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Case Developments

Disclosure Reveals Non-Profit Funding Climate Change Litigation

New Jersey’s new disclosure rule regarding third-party legal funding is in effect. As such, a recent climate change case saw the disclosure of a non-profit providing limited funding for attorney fees and expenses. Wisconsin state courts and federal courts in the Northern District of California have adopted similar rules in recent months. Legal Newsline explains that lawyers from Korvatin Nau and Emery Celli of New York filed disclosures stating that the Institute for Governance and Sustainable Development is funding the case. Defendants include Exxon, Chevron, and BP over their alleged impact on climate change. Lawyers disclosed the funding despite the non-profit not having a financial stake in the outcome of the case—an unusual arrangement for third-party funders. The Rockefeller Brothers Fund has also contributed to funding climate change litigation via the IGSD. The oil industry prefers these cases to be tried in Federal court, owing to the difficulty plaintiffs will face as opposed to state courts. SCOTUS is expected to rule on the issue soon.
Regulatory Issues

Mainstreaming Class Action Cases and Litigation Funding

This past year has seen multiple judgments supporting the validity of class actions—once thought ‘too American’ for many jurisdictions. London courts in particular have paved the way for collective actions against big businesses. Litigation funding has proliferated, and is spurring access for justice to parties who would otherwise be left out in the cold. Law Gazette details that earlier this month, a collective action against MasterCard was certified, and will proceed to trial on behalf of 46 million people. A Brazilian court just reopened a claim against mining company BHP—which could be worth billions. British Airways also settled a data breach case that impacted more than 16,000 people. Increasingly, judges are affirming the value of class action and collective litigation. However, some old-school judges remain intransigent. This could lead to increased regulation and more uniform rulings in the future. The same applies to third-party litigation funding. Litigation funding was once dismissed as an opportunistic scheme, but is now viewed as a vital part of class action litigation. As litigation funding becomes more accepted and utilized around the world, its inherent value in increasing access to justice grows more apparent. At the same time, funding agreements have raised eyebrows when claimants must pay large portions of their award to funders. Third-party funding is non-recourse, so funders are taking a significant risk in supporting these cases. It makes sense that their rewards will be substantial. Many class action cases couldn’t move forward without funding. It’s been asserted that more sophisticated funding models could ultimately lead to larger payouts for claimants. Tets Ishikawa, managing director of Rosenblatt offshoot LionFish, explains that third-party funding is often unjustly maligned. Pricing for litigation funding isn’t much different from other financial markets. LionFish, for example, is a principle funder (rather than one who invests on behalf of others), and therefore has more leeway in the size and types of cases they fund.
Deals

A Guide for Choosing a Litigation Funder

As lawyers, courts, and plaintiffs develop an appreciation for Litigation Finance, competition becomes increasingly robust. Demand for funding is up, as are the number of new funders throwing their hats into the ring. There’s a wide array of funding entities now, and they vary in terms of preferred case size, minimum and maximum deployments, jurisdiction, commercial or industry specialties, and more. Above the Law details how claim holders can best go about choosing the right litigation funder to meet their needs. One might think that rankings would give the clearest picture of the available funder options—but does it? Cost is considered the most important factor in choosing a funder, according to respondents in this year’s annual survey of lawyers. That’s not surprising, but it’s worth noting that cost probably shouldn’t be a deciding factor—at least not without further consideration. Preferred investment size and type are both important. Most funders have a preferred investment size that is based on timing, award potential, the likelihood of settlement, and more. Knowing how your case coincides (or doesn’t) with what funders are looking for can help you approach the likeliest match. The same goes for preferred investment types. Some funders only take commercial cases, or class actions, or patent and IP cases. Finding a funder that specializes in your case type brings additional expertise and experience to your team—which has benefits that can far outweigh a monetary percentage. Capital reserves and the right to end a funding agreement are also critical considerations. A funder should be well capitalized at the outset and should remain so for the life of the case. Also, carefully consider the terms under which a funder can exit and cease funding your litigation. Is the funder committed to seeing the case through to completion? Statistics can tell you about funders, but they can’t really discern the right funder for your specific situation. That’s why all factors deserve consideration before a choice is made.
Commercial

Taurus Capital Founder Talks Litigation Funding as Alternative Investment

Litigation Finance is a growing asset class, spurred on by the financial fallout caused by COVID. Increasingly, investors are seeking uncorrelated investments. As Gary Sweidan, founder of Taurus Capital explains, litigation funding is about as uncorrelated as it gets. Moneyweb explains the attraction of this alternative investment, who it benefits, and how it all works. As explained, funding litigation as a third party doesn’t correlate to stock markets, currency rates, global politics, or more mainstream investments. Taurus Capital follows a model similar to established funders in the UK, Australia, the US, and elsewhere. A funded entity raises a fund with input from investors. That capital is then deployed toward meritorious cases that are carefully vetted. Funding is provided on a non-recourse basis, so a funder loses the entire deployment if the case is not successful. As such, mitigating risk is essential. Funders have widely varied parameters for fund size and deployment goals. Taurus Capital currently has a fund with R145 million, which is expected to be deployed over seven or eight cases. The target is a four-to-five-times return on investment. Of course, some cases may be more lucrative, but some may be total losses. But even with the fund losing a case or two, investors can still expect sizable returns according to Sweidan. The timeline for cases is varied and not entirely predictable. Sudden settlements can end cases far earlier than expected. Endless motions or appeals can drag a case out for years. In South Africa, where Taurus Capital is based, it’s not uncommon for a case to take three to five years to complete. Finding a funder who will see a case through to completion is essential for plaintiffs who don’t want to be left bereft of funding to complete their case. Taurus utilizes a legal risk committee made up of senior counsel (both active and retired), and an investment committee with commercial expertise. Both the legal and commercial aspects are vital parts of vetting potential cases for funding.
Commercial

What Statistics Tell Us About COVID Business Interruption Insurance

It’s no surprise that COVID has resulted in an influx of insurance-related litigation. Specifically—the question of whether individual commercial insurance policies cover business interruption caused by the pandemic. Burford Capital suggests that analyzing the current numbers can give us a sense of momentum—but the totality of how COVID will impact past and future insurance coverage cannot be predicted with the information available. While new cases are being filed daily, nearly 2,000 COVID-centric insurance cases are either pending or resolved. About 85% of concluded cases have favored insurers. Insurers are moving cases from state to federal courts when possible—despite the fact that insurance policy interpretation is governed by contract law—a state issue. Federal courts thus far have been more likely to favor insurers. As the virus continues to cause damages totaling trillions, business interruption claims will no doubt be a significant part of the legal landscape for years to come. 
Announcements Fundraising

