading figures from Canadian law firms agree, with Hugh Meighen of Borden Ladner Gervais and Chenyang Li of Davies Ward Phillips & Vineberg, both stating that litigation funding in Canada already exists within a cautious best-practice model. Li points out that it is always in the best interest of funders to maintain a reliable and trustworthy relationship with clients, as without it, they would never see returns on investments. Rand highlights that the Canadian industry is also experiencing ongoing growth, with Omni Bridgeway looking to meet demand from larger corporate clients who view third-party funding not as a necessity, but as a valuable tool to utilize.
Commercial Special Features

Key Takeaways from LFJ’s Special Digital Event: ESG in Litigation Funding

On Wednesday October 5th, LFJ hosted a panel discussion and audience Q&A covering various aspects of ESG within a litigation funding framework, including how funders consider ESG claims, how serious LPs are when it comes to ESG-related criteria, and the backlash swirling around the topic itself. Panelists included Andrew Saker (AS), CEO of Omni Bridgeway, Neil Purslow (NP), CEO of Therium Capital Management, and Alex Garnier (AG), Founding Partner and Portfolio Manager of North Wall Capital. The event was moderated by Ana Carolina Salomao, Partner at Pogust Goodhead. Below are some key takeaways from the digital event: How do you consider ESG being relevant to litigation funding? AS: It’s a truism that litigation funding provides access to justice. By definition it’s a social benefit. Litigation acts as a deterrent, and leads to environmental, social and governance improvement. So financing that through litigation funding assists with the achievement of various ESG goals. ESG can both be a goal to be achieved through litigation funding, and also internally to be used to identify risks internally, and to inform decision-making. How do your LPs consider ESG? Is ESG part of their mandates? Is it truly something that benefits your fundraising? AG: We at North Wall are launching the third vintage of our legal assets fund, having deployed the first two vintages. There is strong investor demand for ESG-compliant and ESG-focused litigation financing. The questions asked on ESG are the same as with litigation financing – we’re asked how we screen deals, how we incentivize counter-parties to continually improve on ESG. In our partnership with Pogust Goodhead, you have given us an undertaking to pursue only ESG-compliant cases (not that that was required, because that is the whole philosophy of the firm). But we have put that in place in documents in a non-litigation financing context. For example, when investing in e-commerce businesses, we have put in place interest rate ratchets linked to measurable goals such as environmental and social factors—achieving carbon neutrality, etc. And then actively seeking cases that meet ESG criteria as well. Cases around recompense for exploited workers is an example. I think investors are also concerned about people going too far the other way—about greenwashing, tokenism, at taking positions at the expense of returns and downside protection. Do you see that because you have an ESG awareness, you are able to access different investment pools than you otherwise would? Can you use it as leverage when fundraising? NP: From Therium’s perspective, we see that some of our LPs are very focused on ESG-compliant criteria. We’ve been reporting to them for years on ESG compliance in different ways and how we think about that in our asset class. But you have to be careful here about what ESG means in the context of this particular asset class. What we’re doing is very different vs. a private equity fund or something like that. So you have to answer investor concerns very specifically for our asset class. And you also have to be careful about making ESG claims in a way that makes sure they are properly understood to our audience (particularly if you are addressing a retail audience). There is a danger there, that we all need to be very cognizant of. How do managers and investors think about supporting a case that has strong ESG components to it, but doing so for a plaintiff that is non-ESG (for example, an Oil & Gas claimant)? AS: The perception of what ESG is, needs to be taken in context of that particular case. Supporting a coal company would not be considered an ESG strategy. But if that coal is being used to provide power and heat and electricity in the middle of winter to Ukraine, then yes it could be considered a socially important strategy. So it is a challenge. In some of our funds, that decision is taken away from us – our LPs have very strict no-go zones. That does assist us in identifying those claimants we’re able to support. In other funds, we have a great degree of discretion. Generally, we try to balance what we consider to be competing ESG requirements and objectives.   Will the International Legal Finance Association look to establish ESG criteria or metrics for the industry? NP: That’s a very interesting question. I am not aware of any discussion to do that yet. I think it’s extremely important how the industry engages with this topic. There is also another side to this—the greenwashing aspect. We need to be very careful that our industry is not representing itself to be something it is not. So there is a very strong case for a strong ESG narrative here. How ILFA engages with that in best practices has not yet been discussed. What are the particular challenges or hurdles which funders, law firms or claimants might face in environmental suits specifically, in addition to the usual financing criteria? AG: You tend to have very deep-pocketed defendants, which requires a level of stamina. You also tend to have a very wide group of claimants, because so many people have been affected by the environmental disasters in question. The flipside of that of course, is that the public relations impact of a defendant digging its heels in when they’ve done something of that sort means that a settlement is much more likely, as the liability and causation is much clearer than it is in other cases.
Commercial Deals