BCCE Announces $12 Million Funding Round

Bank Cartel Claims Europe (BCCE), a joint-venture of law firm Grantley Sinclair LLP and litigation finance firm Commercial Damages Claims Limited today announced a $12M funding round for its dedicated litigation finance fund, the Bank Cartel Claims Fund (BCCF), providing institutional and individual investors the ability to access a portfolio of litigation-related assets through a single fund allocation. BCCE has identified three recently decided EU antitrust cases that it believes are highly suitable for follow-on antitrust litigation: the European Government Bonds Case, the Sovereign, Supra-Sovereign & Agency Bonds Case, and the Foreign Exchange Case. In each of these cases, investment banks participated in a cartel through a group of traders. Cartel behaviour between competitors is the most serious form of anti-competitive behaviour and carries the highest level of penalties. Fines totaling €1.47 billion ($1.73 billion) were imposed on the investment banks by the European Commission. “Companies are liable for violations of antitrust law and victims are entitled to full compensation for the actual losses and lost profits that they have suffered,” BCCE Director Kees Arnaud said. “In these three cases, for example, the pension and hedge funds that lost millions of dollars because of these illegal cartels can effectively claim their damages through actions before a national court. A national court cannot overrule the European Commission on the issue of liability, so in most cases, the only remaining question to be decided is the amount of the damages. This makes antitrust litigation very attractive for investors.” “Investments in litigation financing generally offer high yields,” said Frank Mulder, COO of litigation finance firm Commercial Damages Claims Limited. “The key to higher returns is selecting lawsuit investments with key characteristics that mark them as effective investments. And thanks to a variety of modern innovations in finance and the law, investors can access litigation markets in ways that were not possible even a decade ago.” BCCE plans to use the capital to hire leading barristers, solicitors, and economic experts to pursue these claims against the banks. Damages are expected to exceed $1 billion. Find out more at https://bankclaimsfunding.com About Grantley Sinclair Grantley Sinclair is a leading law firm with more than 25 dedicated lawyers and public affairs experts. Clients big and small, from some of the world’s largest multinationals to small tech start-ups, trust Grantley Sinclair to solve their most challenging and business-critical problems. We provide insight at the point where law, business, and government meet, giving clients a voice and achieving successful outcomes. For more information, please visit: https://grantleysinclair.com About CDC CDC is a premier litigation finance firm that helps corporations exercise their right to full compensation for harms caused by e.g., breach of contract, business torts, or illegal cartels. CDC can arrange for the coverage of all the ongoing risks and expenses of litigation, including any adverse cost risk. It aims to deliver an arrangement that works for the client; therefore it operates in both the insurance and funding markets. For more information, please visit https://commercialdamagesclaims.com
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Regulatory Issues

Kosovo Welcomes Third-Party Legal Funding

In recent years, Kosovo has taken a number of steps to promote foreign investments. Among these is the ratification of bilateral investment treaties with Switzerland, Luxembourg, Austria, and Belgium, among others. In 2014, a Law on Foreign Investment was adopted, which outlines the use of arbitration for investor-related disputes. Michelman & Robinson LLP, along with Bench Walk Advisors, explains that while Kosovo has not adopted the full measures of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, its Laws on Arbitration accomplishes many of the same things. As the financial climate improves, Kosovo is taking steps to attract more foreign investors, including third-party funding. Specific criteria are utilized when evaluating risks associated with cases:
  • Merits. Obviously, cases must be meritorious in order to qualify for funding.
  • Legal Team: Funders rely on the plaintiff’s legal team to win a satisfactory result for the client. Legal teams with a strong history of success and expertise in the area of dispute are essential.
  • Dispute Forum: Funders will specialize in specific forums for disputes. Some may want to avoid jurisdictions known to be unreliable, notoriously slow, or otherwise lacking in procedural stability or predictability.
  • Budget v Damages: Generally funders will have a minimum and maximum budget limitation. This means either a limit on how much funding they will deploy on a single case, or a minimum potential recoupment before considering a case for funding.
  • Enforcement and Defendants Financial State: Winning an award doesn’t help investors if the award cannot be collected. Most funders will examine the defendant’s ability to pay, as well as consider other potential enforcement issues such as hidden assets, or cross-jurisdictional issues.
Kosovo has taken some excellent first steps toward encouraging outside investment—with litigation funding strengthening investor confidence.
Announcements Fundraising

Liti Capital Token wLITI Lists on HitBTC, Bringing Litigation Financing to the Masses

Liti Capital, the Swiss-based litigation financing company that has made private equity investing accessible to everyone through blockchain technology, has listed its wLITI token for the first time on a centralized exchange (CEX) - HitBTC. wLITI’s first CEX listing follows its recent listings on decentralized exchanges (DEXes) Uniswap and 1Inch Exchange. Having launched earlier this year, Liti Capital is already making waves in traditional investing by bringing litigation financing — an investment practice traditionally monopolized by hedge fund heavyweights and elite investors — to the masses. “We are very excited to list on HitBTC,” said Liti Capital CEO Jonas Rey. “This represents a major milestone toward our goal of leveling the playing field for litigation finance. Legal claims are an extremely appealing asset class because they can be so lucrative, and we provide a means for anyone to get in on this exciting investment opportunity.” Founded in 2013, HitBTC is one of the oldest and largest spot-trading cryptocurrency exchanges in the world. It is well-known for its state-of-the-art matching engine, high security measures and low trading fees. With a trading robot-friendly API and 24-hour customer service, HitBTC is a popular exchange with over 800 trading pairs and more than 400 spot instruments. Putting traditional investing on the blockchain Litigation financing is the practice of bringing in investors to cover the cost of a lawsuit or arbitration in exchange for a portion of the profit. Litigation financing specialists, such as Liti Capital, purchase litigation assets for cases they deem to have a high chance of winning. While litigation financing often requires an initial investment of USD 500 K to USD 1 million from an investor, Liti Capital makes it accessible for anyone with as little as USD 50. They do this by tokenizing shares in LitiCapital, and paying out dividends to LITI equity token holders when a case in Liti Capital’s portfolio is won. wLITI, or “Wrapped LITI” — the token listed on HitBTC today — is Liti Capital’s ERC-20 liquidity token. It doesn’t provide access to dividends like LITI does, but wLITI can be exchanged for LITI tokens at a 5000 to 1 ratio. However, both tokens give holders the power to vote on how Liti Capital assets are used to finance crypto fraud cases that affect Liti Capital community members, an initiative that the company is dedicated to allocating between five and ten percent of their yearly investment budget for. Boasting a billion-dollar case portfolio Liti Capital has already secured a healthy case portfolio, with their largest case potentially worth more than USD 1 billion when it finally settles. Cases like these, which tend to be commercial rather than consumer or personal lawsuits, usually target large-scale corporate disputes valued at more than USD 10 million. While they could take years before a settlement is reached, successful litigation funders can expect to pocket between three and five times their initial investments, according to estimates by litigation finance expert Steven Friel (Bloomsbury, The Law and Business of Litigation Finance, 2020). To attain this goal, Liti Capital onboarded seasoned industry leader David Kay as CIO and Executive Chairman. Boasting more than a decade of experience as Funding Partner and Portfolio Manager of a billion-dollar private equity fund in the litigation financing space, Kay successfully enforced what was at the time the largest international arbitration award in history, bringing in over USD 1 billion in cash and securities. “Litigation assets generally don’t correlate with the state of the economy, allowing litigation financing to thrive even in a bear market,” Kay explained. “A relative newcomer to the modern investment ecosystem, litigation financing is expected to double in market value within the next six years. Our investment team at Liti Capital is actively seeking out the top opportunities in litigation assets, and aims to add at least five more multi-million dollar cases to our portfolio by this time next year.” Listing details Trading Date: August 17, 2021 3:00 pm UTC Deposit Opening: August 16, 2021 3:00 pm UTC Trading Pairs: wLITI / BTC wLITI / USDT About Liti Capital Switzerland-based Liti Capital is a Swiss Limited Liability Co. specializing in litigation finance and fintech. Liti Capital buys litigation assets to fund lawsuits and provide a complete strategic solution along with connections with top law firms to help clients win their cases. Tokenized shares of the company lower the barrier of entry for retail investors and give token holders a vote in the company’s decision-making process. Dividends are distributed to LITI token holders upon the success of the plaintiff. Co-Founder Jonas Rey heads one of the most successful intelligence agencies in Switzerland, Athena Intelligence. His two co-founders, Andy Christen and Jaime Delgado bring operational, innovation and technical skills together to round out the leadership team. David Kay, CIO, ran a billion-dollar NYC private equity litigation finance firm before joining Liti Capital.
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Case Developments