Bench Walk Funds Class Action Against Visa and Mastercard

There has been a noticeable uptick in the volume of class action suits brought in the UK, spurred by commercial litigation teams eager to take on these cases and supported by third-party funding to ensure claims can be financed to their (hopefully) successful conclusion. A new case in front of the Competition Appeal Tribunal (CAT) underscores this pattern. Outlined by an article in LondonlovesBusiness, UK law firm, Harcus Parker, is bringing a claim against Visa and Mastercard on behalf of businesses who were allegedly hit with unlawful charges for accepting card payments from international customers. Jeremy Robinson, a partner at Harcus Parker, states that Visa and Mastercard’s use of Multilateral Interchange Fees (MIFs), was both unlawful and anti-competitive. The class action is being brought as an opt-out claim for businesses with under £100 million in pre-Covid turnover, whilst larger entities are being invited by Harcus Parker to opt-in. The claim itself is being funded by Bench Walk Advisers.
Commercial Fundraising

Litigation Capital Management Raises $273 Million for its New Fund

As demand for litigation funding has continued to grow with funders seeing increased adoption from major law firms and corporate entities, the market is also seeing a parallel increase from investors looking to funnel their capital into this alternative asset class which can offer stable returns amid economic uncertainty. Reporting by Proactive Investors highlights a recent example of this, with the announcement by Litigation Capital Management (LCM) that is has now reached over 90 per cent fulfilment of its Global Alternatives Return Fund II, with $273 million invested. The funder stated that it had seen repeat contributions from all investors in its first fund, and has additionally received investments from both a UK and a European pension fund. This announcement comes only two weeks after LCM reported that Fund II had already passed two-thirds of its target, with the company’s chief executive, Patrick Moloney, stating that this second fund will allow the funder to meet the increased market demand for third-party funding.
Announcements Commercial People Moves

Omni Bridgeway doubles U.S. team in 12 months, announces key promotions and new hires

Omni Bridgeway is pleased to announce expansion and key promotions within its U.S. team, which has grown by over 100% in the past 12 months.  In New York, Sarah Tsou has been appointed Senior Investment Manager and assumes the role of Portfolio Manager - Global Intellectual Property overseeing Omni Bridgeway’s widely recognized IP business and team of dedicated IP professionals. This portfolio role underscores Omni Bridgeway’s unique global IP capabilities and worldwide footprint spanning key IP markets. Fiona Chaney, who heads the company’s Los Angeles office, was also recently appointed to Senior Investment Manager and Legal Counsel. Fiona also serves as co-lead of the company’s insurance initiatives. We also congratulate Chris Citro (New York), who has been promoted to Investment Manager and Legal Counsel, with a focus on patents and other intellectual property matters. Further building out the company’s dynamic IP team is Phillip Goter who recently joined as Investment Manager and Legal Counsel. Phil’s arrival marks Omni Bridgeway’s continued expansion on-the-ground including new operations in the Midwest. Based in Minneapolis, Phil joins from Fish & Richardson with over a decade of experience representing plaintiffs and defendants in high-stakes disputes involving patents, trademarks, copyrights, trade secrets, antitrust and competition law, and FDA clearance. Phil is an Adjunct Professor at the University of Minnesota Law School and a member of the Expert Network for Lunar Startups, an incubator specializing in growth and innovation for diverse, high-potential entrepreneurs. In Washington D.C. we welcome Matt Leland as Investment Manager and Legal Counsel. Matt joins us from King & Spalding LLP where he was a commercial litigation partner and successfully litigated diverse legal issues for corporate plaintiffs and defendants in the energy, manufacturing, healthcare, pharmaceutical, and construction industries. Matt helped clients recover substantial damages in many of his cases, which often involved contract and commercial disputes, government reimbursement claims, unfair business practices, civil RICO, protection of trade secrets, and trademark infringement. Prior to this, Matt was a partner at McDermott Will & Emery LLP. On the business side, we welcome Joseph Cho as Corporate Counsel based in New York. Joe joins us from Weil, Gotshal & Manges LLP where he represented public and private companies in complex mergers and acquisitions. His previous experience includes private practice at Cahill Gordon & Reindel LLP and Wilson Sonsini Goodrich & Rosati PC. The U.S. team has also grown its slate of associate investment managers, legal counsel, and business support, doubling Omni Bridgeway’s U.S. headcount to over 45 in the past year.  Andrew Saker, Omni Bridgeway’s Managing Director & CEO and Chief Strategy Officer – US notes, “We are delighted to welcome Phil, Matt and Joe, and congratulate our investment team colleagues in their promotions. We are committed to attracting and retaining the top talent in the U.S. market who bring a unique combination of legal expertise and financial innovation, to result in the best outcomes for clients. Our model is more than financial – we are skills, plus capital. Companies and law firms in the U.S. are responding to our offering, and this is reflected in our continued growth.”
Commercial Regulatory Issues

Defense-Side Funder Faces Cost Order in Australian Case

While the vast majority of litigation funding continues to be devoted to financing actions by plaintiffs, there has been a noticeable increase in firms discussing and actively pursuing defense-side funding. However, as a recent case in Australia is demonstrating, this kind of third-party funding is not without its challenges, and may represent a risky proposition where there is the possibility of cost orders being leveled against the funder. A piece of analysis by Corrs Chambers Westgarth examines the case of Sentinel Orange Homemaker Pty v Davis Investment Group Holdings in the Supreme Court of New South Wales. Davis went into liquidation shortly after Sentinel sued the company for invalid contract termination, due to Davis allegedly reneging on a contract to purchase land from the plaintiff. Davis’ legal defense was funded by John Davis Motors (JDM), which had been planning to conduct business operations on the aforementioned land (JDM is not a pure funder).  Sentinel’s claim was successful, and the Court issued a costs order against JDM as the funder. The analysis highlights the need for funders, even when they are not dedicated litigation funders, to be mindful of the potential financial risk should their client lose in court.  The case has put a spotlight on the wide discretion at the court’s disposal to order costs against a third-party funder, particularly where they have a separate financial interest in the outcome of the claim.
Commercial Deals

ATE Insurance Provider Litica Reaches $750 Million in Exposure

For litigants concerned about financial exposure if their claim is unsuccessful, After the Event insurance represents an invaluable tool. Therefore, while litigation funding is experiencing a period of increased growth as an industry, there has also been a commensurate rise in the adoption of ATE insurance by claimants, as demonstrated by one provider’s recent announcement. As reported by Legal Futures, ATE insurance provider Litica has now reached a total of £750 million in insurance supplied to clients pursuing litigation. Despite only having been active since May 2019, Litica’s co-founder, Steve Ruffle, says that the firm is already innovating within the market and has positioned itself as an industry leader with the capacity to ensure around £23 million on any individual risk.  The company has not only seen tremendous growth in the UK, but also launched a dedicated presence in Australia earlier this year, with the appointment of Phillip Lomax, as the managing director for Litica Australia.
Commercial Legal Innovation

ILFA’s Gary Barnett Discusses the State of the Litigation Funding Sector

Despite an uncertain economic climate, and investors remaining understandably cautious about how they’re investing their capital, litigation finance continues to remain a strong alternative asset class for investors looking to escape broader market turbulence. For long-time industry leaders, the state of the industry is one of opportunity, as third-party funding is seeing wider adoption across existing and new jurisdictions. Speaking with LegalDive, the CEO of the International Litigation Finance Association (ILFA), Gary Barnett, argues that this growth is a result of increased awareness of the practice across all sectors, and it is this education that is key to seeing that growth continue, despite economic uncertainty. Mr Barnett also points to recent decisions in the courts which have demonstrated the benefits of litigation funding, not only for smaller plaintiffs who lack the resources to fund proceedings, but also for large entities who can reap the benefits of this tool. Responding to the frequently repeated criticism that third-party funding encourages frivolous claims, Mr Barnett points out that funders are dependent on ROI, and a firm that is spending its capital on non-meritorious claims would be running a self-defeating business model.  Discussing the other hot topic of disclosure of involvement by litigation funders, Mr Barnett argues that courts have the ability to compel disclosure where necessary, but that a blanket requirement for disclosure in every scenario would not be beneficial and would distract from the legal merits of any given case.
Commercial Fundraising

Erso Capital to Invest $500 million in Patent Dispute Funding

This year alone we have seen an increasing number of high-profile patent and trademark disputes receiving litigation funding, including several cases which secured wins for claimants against major corporations. Therefore, it is no surprise that funders are looking to dedicate more capital to these types of cases, and are taking increasingly active positions in patent disputes. As reported by Bloomberg Law, Erso Capital is one of the latest funders to see potential value in this area, announcing a $500 million war chest specifically to finance patent disputes. While Erso Capital is relatively new to the industry, its co-founder, James Blick, states that this move has come about as a result of the increased market demand for funding patent claims, particularly in the technology and life sciences industries. Erso is looking to split these funds primarily between US and UK cases, but Mr Blick has said that they are looking to increase their investments further afield, both in Europe and in other jurisdictions around the world. This move reflects current market trends, with research from Westfleet Advisors showing that 29% of all new litigation funding investments last year were devoted to patent disputes.
Commercial Regulatory Issues