German Asset Manager Sues Over Wirecard Bankruptcy

A lawsuit brought by Union Investment, Germany’s third-largest asset manager, is not welcome news for banks and bondholders. Wirecard is accused of making more than 70 statements, including corporate press releases, that are being described as fraudulent. FR24 News reports that Nadine Hermann of Quinn Emanuel stated that because Union Investment made decisions based on misleading statements, its claims should positioned alongside those of more senior creditors, such as banks and bondholders. This lawsuit has the potential to set precedent for other shareholders impacted by the Wirecard bankruptcy. The case is being funded by Burford Capital, a leading third-party litigation funder. So far, more than 14 billion Euros in claims have been filed against Wirecard with Michael Jaffe, the administrator. Jaffe has amassed about 600 million Euros from the sales of Wirecard assets. Should this lawsuit be successful, Union Investment would receive a share of the accumulated capital currently earmarked for Wirecard’s creditors, as would Burford. The banks and bondholders have filed multiple legal opinions rejecting Union’s claims.
Regulatory Issues

Omni Bridgeway CEO Andrew Saker Responds to Proposed Statutory Price Cap

It cannot be denied that third-party litigation funding is a boon to justice. In many instances, it’s the only way that impecunious plaintiffs can have their day in court. At the same time, legal funding is a business that depends on ROI for investors. That’s why funders have a lot to say about a proposed new regulation in Australia, legislating a standard minimum return to class members in funded class actions. Some have suggested this guaranteed percentage be as high as 70%. Is that reasonable? Omni Bridgeway CEO Andrew Saker penned his opinion on the matter, based on years of experience in the industry. Saker begins by pointing out that the 70% figure doesn’t appear to be based on any available data. It’s an arbitrary figure arrived at without input from funding groups like ILFA, nor does it factor in the significant risk undertaken by funders who deploy funding on a non-recourse basis. Since the Hilmer Review in the 1990s, it’s been established in Australia that the government should only intervene in those markets where there has been a market failure. That’s simply not true of the funding industry. While dire warnings of frivolous class actions haven’t abated, this explosion of opportunistic cases never materialized. Saker is clear in stating that funding is already subject to checks and balances, self-regulation by industry leaders, and increased court input on settlement approval and even funding agreements. The proposed allocation of 70% of awards or settlements to class members would negatively affect over 90% of cases, according to an analysis by PwC. In some instances, the remaining award funds wouldn’t be enough to cover legal expenses, or would reduce funder commission so drastically that it loses value as an investment. Leading funders like LCM, Woodsford, and Burford Capital all agree that an arbitrary price cap will hurt funders, lawyers, and potential claimants who may find themselves with no financial help when they need it most.
Fundraising

Litigation Finance Product for Retail Investors Launches in India

One Delhi-based startup has created a litigation funding platform with retail investors in mind. Investors may now fund cases as a third party for as little as 25,000 rupees, or about $335 USD. Called LegalPay, the startup is focusing on late-stage commercial arbitrations. Business Today explains that LegalPay is backed by LetsVenture and 9Unicorns, among other venture capital firms. It plans to develop an SPV of about a dozen cases to diversify risk. The focus will be on commercial B2B cases with big-ticket defendants and a predictable timeline. Investing in third-party funding is typically only available to the wealthy. LegalPay makes this opportunity more accessible to average investors. Potential investors should have a clear understanding of how third-party funding works, and especially its non-recourse model—before making an investment. Founder Kundan Shahi details that his business model is such that even winning as few as one in six cases will mean that invested capital will be secure.
Commercial

Insights Into the Energy Industry

The COVID pandemic has wreaked havoc on many industries, energy included. Energy usage fell, production disruption was rampant, regulations changed all over the world, and at least 19 energy companies filed for bankruptcy last year. Burford’s newly commissioned 2021 Asset Report explores the ways in which energy companies can use their legal assets to create revenue. Burford Capital details that while energy litigation can be costly and time-consuming, it’s also among the most lucrative. When polled, more than ¾ of senior finance professionals in the energy sector say that even extensive affirmative recovery programs aren’t meeting the needs of the company. This could be addressed by better communication between legal and financial departments. Greater reliance on quantitative analysis over qualitative analysis when vetting pending legal claims would also be helpful. Burford Capital’s recent roundtable featured some top legal minds in the energy field. Mark Baker, global co-head of international arbitration at Norton Rose Fulbright,  states that volatility in the energy sector has been the norm long before COVID. Oil and gas are constantly in a state of flux depending on investment regimes, politics that alter energy policy on a global scale, and a transition toward green energy, which all impact pricing and availability. Michelle Gray, a founding partner at Fogler, Brar, O’Neil, and Gray, speaks to the uncertainty that’s still clouding active lawsuits. There has been precious little precedent with regard to COVID-centric litigation. Until that happens, it’s impossible to predict how litigation—or even arbitration—will progress. The use of litigation funding along with quantitative financial analysis makes perfect sense. The expertise provided by experienced funders can be instrumental in identifying which litigation is worth pursuing, and then maximizing its value. Non-recourse funding can mitigate expenses and legal fees while creating untapped revenue and reducing risks--without adding costs to the balance sheet.
Regulatory Issues

Australia Eases Continuous Disclosure, Extends Virtual AGMs

While class action attorneys and litigation funders are fuming, publicly-listed companies in Australia are breathing easier after continuous disclosure laws were relaxed. This move is expected to protect company officers against liability for deceptive, misleading, or incomplete disclosure to stockholders—unless fault is proven affirmatively. Yahoo! Finance explains that the move is meant to stifle “opportunistic” shareholder class actions, according to Treasurer Josh Frydenberg. The new rules also allow annual general meetings to be held virtually rather than in-person, through March 31 of 2022. These new rules are described as ‘temporary relief,’ though Frydenberg noted that more lasting reforms are expected to be introduced before the end of 2021. There are concerns, however, that these new relaxed rules may limit shareholder’s legal options for holding executives to account.
Announcements Consumer

Legal-Bay Lawsuit Funding Enters Attorney Funding Market with Law Firm Loans Up to $25MM