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.
Commercial Regulatory Issues

Best Practices and Lessons Learned in Firm-Funder Partnerships

This Day 2 panel featured Alex Chucri, CEO and Founder of Pravati Capital, Vincent Montalto, Partner at DLA Piper, and Ronald Schutz, Partner at Robins Kaplan. The panel was moderated by Kathryn Boyd, Partner at Hecht Partners. Discussion topics ranged from operationalizing firm decisions involving funding, to the best ways to structure a funding partnership or alliance. Not everyone knows about the various structures of relationships between law firms and funders, so the panel addressed the various models in play, including those that involve some form of recourse funding. Pravati has a debt structure in play, which founder Alex Chucri thinks makes the most sense for his firm's structure. He believes in recourse to the firm, to the management team, and personal guarantees. This makes investors more comfortable, knowing that Pravati has skin in the game. Panelists also discussed having to monitor the capital structures, and being cautious about capital allocation. A lot of funders raise $100MM and need to put that capital to work, and so they finance claims the wouldn't otherwise take on. This is concerning. "When you put capital into a deal, it changes the whole landscape of a deal," according to Vincent Montalto. His firm has implemented internal structures to monitor capital expenditure and management. The panel also delved into some of the risks of partnering with funders, including whether funders will withdraw their funding - how and why would they do this? Where is funder money coming from - there are all types of investment structures out there, law firms have to be aware of those, so they can better understand the risk to the funder, which presents a downstream risk to them. These are things that the average lawyer in a law firm doesn't appreciate, but it's very important to know if the funder  has the capital on hand, is it subject to capital calls, etc. One final point on the tax implications of recourse funding: recourse funding can be clawed back, and so its treated as a loan and so it's not taxed. Recently there was a legal standing that if the funding structure is non-recourse, that is treated as income, which means it is taxes. Often, there are a lot of emotions about getting a deal done, so they overlook the tax implications, and there is a real danger there.
Commercial Special Features

Adam Gerchen Discusses His Approach to Litigation Finance

Day 2 of the LF Dealmakers conference kicked off with Roy Strom, a reporter at Bloomberg Law, interviewing Adam Gerchen, CEO of Gerchen Keller Partners and Keller Postman LLP. Adam Gerchen spoke on a variety of issues.  A few takeaways below: On the growth of claims sizes: Prominent case examples like the 3M class action, which several years ago would have been 50,000 claimants, and today is above 250,000 illustrate the sector's evolution. That is due to advancements in digital marketing, and technology enabling the intake and management of all of those claimants. So the industry is ballooning in ways that are rather unique. On fundraising: Within a portfolio, the lack of co-variance is actually similar to reinsurance. So there are all sorts of powerful things you can do from a portfolio construction perspective. LPs already have so much exposure to litigation funding and they don't even know it. It's much less of a unique thing than they previously believed. On the interesting macro-environment right now:  If I were on the allocation side right now, this is a space I would definitively find attractive. The thing LPs may not know is, where you are in the lifecycle of these claims is very interesting. Look at mass torts - you have torts that have been around for several years, that are not being priced correctly. On what he is most excited about: Insurance wrappers that can wrap an entire fund - "I can't believe it." In the spectrum of things Gerchen would do, an IP appellate risk doesn't seem the most attractive, but that is where folks seem to be most engaged. He thinks in the short-term this is extremely interesting, but then again, insurers have a much lower cost of capital than funders, so that could compress pricing downstream, which could cause issues. But overall, these are very exciting times.
Commercial People Moves

How Qian Julie Wang’s Upbringing as an Undocumented Immigrant Informed Her Legal Career

For the keynote address of the LF Dealmakers conference, Validity Finance Founder and CEO Ralph Sutton, introduced NY Times Best-Selling Author and Civil Rights Litigator, Qian Julie Wang. Her memoir, Beautiful Country, was ranked a best book of 2021 by the New York Times, and has been well-reviewed by many distinguished outlets. Ms. Wang began by sharing her 'most humiliating story' from Big Law. She began her carer at a top-5 firm as a hungry summer associate eager to prove herself at this white-shoe law firm. She noticed that partners and associates kept coming to her asking her to take on various assignments, and didn't realize that she should select which ones to work on, so she said yes to each offer, so quickly found herself working on 10 major litigation cases. For the next month, Ms. Wang skipped all of the orientation, lunches, outings, and buried her head in WestLaw doing research. It turns out, one of the training sessions she missed was quite important--because a senior partner at the firm called her into his office and asked her what the hell she had been doing for five weeks? Ms. Wang hadn't been billing any of her research time, because she had missed the training session that explained that part of the process. So the vast majority of her work went un-billed. Through some self reflection, Ms. Wang realized that her problem stemmed from her belief that she didn't belong. Her very first job was age 7 at a sweatshop in Chinatown, as an undocumented immigrant, and here she was in a fancy white-shoe law firm. She had spent her life afraid of anyone in a uniform, afraid they might be out to deport her. And so when she got her summer associate job at the law firm, she brought that insecurity in the door with her. Ms Wang described her family's suffering under the Communist takeover of China, how they were imprisoned and tortured for reading banned books. She came to admire two Americans she read about--Ruth Bader Ginsburg, and Thurgood Marshall. That was when she decided to become a lawyer, when she eventually came to America. However, like many lawyers, she fell into the trap of focusing just on the compensation. She billed and billed so many hours that she lost her sense of purpose. It wasn't until she started writing her memoir, Beautiful Country, that she re-discovered the reason she became a lawyer in the first place. She realized that the little girl who had grown up working in a sweatshop dreamed of being a lawyer so she could help people, and here years later she had achieved that dream, but the allure of those billable hours had caused her to lose the plot. Ms. Wang took a sharp turn and decided to focus her efforts on helping marginalized communities. Her work now helps her find her way back to the child she was, and provides a sense of fulfillment about her career that she never previously experienced.
Commercial Deals

CIO Roundtable: Art of the Deal from Terms to Returns

A panel consisting of Sarah Johnson, Senior VP and Co-Head of Litigation Finance at D.E. Shaw, Aaron Katz, Co-Founder and CIO of Parabellum Capital, David Kerstein, Managing Director and Senior Investment Officer at Validity Finance, and Joe Siprut, CEO and CIO of Kerberos Capital Management, discussed the various investment aspects of litigation funding as an asset class. The panel was moderated by Steven Molo, Founding Partner of MoloLamken. The conversation began with new trends in the industry. Price compression came up early. Joe Siprut of Kerberos Capital Management noted he has witnessed price comparison over the past couple of years, including having seen multiple term sheets that were mis-priced. Litigation finance has always been about attractive risk-adjusted opportunities, yet if the risk remains the same and price compression remains, that reduces the attraction of the asset class. Moderator Steven Molo was surprised there hasn't been more fallout in this regard. Aaron Katz of Parabellum pointed out how things are opening up after COVID, and that helps a lot, given that a pipeline of cases awaiting trial quickly burns through ROI. Katz countered the price compression argument, stating that he hasn't witnessed real price compression and hasn't found his firm to be competing on raw price. Of course this depends on which segment of the market you are looking at. The conversation then steered toward ESG, and David Kerstein of Validity noted how there are green shoots of funders getting involved in impact litigation. Yet for most commercial funders, ESG would maintain the same type of analysis as any other case--that said, funders like to have a 'good story' for the case, and ESG can bring that to the table. Aaron Katz mentioned Parabellum is very cautious about ESG in particular. "We think people need to be careful about labelling things incorrectly," said Katz. There are real impact players out there, and litigation funders should be careful about loosely claiming the mantle. The next question was pretty blunt: Is there a secondary market right now? Aaron Katz thinks not "I pray for it daily." There is a network of well-resourced institutional players who like to look at claims, but the transactions are laborious (DD challenges, information asymmetry). The secondary participant is not going to be in a direct conversation with the counter-party, and that could cause complications. One final point: Joe Siprut noted that the evolution of a secondary market is one of the main things that can really unlock a lot of investment for the industry. One of the main barriers to investment is the long lockup period investors are staring at, and if a secondary market were to materialize, that would make fundraising a much easier sell.
Commercial Deals