Legal-Bay, The Pre Settlement Lawsuit Funding Company, announced today that they are now assisting a large number of attorneys with their funding needs. The premier lawsuit funding company is currently working with lawyers and law firms, generating a renewed focus on cash flow needs that may have arisen due to Covid-19 shutdowns and a severely slowed court system. Chris Janish, CEO of Legal-Bay, commented, "We have secured ample capital in our quest to assist our many law firm clients. We're able to get them the money they require to help them carry on with their professional needs, as case settlements have slowed down due to Covid-19. Legal-Bay is now positioned to be a full-service funding firm–and invaluable resource–for law firms and their clients alike by helping with cash-flow needs and building case value through our multitude of funding products." If you are a lawyer or law firm who needs an immediate cash advance and are interested in discussing how law firm loans can help you, please visit Legal-Bay HERE or call toll-free at 877.571.0405. When it comes to case cost funding, funding for experts, trial cost, or medical procedure / surgical funding for a client, attorney loans are invaluable to lawyers and medical providers. Many law firms have walked away from great cases because they couldn't pull the funding together for personal injury clients that don't have insurance. Also, smaller firms sometimes need to bring in additional counsel for bigger cases because they cannot self-fund things like expert costs, excessive trial costs, or general case costs needed to properly prosecute a valid claim. Plus, now that surgery centers are strapped for cash as well due to Covid they are more hesitant to undertake personal injury surgery on lien or Letter of Protection (LOP). Now, law firms can go to Legal-Bay to help finance the surgery by paying the medical provider upfront. This greatly improves the case value for the client, and the medical provider is more than willing to work with the law firm. Legal-Bay can structure large and small transactions mostly on a non-recourse basis depending on the nature of each transaction. Legal-Bay has helped lawyers in New York, New Jersey, Florida, Pennsylvania, California, Texas, and Ohio, but they work with attorneys from all states, even outside of NY, NJ, FL, PA, CA, TX, and OH. Let them provide immediate capital to scale your operation with credit lines up to $25MM. They are a leader in the industry with access to large capital portfolio companies. They offer the fastest approvals with less underwriting than traditional banks, and interest rates/usage fees have simple terms ranging from 12% to 40% per annum with no upfront fees or hidden costs built into the contracts. They can tailor transactions and paybacks, so your cash-flow remains strong. Legal-Bay's goal is to work tirelessly to help get your firm the capital it requires. If you are a lawyer or law firm who needs an immediate attorney loan or law firm loan, please visit Legal-Bay HERE or call toll-free at 877.571.0405. Keep in mind, there are some key requirements to be eligible for funding: 1. Diversified portfolio of personal injury cases and/or other contingency fee type cases 2. Track record of success in settling and/or trial wins 3. Steady cash-flow and profits each year 4. Reputable principals within the firm with a history of integrity Legal-Bay provides fast attorney loans for your law firm and your clients in need. Their staff is trained to make things as efficient for your team as possible. They want to be a resource to help your clients hold out for a fair settlement while also not inundating your firm with unnecessary document requests. Legal-Bay's loans for lawyers provide the lowest industry rates so that any funding liens do not get in the way of settling your client's case… and most importantly, put more money back into their pocket! If you are a lawyer or law firm who needs an immediate cash advance for trial cost funding, funding for experts, or surgical funding, please visit Legal-Bay HERE or call toll-free at 877.571.0405. Legal-Bay remains vigilant in helping clients with their professional and personal needs. Any clients who need cash now can apply for funding to help them get through their financial crises. Legal-Bay funds all types of law firm loans including funding off personal injury cases, attorney lines of credit, attorney fee acceleration, advancement of attorney fees, case cost lines of credit, case cost funding, case cost disbursement funding, and many more. Legal-Bay works directly with many top law firms to provide the best cash advance rates in the industry in as little as 24 - 48 hours. They can assist with acquiring needed loans for law firms in circumstances such as:
  • Portfolio loans
  • Funding for trial costs, trial cost loans, case cost funding, or lines of credit
  • Law firm loans, law firm portfolio loans, law firm portfolio financing
  • Attorney funding, Lawyer funding, law firm funding, law firm advance
  • Non-recourse law firm advance, law firm financing
  • Attorney pre-settlement funding or attorney post-settlement funding
  • Legal Receivable Factoring
  • Appellate funding, appellate financing
  • Judgement on appeal loans, judgement on appeal funding
  • Verdict loans, verdict financing
  • Commercial litigation loans, commercial case funding, commercial case advance, commercial case loans, commercial lawsuit advance, commercial lawsuit loans, commercial lawsuit funding, commercial loans, commercial advance, commercial funding
  • Whistleblower loans, whistleblower advance, whistleblower funding
  • Qui-tam loans, Qui-tam funding, Qui-tam advance
  • Patent infringement funding, copyright infringement loans
Legal-Bay's law firm funding programs are designed to provide immediate cash for attorneys who need advance capital to meet their firm's financial demands. To apply right now, please visit the company's website HERE or call toll-free at: 877.571.0405 where agents are standing by to answer any questions.
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Regulatory Issues

Insight on the Development of Litigation Funding in Ontario

Canada has joined the US, UK, EU, Singapore, and Australia (and now many others) in having fully embraced third-party legal funding. Courts are seeing the value in the practice and are ruling accordingly. Combined with the increase in contingency fee arrangements—Canadian plaintiffs are seeing access to justice increase. Woodsford Litigation Funding explains that legal funding began with a desire to help plaintiffs have their day in court—especially against a rich defendant, corporation, or even a government. Since then, the scope and benefits of litigation funding have adapted to the needs of the market. Now, third-party funding is used by CFOs and GCs to manage legal expenses and share risk with other parties. In single plaintiff and class action cases, funding often leads to more equitable settlements, due to a variety of factors, including the added legal expertise and the capability of rejecting lowball offers thanks to a lack of financial constraints. The Ontario Trial Lawyers’ Association recently developed best practices standards for lawyers and funders. These are similar to the codes of conduct used by the Association of Litigation Funders. In January 2020, a Quebec Court of Appeal decision requiring a litigation funding agreement be given to creditors as ‘a plan of arrangement' was overturned. An earlier order by the supervising judge was reinstated. Thus, third-party funding used as interim financing should be determined on a case-by-case basis. Judges may permit third-party funds as interim financing when it is in the interests of justice to do so. Third-party funding for class actions has been approved several times—including David v Loblaw, where courts allowed the use of funding under the following conditions:
  • Plaintiffs, not funders, direct litigation decisions
  • Funder is able to cover an adverse cost order
  • Courts must approve if funder backs out of the case
  • Plaintiffs are given independent legal counsel on the funding agreement terms
Ontario residents now have more options with which to pursue meritorious claims.
Regulatory Issues

ILFA Comments on UNCITRAL Working Group TPF Reform Proposals

The International Legal Finance Association (ILFA), founded in 2020, is a global association of third-party legal funders committed to self-regulation and promoting high industry standards. The ILFA has provided commentary on the proposed new regulation, as well as context around the concerns purportedly being addressed. The ILFA explains that in developing new proposals, the Working Group did not liaise effectively with ILFA members or the funding market as a whole. Also, the proposals appear to stem from a biased narrative emanating from academic (rather than hands-on) experience, deliberately casting doubt on the legitimacy of the funding industry. There’s also a rather stunning lack of supporting data. The proposals were ostensibly made to address some rather spurious concerns, according to ILFA. Among these are:
  • That funding increases the total number of frivolous claims
  • That funding leads to more investor-state arbitration claims
  • Funding increases the number of cases in which states are unable to recover costs.
Granted, these would be legitimate concerns, if indeed there was evidence that supported them. By the Secretariat’s own admission—there is no data supporting the existence of these concerns. ILFA is made up of the 14 largest third-party funders in the world. Therefore, it makes sense to consult with industry professionals when suggesting new legislation that impacts the work they do. After a lengthy explanation of the wrongheadedness of the Working Group’s findings, ILFA reiterated its commitment to working with UNCITRAL’s Working Group to assuage its concerns by providing additional data. ILFA remains confident that the Working Group’s concerns about the industry can be addressed in a manner that does not impede access to justice.
Case Developments

Motion to Disclose Legal Funding Agreement Denied in Boeing Action

A motion to compel disclosure of a funding agreement was denied in a recent case accusing Southwest Airlines and Boeing of collusion to cover fatal aircraft defects. Damonie Earl et al v Boeing revolves around allegations that Southwest and Boeing colluded to mislead ticket buyers about 737 Max Jets—which were defective. Southeast Texas Record details that defendants asked to see all third-party legal funding agreements for all firms representing plaintiffs in this RICO case. Plaintiffs filed an opposition to the motion, claiming that the request is ‘grasping at straws’ with no legitimate basis for concern. Still, there may be concern over the relationship between Pierce Bainbridge and its fraught relationship with Virage Capital. None of the other legal firms involved in the Boeing action have funding agreements in place. The motion was denied on August 2nd by US District Judge Amos Mazzant—who said the information requested was now moot since the attorney in question has withdrawn from the case.
Case Developments

Claims of Investment Losses Spark Investigation

Leading litigation funder Omni Bridgeway is currently investigating claims made by CMC Markets’ Crude Oil West Texas Intermediate Cash product. Investors are encouraged to register their interest in a potential class action relating to investment losses and damages. This is not book building, but rather a gauge of interest in the matter. Omni Bridgeway details that CMC Markets created a network to allow investors to speculate on the price of oil. The volatility in crude markets caused by COVID led to a sharp drop in crude oil prices. This caused CMC Markets to alter the URI for West Texas crude oil. These changes included automatic close-out positions, depending on price, and preventing investors from opening new positions in the CFD. Investors were understandably upset at these changes, and now claim they were misled, and that changing the URI was unfair. CMC Markets offered this product to customers in Australia, New Zealand, the US, UK, the EU, and Singapore. Now many are saying they suffered losses and damage. Those WTI Cash product investors registering interest should be aware that doing so is not an invitation to participate in a case. Offers for participation will come in the form of a Product Disclosure Statement.
Regulatory Issues

Should Legal Funders Be Required to See Cases to Completion?

Claimants were shocked and upset recently when a settlement ended a class action lawsuit against James Hardie—leaving potential claimants without any compensation. One such claimant, Leslie Wheatley, stated that she and other claimants believed they had a strong case. Allegedly defective cladding systems caused their homes to leak, necessitating significant and expensive repairs. Stuff NZ reports that claimants believe that they were wronged by Harbour Litigation Funding, which pulled its funding from the case near the halfway point of the 15-week trial. Wheatley explains that the homeowners then had no choice but to accept the settlement, which means the case ended without any award to claimants. Wheatley alleges that Harbour’s decision was fatal to the case, as there was no way homeowners could have raised the money needed to keep it going. The class-action case endured years of research and preparation before the trial, including expert witnesses. Wheatley claims that this should have given funders adequate time and information to properly vet the case. Once the case began, she said, funders have an obligation to see it through to the end. Despite Wheatley's objections, no law mandates that funders continue funding a case to completion. In most jurisdictions and according to the ILFA, third-party funders are not permitted to influence decision-making in the cases they fund. How then, can a funder be expected to maintain a case to completion, if that funder believes the claimant and/or their legal team isn't pursuing the most effective legal strategy? Other funders are speaking out on this issue. Phil Newland, co-director of LPF, stated that it would harm access to justice to prevent funders from pulling out of un-winnable cases. Requiring funders to stay with a losing case could upend access to funding in the long run.  It's likely this heated debate will continue for some time.
Case Developments

Class Action Against Mayne Pharma

In 2016, anti-trust proceedings were filed against Mayne Pharma, asserting that it conspired with other defendants to artificially inflate generic pharmaceutical prices and restrain trade. This led to a 10% price drop over several days of trading. Phi Finney McDonald explains that Mayne neglected to inform investors that it was in violation of the Sherman Antitrust Act. Now, a shareholder class action is underway, with funding provided by Vannin Capital. The suit alleges that shareholders endured losses and damages as a result of Mayne’s failure to disclose relevant facts. Current and former shareholders who purchased Mayne shares between November 2014 and December 2016 are invited to register interest in the case.
Case Developments

Lloyds of London Class Action Seeks Additional Claimants

Attorneys for a class-action case filed against Lloyds of London are asking other affected businesses to join the action. The focus of the case involves business interruption insurance, and whether or not COVID-related closures should be covered. Jeweller Magazine reports that noted Australian funder Omni Bridgeway is financing the action. This means that there is no upfront cost to impacted parties who wish to sign on as potential claimants. Cody Opal Australia, the parent company of the National Opal Collection, has joined the action. Cody Opal’s claim on the policy was rejected in May of last year despite business losses of more than $3 million. The sticking point here is whether the losses happened because of events taking place within 20km of the business premises, rather than because of the pandemic on the whole.   A town hall-style webinar will be held on August 18th. Interested parties may access the meeting via the attorney’s website: Gordon Legal. One partner at Gordon Legal, Andrew Grech, stated that the insurers have wrongly denied claims, failing to support jewelry and gem merchants when they were at their most vulnerable. Representatives for Gordon Legal advise policyholders to start the normal claim process and seek out their own legal advice. Business owners are welcome to submit their policies to determine eligibility for the class action.
Case Developments

Of Course You Should Always Read the NDA Before Signing!