A Recap of the Opening Panel at LF Dealmakers

Day 1 of the LF Dealmakers conference has begun. The opening panel saw Ted Farrell, founder of Litigation Funding Advisors, moderate a wide-ranging discussion on the state of legal finance. Panelists included James Bedell, Associate Director of Legal Finance at Yieldstreet, Cindy Chen Delano, Partner at Invictus Global Management, Stephen Kyriacou, Managing Director of Aon, and Michael Nicolas, Co-Founder and Managing Director of Longford Capital. The discussion began with the evolution of the sector as a maturing asset class, away from discussions between ‘smart lawyers’ and into the mainstream. The panel underscored the range of players in the space now—3M, J&J, and others—which illustrates how far the industry has come. Additionally, the size and scope of claims—large-scale, nine-figure claims—which highlights the impact the asset class has had on the broader Legal Services sector. Additionally, the embrace of litigation funding by Big Insurance is a signal of the industry’s ongoing growth prospects. Michael Nicolas of Longford noted how his firm can now protect principal investment, and even some of the profit they’d like to return to investors, which is ‘a game changer,’ as now credit investors can consider becoming LPs because they can grow more comfortable with the risk profile of the sector. Cindy Chen Delano echoed the ‘game-changer’ remark, noting the different types of debt structures that can be originated now that insurance is on board, all the way up to high-yield bonds, which she sees coming down the pike. Stephen Kyriacou of Aon also pointed out how he was one of two insurance providers at last year’s conference, and there was no discussion of the subject. This year, there are more insurers in attendance, and the subject has already come up in the first discussion, and will continue to as the event progresses. Perhaps something unique about this conference is the encouragement of questions from the audience. The first panel took a question from an inventor who stressed the importance of funding in the inventor space, and lamented that in his experience it’s been so difficult to obtain the financing needed. The panel acknowledged his concern, and noted the industry’s emphasis on IP investment, while also pointing out that selectivity is paramount if a funder is going to survive long-term.
Commercial

Day 1 Preview of the LF Dealmakers Conference

Wednesday, September 28th 2022 is Day 1 of the 5th Annual LF Dealmakers event in New York City. LFJ will be covering the event live, via both on-site content and live-tweeting from our Twitter account. Below, we’ll offer a brief preview of what to expect on Day 1. Day 1 is packed with content, including six panel discussions and a keynote address. The initial panel, “The State of Legal Finance: Key Developments in a Maturing Industry” will feature Ted Farrell, founder of Litigation Funding Advisors as moderator of a panel including LF professionals from Yieldstreet, Invictus, Aon and Longford Capital. As the name suggests, the discussion will revolve around key trends and developments in the sector, including new players, product innovations, the evolution of a secondaries market, and more. Other notable Day 1 panels include “The Disclosure Debate: Transparency vs. Confidentiality,” “Insurance and Litigation Finance in Action: A Case Study Exploration,” and “CIO Roundtable: Art of the Deal from Terms to Returns.” The final panel of the day is a sector spotlight on the rise of funding in Mass Torts litigation, which promises to offer a deep dive discussion on the benefits, drawbacks, ethical considerations and future prospects for this area of litigation funding. Day 1 rounds out with a keynote address, which will take the form of an interview between Validity Finance founder and CEO Ralph Sutton, and NY Times best-selling author and civil rights lawyer Qian Julie Wang. Ms. Wang’s mission is to confront and dismantle systemic barriers for underprivileged communities, which she believes can be supported through the type of legal representation typically reserved for wealthier clients. Her memoir, Beautiful Country, will be gifted to all attendees of the conference. For more on the Day 1 agenda for LF Dealmakers, including information on how you can attend virtually, click this link.
Commercial Deals

LexShares Research Indicates Trade Secrets and Antitrust Cases Represent Top Opportunities for Funders

Whilst a common talking point around the litigation finance industry in recent years has been its continued growth and the rise in demand for third-party funding, this shouldn’t be confused with a willingness by funders to take any case that comes across their desk. Detailed in a new piece of research by LexShares, litigation funders continue to remain selective in terms of which matters they fund, with trade secrets and antitrust cases representing attractive opportunities. Highlighted in an article by LegalDive, the new Litigation Funding Barometer by LexShares provides insights into the volume and types of cases being taken on by funders. Evaluating potential cases against 25 performance benchmarks, LexShares found that trade secrets and antitrust disputes are among the best performing opportunities for funders. However, LexShares’ director of investments, Allen Yancy, points out that trade secrets cases are still risky due to the difficulty in identifying what level of lost profits should be awarded. Hitting back against claims that litigation funders regularly pursue cases without any real merit, the CEO of the International Legal Finance Association, Gary Barnett, points out that if this were actually the case, then funders would not be able to maintain a profitable business as they would never see returns on their investments.
Commercial Deals