Sometimes an NDA feels so basic there doesn’t seem to be a need to read it. At the same time, not reading something before you sign is folly—unless you’re talking about iTunes terms and conditions. In a recent case, Harcus Sinclair LLP v Your Lawyers Ltd, a partner in a law firm admitted to not reading the NDA before signing. Not surprisingly, the judges were not amused. This oversight caused pointedly negative consequences for the law firm and the litigation funder. Omni Bridgeway details that the dispute in question involves Volkswagen and the company's emissions defeat device. Your Lawyers was one firm that focused on consumer claims against the German automaker, with an eye toward seeking a Group Litigation Order to pursue a collective action. Your Lawyers teamed up with Harcus Sinclair (a more experienced firm) to seek out funding and insurance. In April of 2016, Your Lawyers sent Harcus Sinclair a largely standard NDA. It contained a provision stating that Harcus Sinclair would not accept instructions for, or act on behalf of, another claimant group without permission from Your Lawyers. This provision would ostensibly last for six years. Essentially, Your Lawyers gave Harcus Sinclair work product, and wanted to ensure that they would not be excluded from the case, should Harcus Sinclair choose to move forward alone. Partnering with a more experienced firm would likely make the case more attractive to funders—but opened up Your Lawyers to risks they wanted to protect themselves against. By October 2016, Your Lawyers' fears became reality, when Harcus Sinclair began their own book building before seeking a GLO of their own. The dispute between the firms ultimately found its way to the Supreme Court. It determined that Your Lawyers should be protected by the NDA, though Harcus Sinclair could have attempted to argue that restraining them from the case could negatively impact claimants. In the end, Harcus Sinclair could not represent clients, and therefore not obtain third-party funding.
Fundraising

AxiaFunder Boasts 100% Success Rate on Completed Cases

Since January of 2019, UK-based AxiaFunder has secured nearly GBP 2 million in funds from investors. So far, the litigation funding platform has funded 13 cases, netting an impressive average investor return of 55%. Hedge Week reports that AxiaFunder has eight active cases at present, including its first international case in Barcelona. Other active cases include a shareholder action and a group claim against two retail banks. Co-founder and CEO Cormac Leech explains that one of the main attractions of litigation funding is its lack of correlation to larger economic conditions. Litigation is simply not impacted by outside economic growth the way that traditional investments are. AxiaFunder also uses ATE insurance to cover adverse costs where applicable. Funded attorneys often are paid in part by conditional fee agreements.
Case Developments Commercial

New Zealand Weather Tightness Case Settles for NZ $1.25 Million

This week, James Hardie Industries announced a settlement in a weather tightness class action heard in Auckland High Court—in the middle of a trial expected to last 17 weeks. James Hardie, a global producer of fiber cement and fiber gypsum, will receive NZ $1.25 million as part of the settlement. Yahoo! Finance details that Harbour Litigation Funding will pay James Hardie’s award, and neither party will make an admission of liability. This represents a final settlement for the ‘White litigation’ regarding Harditex cladding. However, two more claims remain—the Cridge litigation and the Waitakere litigation. Country Manager John Arneil stated that the outcome of the White litigation supports the stance that the allegations were lacking in merit. A ruling in the Cridge litigation is expected sometime this month. An Auckland High Court is not expected to hear the Waitakere litigation until the summer of 2023.
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Commercial

Omni Bridgeway Celebrates 35th Anniversary

Leading litigation funder Omni Bridgeway is currently observing multiple significant milestones, including the 35th anniversary of its founding. In addition, 2021 represents 20 years since it was first listed on the Australian Stock Exchange, and the opening of its German arm. Omni Bridgeway explains that 2021 is also the ten-year anniversary of its US launch, and the 5th anniversary of its offices in Canada and Asia. These advancements have significantly raised the company’s global standing while allowing Omni Bridgeway to serve an ever-larger client base. One area of development for Omni Bridgeway over the last two decades is asset tracing. This vital discipline was developed at the company, then called Omni Whittington, by banker Raymond van Hulst and insolvency lawyer Wieger Wielinga. Integrated, state-of-the-art intelligence-gathering and asset-tracing are essential facets of the enforcement of judgments and awards. From these meager beginnings, Omni Bridgeway has since built a team of experienced in-house asset tracers who work in tandem with a global network. The German arm of Omni Bridgeway began as a subsidiary of a legal insurer. Initially, this arm focused on small and mid-sized cases for business and individual needs. Twenty years on, Omni Bridgeway focuses on high-value cases, including collective action and legal funding for corporate clients. The US expansion of Omni Bridgeway began in 2011. Formerly Bentham IMF, its first American office is located in New York City. This arm began funding mid-size single case investments along with commercial litigation. Success in these areas allowed for the expansion into portfolio funding—perhaps heralding an industry-wide rise in portfolio funding. Omni Bridgeway’s expansion into Canada saw its Toronto office open in 2016. It has experienced similar growth to what’s been happening in the United States. Litigation Finance has changed a lot in the past three and a half decades. Omni Bridgeway has remained at the forefront of innovation and tha adoption of products to meet client needs.
Regulatory Issues

Outside Ownership of Law Firms—A Growing Controversy

One Florida committee has suggested changes to its policies on law firm ownership. So far, lawyers are sharply divided. While the Florida committee does acknowledge that many lawyers are resisting reforms in this area, that hasn’t dissuaded them from pursuing it. Law.com explains that one proposed change could permit non-lawyers to own a non-majority share of law firms. This follows a precedent in the state of Utah known as the ‘regulatory sandbox.’ Those who are in it may take advantage of the new rules. This differs from what’s currently happening with regard to non-lawyer ownership rules in neighboring Arizona. That state abolished prohibitions on outside ownership of law firms at the beginning of this year. Essentially, the proposed regulations would allow passive investors more opportunities to hold a stake in law firms. One notable change is that it would allow for fee-sharing, which is currently prohibited. The Florida committee suggests that this new scheme be implemented for three years, one year longer than Utah’s sandbox—which has since been extended to seven years. According to a survey from earlier this year, more than half of respondents (53%) didn’t agree that allowing for fee-sharing among non-lawyers was a good idea. Even more (83%) opposed passive ownership of firms. Why would an outside organization introduce regulations governing law firms that lawyers overwhelmingly oppose? The Florida committee claims that objections are based on unfounded fears. Understandable, but is that really a good enough reason to maintain an unworkable status quo? These recommendations have now been received by the Florida Supreme Court, which has not yet announced how it will proceed. Word is that the Florida committee will spend the next few months developing the program, despite the strong objections.
Regulatory Issues

Woodsford ‘Respectfully Disagrees’ with UNCITRAL Working Group

Litigation Finance powerhouse Woodsford has submitted its response to the Secretariat’s initial draft on the regulation of third-party funding. The proposed reforms include addressing concerns about conflicts of interest, security for costs, or that funders may exert undue influence over decision making or cost-related decisions about the cases they fund. Woodsford Litigation Funding states that it ‘respectfully disagrees’ with the conclusions of the Working Group. The question of whether further regulation is needed has been asked in various jurisdictions around the world. Singapore and Hong Kong legalized litigation funding for various types of proceedings in 2017. In the UK, third-party funding is on the rise—yet the government has not deemed it necessary to introduce new regulations governing the practice. In comparison to other financial industries, litigation funding has seen precious few disputes between funders and those funded. Why then, should resources be used to regulate an industry that shows no need for increased regulation? The Working Group seems to have succumbed to the oft-repeated claim that litigation funding leads to frivolous lawsuits. Of course, this argument does not hold up to logic, since no funder wants to risk money on a meritless claim. Overwhelmingly, legal funding is provided on a non-recourse basis—which means a loss in court implies a total loss of the funder’s investment. Woodsford also takes exception to Draft Provision 3, which requires claimants to affirm that they could not pursue their case without funding. This requirement leaves many questions open to interpretation, and makes no mention of portfolio cases or the myriad ways corporates leverage funding to pursue litigation. Essentially, such a regulation serves no real purpose, is likely to be unevenly applied and interpreted, and adds time and cost to court proceedings. Ultimately, the ILFA and ALF are in a better position to evaluate the ethics of legal funding, and to suggest regulation as needed.
Investor's Corner Slingshot Capital Special Features

Investor – Beware Outliers!