Litigation Funding Leaders Highlight Vast Opportunities in India

As regulatory structures continue to evolve in jurisdictions around the world, global litigation funders are keeping a careful eye on new markets that could represent fruitful opportunities. One such market that has been gaining attention recently is India, which has only been further highlighted in comments by major industry figures at the country’s inaugural Litigation and Insolvency Summit. As reported by BW LegalWorld, the conference held in Mumbai saw Omni Bridgeway’s managing director, Tom Glasgow, highlight the country as a key jurisdiction of interest. Glasgow pointed out that while LegalPay, which hosted the event, has been leading the way in the country, there are a growing number of opportunities for funders looking to explore a more global view, particularly in the realm of ESG investments. LegalPay’s own founder and CEO, Kundan Shahi, stated that India represents a huge opportunity for funders, and that LegalPay will continue its goal of widening access to justice for those who require third-party funding. The conference’s roster of speakers also included Karam Advani, managing partner for SEA at Profile Investment, Hiroo Advani, founder of Advani Law, and the entrepreneur and philanthropist, Ashwini Kakkar.
Commercial Regulatory Issues

Class Action Regulatory Reform Opens the Door to Litigation Funding in Western Australia

As LFJ reported earlier this month, the Australian federal government is looking at rolling back some of the more stringent regulations on litigation funders in the country. This liberalising tone at the national level seems to also be reflected at the state level, as Western Australia looks to rework its regulatory framework for class actions, and in the process allow for the participation of third-party funding. In a piece of analysis by Australian law firm Clayton Utz, the adoption of the Civil Procedure (Representative Proceedings) Bill looks to bring Western Australia into closer alignment with the Federal class actions framework. Importantly for the industry, the bill also has the effect of opening the way for litigation funding, as it removes the torts of maintenance and champerty in Western Australia. The state government noted that this move was reflective of the fact that litigation funding is an accepted part of the country’s modern legal system, and would effectively encourage claimants to seek legal redress, where previously costs would have been prohibitive. However, analysis by Clayton Utz notes that this bill does not abolish the ban on the charging of contingency fees by law firms within these class action cases.
Commercial

Lake Whillans Founders Talk Industry Growth and Current Trends

With the litigation finance industry continuing to experience high levels of growth, industry leaders are now able to see how this once niche sector has evolved into the thriving market it is today. The founders of one such well-established funder, Lake Whillans, recently discussed how the third-party funding industry has evolved and where it is headed in the future. Speaking with Above The Law, Lee Drucker and Boaz Weinstein discussed the fact that after many years of the industry trying to justify its own existence and the very legality of the process, it’s major evolution has come from the widespread adoption of the practice by law firms and large businesses, where it had previously only been commonly used by SMEs. Weinstein notes that while major law firms were more eager to work with funders than enterprise-level companies, they are now seeing a wider demand and acceptance of third-party funding by these corporations. Drucker and Weinstein highlight education as one of the most important tools funders must deploy to continue this growth, emphasising the need to educate both legal professionals and executives as to how litigation funding is not just a last resort, but a useful tool to be deployed. The founders also emphasise the need for their firm, like many others, not to take a standardised approach to funding, and to always tailor their offerings to each company or firm’s individual needs.
Announcements Commercial People Moves

Stephanie Schrandt Boone joins Law Finance Group as General Counsel

Law Finance Group (LFG), a leader in the litigation finance industry since 1994, today announced that Stephanie Schrandt Boone has joined the firm as General Counsel. Having worked in executive leadership for Swiss Re for more than 17 years, Ms. Boone brings with her extensive legal governance and operational experience. “Stephanie’s experience working cross-functionally within a large, global financial services firm, is a tremendous asset to Law Finance Group,” said Kevin McCaffrey, LFG’s CEO. “We are thrilled to welcome Stephanie to our team as we scale our firm to take further advantage of the growing opportunities in the litigation finance market.” As General Counsel, Ms. Boone will provide legal advice and strategy to LFG’s executive team. Ms. Boone is excited to join Law Finance Group, explaining, “it is my personal belief that litigation risk transfer and access to justice should be available to everyone. Working with Law Finance Group will allow me to put these beliefs into action.” About Law Finance Group Founded in 1994, Law Finance Group is a leading litigation funding firm focused on investing in high-value civil litigation opportunities. Law Finance Group partners with law firms and their clients to mitigate risk, improve cash flows, and leverage existing assets in the face of litigation risk. The firm has offices in Mill Valley, New York, and Austin. For more information, visit www.lawfinance.com.
Announcements Case Developments Commercial

Victims of Brazil’s ‘sinking city’ to have case heard in the Netherlands

Communities lost to damage caused by salt mines in Northern Brazil are celebrating after securing the right to sue petrochemical company Braskem in the Dutch courts.

The claimants, who have seen their homes collapse and neighbourhoods disappear beyond repair in the municipality of Maceió, Alagoas due to the nature of Braskem’s mining are one step closer to justice.

Represented by global law firm Pogust Goodhead and local co-counsel Lemstra Van der Korst, they will now have their case for compensation assessed in the Dutch courts after Braskem S.A, the largest petro-chemical company in Brazil, failed to offer adequate and fair redress.

Residents of the area have watched in horror as their community has been hit by small earthquakes caused by nearby mining for salt underground for over four decades. Many have been evacuated to escape the tumbling walls, buildings and businesses after the structures built on top of now unsafe land threaten to topple further. While few others remain – resolute not to accept small sums of money offered by Braskem to relocate.

The exodus and crumbling of buildings are now evident by the ghost-town like images of the neighbourhoods which were once home to hundreds of small businesses. Braskem have offered what lawyers say are unfair sums of compensation after being obliged to remove families from the ‘red’ danger zones in the area – but have failed to accept liability.

Furthermore, the company’s ‘moral damages’ offers have been made on a per-household rather than on a per person basis and have equated to the same as the value of lost luggage by an airline in Brazil or less, according to caselaw from Brazilian Courts.

Several of the claimants attended the hearing in May in Rotterdam where lawyers argued that it is necessary to litigate against Braskem in the Dutch courts where the company have their European headquarters.

Maria Rosangela Ferreria Da Silva, 58, attended and told the court she and her family had lost their sense of identity when her neighbourhood crumbled – and she and her family were forced to move away. She lost her mum shortly afterwards and has been fighting for justice ever since.

She said: “I would say justice has been done. Thank God, I wake up with this news; I will be the happiest woman in the world, it will be my best gift. After being alive, that's it. That the God I trust has never abandoned me. So, I would say 'justice has been done', and thank God.”

The ruling rejected all of Braskem’s arguments against jurisdiction in the Dutch Courts – and an application to appeal. The court stated: “The claims against both Braskem SA and the Braskem NL entities have a delictual basis. In the main proceedings, in addition to Braskem SA, the Braskem NL entities, as part of the Braskem group, were held jointly and severally liable for the (same) damaging consequences of the earthquakes (as a result of mining activities) on the basis of the environmental liability law in general and the doctrine of indirect polluter's liability in particular, according to plaintiffs in Brazil. In this sense, the claims against the Braskem NL entities on the one hand and Braskem SA on the other are inextricably linked.”

It held: “The Braskem group, and therewith Braskem SA as top-holding of the group, has chosen to locate the entities that take the financial decisions, and its European headquarters, in Rotterdam. Against this background, Braskem SA could reasonably foresee that, if not only these entities but also herself – as top-holding – were to be sued, this could happen before this Court.”

The jurisdictional success is the latest in a run of cases for lawyers at Pogust Goodhead – who recently won an appeal to have the case of 200,000 victims of Brazil’s worst environmental disaster, the Mariana dam disaster, litigated in the UK courts. They have also secured settlements in relation to VW and British Airways claimants.

Now the claim has been accepted to be heard in the Netherlands, the case is expected to enter the merits phase where liability is established.

Partner at Pogust Goodhead Marc Krestin said: “Taking this case to the Dutch courts is about getting justice for the people who have lost everything as a result of the mining activities of Braskem. They have lost their homes, their community and their sense of identity due to this large corporation taking what it wants from the land and not giving a second thought to the environment and people around them that it may harm.

“We are here to see that this does not keep happening. We now urge Braskem to take note of this ruling, stop denying responsibility for its actions and do the right thing by all those that have been harmed.”

Pogust Goodhead pursues the case in partnership with law firms Neves Macieywski, Garcia e Advogados Associados, Omena Advocacia, Araújo e Máximo Advogados Associados, and Lemstra Van der Korst.

Commercial Deals

Latin America Represents a Strong Market for Arbitration Funding, Says Omni Bridgeway

While litigation funding is still most active in the well-established markets of North America, Europe and Australia; pockets of demand are starting to gain traction in other territories. One market that funders are keeping a careful eye on is Latin America, where firms are keen to take advantage of a new lucrative revenue stream. One such firm is Omni Bridgeway, who in an article for Latin Lawyer, offered an overview of the current state of third-party funding in the region. Omni argues that Latin America is perfectly placed to take advantage of dispute funding due to its strong legal industry, loose regulatory frameworks and legal systems that are frequently receptive to arbitration, yet have claimants with minimal capital to fund proceedings. Omni highlights that the primary area of interest for funders in the region is not in commercial litigation, with arbitration dispute financing being a much more beneficial opportunity with a lower risk margin. The firm also notes that interested parties should not just think of the LatAm market through an insular lens, but instead as another venue for selecting international or cross-border cases which may involve outside investment from clients in North America and further afield.