The following article is part of an ongoing column titled ‘Investor Insights.’  Brought to you by Ed Truant, founder and content manager of Slingshot Capital, ‘Investor Insights’ will provide thoughtful and engaging perspectives on all aspects of investing in litigation finance.  Executive Summary
  • Commercial litigation finance does not have the same investor model as venture capital
  • Win rates in the commercial litigation finance industry are approximately 70%, globally
  • Investors need to assess outliers very carefully, as there is much to be learned from their contribution to portfolio returns
  • Outlier outcomes may enhance returns, but should not be counted on as the main contributor to returns
Slingshot Insights:
  • Investors should assess unrealized and realized cases in making their determination about fund manager performance
  • A good manager will understand how to avoid/minimize outlier risk and focus on creating diversified, well-balanced portfolios to deal with the various unknowns inherent in the asset class
Having reviewed over 100 different fund offerings in the commercial litigation finance space over the last five years, I have gained a certain level of insight into the spectrum of results that fund managers have been able to generate through their portfolios (some fully realized, but many more partially realized portfolios).  In the past, I have written about the importance of diversification, the applicability of portfolio theory (articles one, two & three), and the perils of fund concentration; but I also believe that investors in the asset class should understand the perils of relying on outliers to drive fund performance. In the context of a portfolio of litigation finance cases, an outlier can be defined as a case outcome that sits outside a probabilistic range of acceptable (and preferably defined) outcomes within, say, (approximately) 2 standard deviations of (mean - average) expectations.  That is to say, if you target a portfolio of cases with basic value distribution characteristics (such as minimum and maximum values), such a portfolio will produce an average (a mean) and a standard deviation (a dispersion around the mean)1.  Therefore, for a normal bell-shaped distribution (with no skewness / heavy tail), you can assume  that those results that sit beyond two standard deviations should be considered outliers in that they don’t represent what you would typically anticipate to see in such a portfolio, because the result would be outside of a 5% - 95% confidence interval (i.e., the range within which you would expect most case values to fall, on both sides of the average). However, one also needs to be cognizant that for litigation finance portfolios, it is not unusual to see a concentration of lower end cases (those with values well below the average), while outliers on the high end are quite uncommon. Expressed differently, a probability of low end outliers (both for individual cases, and in aggregate) is greater than a probability of high value outcomes.  In this context, assuming a normal bell-shaped distribution of values is an overly-simplistic assumption. In reality, it is rare that an accumulation of below-average cases is more than offset by a big win; although still a possibility.  Practically speaking, portfolio construction should not be based on the assumption of (exaggerated) high values materializing. The other way to think about litigation finance, is that the dataset can be bifurcated into two subsets – there are the losers, which are typically (but not always) complete write-offs, and there are the winners, which can have a wide spectrum of outcomes,. As described above.  In the aggregate, this bifurcated data set makes it difficult to utilize traditional statistic methodologies to apply to the asset class, because the losers skew the averages and the standard deviations, but not as much as the winners do, because the winners have a larger dispersion of results.  Accordingly, one must be careful in applying statistics to commercial litigation finance asset class. The one asset class where similar dynamics exist is the insurance industry, specifically, in the analysis of catastrophic events, and re-insurance and insurance-linked securities.  Investors with an insurance background would be used to dealing with investments that have similar outcome profiles, and to the extent they are working for a large insurer, they have the added advantage of being privy to settlement outcomes where their insurance company was involved in settling the claim.  A competitive advantage indeed! Is Commercial Litigation Finance akin to Venture Capital?  Some have described the commercial litigation finance asset class as having a “venture capital” type risk/reward profile, a contention with which I strongly disagree.  The typical venture capital portfolio model is highly skewed, the outcomes of which can be illustrated in this graph shared by Benedict Evans on Twitter. As one can see from the chart in the above hyperlink, 6% of the deals within a VC portfolio produce 60% of the returns.  In essence, this is a model that is dependent on outliers to drive returns.  So, what’s wrong with that?  Well, the problem is that if you don’t get an outlier in your VC portfolio, the manager will not likely survive to live another day, which is a difficult way for a manager to run a business on a long-term basis.  It also means that for investors, it is difficult to select managers that can replicate outliers on a regular basis, as they are essentially statistical anomalies. This also explains the relatively high failure rate of fund managers in the venture capital industry. Coincidently, those VC managers that produce high end outliers frequently claim to produce high alpha returns (sometimes calling it a “secret sauce”) - while, in reality, their success may have more to do with “luck” than a systemic outcome - but that’s perhaps a topic for another article. So, why do I think this is not an appropriate analogy for the commercial litigation finance asset class? The numbers just don’t support it.  I have been privy to over 1,000 litigation finance case outcomes in different case types, different sizes, different durations, different legal jurisdictions, and different defendants, and the reality across jurisdictions is that cases win (i.e. the manager makes a profit on its investment) approximately 70% of the time, and hence lose about 30% of the time.  This stands in stark contrast to the Venture Capital model where the VC manager is losing over 50% of the time and making less than 2X its investment 70% of the time.  So, whereas Venture Capitalists need to count on having outliers in their portfolio to create sufficient returns, a well-diversified litigation finance fund should not rely on outliers to produce returns, as there should be sufficient wins in their core portfolios (net of losses) to produce acceptable overall returns for investors, given the underlying risk profile of litigation finance portfolios (that are more akin to insurable exposures).  If a manager believes that outliers are necessary to produce returns, then I believe that manager does not understand the benefits of applying portfolio theory to the asset class, and the investor is taking unnecessary risk, because the stark reality is that no manager can tell you which case is going to be a home run case, and hence does not have the ability to include one in their portfolio. While outliers in commercial litigation finance can enhance returns (albeit infrequently due to the low probability of such being the case), investors should not count on outliers for contributing to the majority of the fund’s returns, because the particular case that gave rise to the outlier event could have very easily ‘gone the other way’, especially if the outcome resulted from a judicial/arbitral decision, which are inherently binary outcomes. The ‘Math’ The basic math of commercial litigation finance, although it rarely works out exactly this way, is that managers generally (emphasis added) underwrite to a 3X multiple of invested capital (“MOIC”), and managers win approximately 70% of their cases on average, hence the portfolio should theoretically produce a gross return of 3 X 70% = 2.1 X MOIC, which gets whittled down to say 1.75 x MOIC after management and performance fees and fund operating expenditures. Internal rates of return will then be derived based on the timing of funds deployed and the overall case duration of the portfolio. Some case types having longer duration but a higher probability of outlier returns, and other case types having shorter duration and generally lower potential for outlier returns. In other words, if a high value outlier is obtained, it’s IRR is likely “diluted” by a (much) longer than average case duration, thereby, its impact on the portfolio’s IRR is diminished. In this context, when investors are assessing investing in a commercial litigation finance managers’ portfolio, especially one that mainly consists of single case investments, they should analyze the portfolio from two different perspectives: (i) determine how the fund would have performed if that outlier was not in the portfolio; and (ii) determine how the fund would have performed if that outlier resulted in a loss.  These are “incremental impact” analyses that are designed to capture a true value of such outliers. The first analysis will provide the investor with a perspective on how the fund performed without the benefit of the outlier event.  If the fund still maintained respectable performance, this may illustrate that the outlier event was not significant to the performance of the fund, which tells the investor that the manager was very thoughtful about the construction of a balanced portfolio, which is exactly what you want in a long-term oriented manager.  The second analysis enhances the first analysis by answering the question “Did the manger get lucky?”  If the second analysis shows that the opposite outcome would have decimated the fund returns, then it buttresses the first analysis and also indicates that perhaps the fund was too concentrated in terms of its deployed capital (which can be very different from its committed capital, as I have addressed in a previous article). Corporate and Law Firm Portfolios Fund managers investing in corporate portfolios or law firm portfolios provide yet another layer of complexity.  In the case of corporate portfolios, these portfolios are groups of single cases that have a common plaintiff.   In the case of law firm portfolios, these portfolios are with law firms that have a contingent interest in a group of cases.  By their very construct, portfolio investments are inherently less risky than single cases because the portfolios are generally cross-collateralized, so the risk of having an outlier event within the sub-portfolio is that much more remote.  Nevertheless, investors should assess the component parts of the sub-portfolio’s results, because if the sub-portfolios themselves are generating returns through an outlier event, then the exact same risk exists as a manager that focuses on single cases within their portfolio.  The key difference is that a fund manager that invests in a series of sub-portfolios will have more chances to make errors than one that focuses on a portfolio of single cases. Other Considerations The other thing to consider, is that not all cases and case types are alike.  Each case has its own idiosyncrasies and each case type has its own unique risk/reward profile.  Accordingly, an investor cannot look at a portfolio of single cases and assume that each of the cases within the portfolio has similar risk / reward characteristics.  So, when an investor assesses the outcomes of cases, it is not only important to look at the outliers, but also to look at, among other attributes, (a) the types of cases, (b) the life cycle of the cases (important for determining duration), and (c) how the outcomes of the case were derived (judicial/arbitral outcomes vs. settlements) and the derivation’s effect on returns (a portfolio that derives most of its results from settlements (non-binary) is far superior to a portfolio that derives its results from 3rd party decision makers (binary), but this risk also varies by case type and venue). Portfolio Theory plays a significant role in investing in the commercial litigation finance market, and so investors need to be aware of its application and the various permutations that can arise in the construction of a portfolio, which generally starts with an investment in a ‘blind pool’ type fund.  More active investors can eliminate the risk inherent in a blind pool by selecting individual case or portfolio exposures, but they generally need to have internal resources to appropriately assess risk, or be prepared to incur the cost to outsource those underwriting activities. Equally important is the selection of a business model under which a portfolio is sourced, evaluated, and constructed. A manager philosophy that equates litigation finance investing with venture capital investments can be misguided and possibly result in unrealistic assumptions and faulty portfolio construction that can produce real results quite distinct from the manager’s intentions. 1Standard deviation is the measure of dispersion of a set of data from its mean. It measures the absolute variability of a distribution; the higher the dispersion or variability, the greater the standard deviation and the greater will be the magnitude of the deviation of the values from their mean. Slingshot Insights  For investors, I strongly advise diving deep into both realized and unrealized cases within the portfolio to get a better understanding of the manager’s appreciation for portfolio construction and their appetite for risk.  While it may be cost prohibitive to do deep diligence on every case in the portfolio, analyzing high level data about the nature of the various case exposures can bring an investor a long way to understanding the risks inherent in the portfolio and the manager’s approach to investing.  For the realized subset of the portfolio, understanding the dynamics at play within the case and its contribution to overall fund performance is critical to assessing a fund manager’s ability to replicate results (termed persistency in private equity), which is critical to long-term investing in the space. I don’t believe this is a venture capital asset class, and a manager that tries to convince an investor otherwise is either taking unnecessary risk, or does not understand how the asset class benefits from portfolio theory. As always, I welcome your comments and counter-points to those raised in this article.  Edward Truant is the founder of Slingshot Capital Inc. and an investor in the consumer and commercial litigation finance industry.  Slingshot Capital inc. is involved in the origination and design of unique opportunities in legal finance markets, globally, investing with and alongside institutional investors.
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Regulatory Issues

Is Legal Funding to Blame for Rising Insurance Premiums?

There’s been a lot of talk about how well-funded collective actions are driving up the price of liability insurance, particularly for directors in corporate settings. Furthermore, one of the ways to address this issue seems to be increased regulation and more stringent disclosure requirements. But is this an accurate representation of the facts? Andrew Saker, Managing Director & CEO of Omni Bridgeway doesn’t think so. Omni Bridgeway details that oft-repeated warnings of a sudden glut of frivolous class-action suits are not grounded in reality. No funder wants to bankroll a losing case, nor is it in anyone’s best interest to clog court dockets with cases that lack merit. This holds true among most types of collective actions, including shareholder class actions. It is true that Director & Operator insurance premiums have increased in recent years. But is that due solely, or even mostly, to funded class action cases? Saker breaks down these facetious arguments one by one:
  • There has not been a steep rise in shareholder class actions. In fact, according to KWM, there’s been a decrease since 2017.
  • Opportunistic class actions, a common boogeyman argument, do not exist. When the Treasury Department and the AG’s Department were asked to show a real-world example of an opportunistic class action—they produced nothing.
  • Costs of D&O insurance are rising globally, not just in jurisdictions where funding is common. In truth, there’s more risk in the world than ever for businesses—owing largely to cybersecurity concerns, and factors relating to climate and the pandemic.
  • There may not be any causative link between shareholder class actions and D&O premiums. Arguments to the contrary are increasingly difficult to defend.
One likely explanation for rising premiums may be years of underpricing. Correcting this is causing higher prices, and insurers are looking for someone, anyone to blame. And who better than a newer industry that many people don’t yet understand?
Case Developments

London Appeals Court Agrees to Reopen BHP Mining Case

Last week, the London Court of Appeal agreed to reopen a suit against an Anglo-Australian mining company, BHP. The case centers on a 2015 dam rupture that caused the worst environmental disaster in Brazilian history. Reuters explains that the $7 billion lawsuit on behalf of 200,000 claimants was struck down as an ‘abuse of process’ in 2020. Since then, lawyers for the claim have been seeking a resurrection—even after the dismissal was upheld this past March. Three appeals court judges have now given permission for an appeal, in a decision considered highly unusual in the legal community. BHP stated their position that the case should not be heard by UK courts. The far-reaching impact of the Fundao dam spill may suggest otherwise. The collapse killed 19 people, as well as spilling over 40 million cubic meters of mining waste into villages and waters as much as 400 miles away. The case may establish if multinational companies should be liable for the conduct of their overseas subsidiaries. Six years after an unthinkable environmental disaster, citizens will finally have access to justice.