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Case Developments Commercial

Binance Freezes Customer Withdrawals of Crypto Assets

Referencing a “large backlog,” Binance has put a temporary hold on customer withdrawals of crypto assets. The number one cryptocurrency exchange tweeted the announcement earlier this week. Crypto Briefing details that Binance resumed allowing withdrawals within minutes of the hold. Later that day though, withdrawals were again withheld. Meanwhile, other major crypto exchanges, like Coinbase, are still functioning normally. This is not the first time Binance has experienced overloads, and unintentionally shut customers out. The same thing happened in May of this year, leaving users without access to their accounts as prices fell dramatically. Liti Capital is now suing Binance on behalf of traders impacted in that shutdown. No word yet from Liti on whether this latest outage will factor into their claim against Binance, or whether the funder will launch an entirely new claim altogether.
Commercial Regulatory Issues

Litigation Finance Catches on in Canada

Like many places in the world, Canada’s cost of litigation can be prohibitively high. Even meritorious claims may not be worth what it costs to pursue them—leaving good people victimized and the unscrupulous free from dissent. Enter third-party litigation funding. That’s when everything changes for Canadians seeking justice. MONDAQ explains that Canadians are beginning to see that help from litigation funders can go a long way to bridging the gap between those who can afford proper legal representation, and those who need assistance. In addition to helping individual plaintiffs or group claimants, litigation funding in Canada is also a tool used by savvy GC’s to limit legal spending and even monetize existing litigation assets. Canadian common law prevented the practice of third-party legal funding, believing it would enable meritless cases. Recently though, courts came to understand that justice is better served when more people have access to the legal system, and to good legal counsel. Court approval is not required for a funding agreement in either private commercial arbitration or litigation. In fact, third-party funding is business-as-usual in these types of cases. Litigation funding is also used to enforce judgments or to monetize claims without adding to legal budgets. Insolvency is another area where legal funding is making a difference. The Bluberi case affirmed that the CCAA does allow for monetizing assets to provide interim financing when needed. In a case involving Crystallex International, courts determined that arbitration financing was permissible—even necessary to successfully restructure an outstanding debt. As legal funding becomes the norm in Canada, knowledge of funders and funding agreements is more vital than ever. Knowing how to select and approach an experienced legal funder can make or break a case—especially one against a well-monied corporation or government. Indeed, funding should be considered by every commercial litigator.
Commercial

A Looming Potential Risk of ESG Investment

Bloomberg predicts that by 2025, nearly a third of assets under management will consist of ESG investments. Representing advances and social justice in environmental, social, and governmental systems, sustainable investments sound like a great idea for all concerned. But are they? Dentons suggests that wrapping up investments in festive ESG packaging may have the opposite of its intended impact. The FCA penned an open letter earlier this year on the topic, expressing concern over purported ESG investments that have little to no relevant impact on ESG causes. ESG credentials are one way investors decide where to put their money. If investors are told they’re making sound investments that advance ESG goals, they may have a legitimate grievance if this turns out not to be the case. One may ask—what if the investor makes money? Surely, investors wouldn’t bring a suit over a profitable investment? In truth, making money would not negate a claim of fraud if the ESG claims made were knowingly false or intentionally misleading. At the same time, if the value of the investment has increased, it might make more sense for investors to simply sell rather than go through the time and expense of filing a legal case. Recent developments in the LitFin space may increase the risk of investor lawsuits regarding ESG claims. The opt-out class action model in use in places like England and Wales makes cases about investment disclosures potentially lucrative. Such cases may make use of the ‘same interest’ requirement, if the same platform and information were used in the transactions. Even without a financial loss, investors may experience distress at having invested in something that was not presented properly. Such damages are rare in civil cases, but ESG investing is a growing topic that may lead to new thinking about how distress should be compensated.
Commercial Regulatory Issues

Judge Considers Acceptability of ATE Insurance as Security for Costs

After-the-event insurance is a common means of covering costs by both defendants and plaintiffs in litigation or arbitration cases. Often, such insurance can also be used as security for the defendant’s costs. Recently though, Deputy Master Nurse found in Addlesee and Ors v Dentons Europe LLP that not all ATE policies are suitable as providing security for costs. Stewarts Law explains that in this instance, there was a strong likelihood that the policy in question could not wholly be used as security for costs, and that only half of the policy value could be used as such. This decision necessitated that the litigation funder provide an additional GBP 1.3-1.6 million in security in case insurers determined that the claims were exaggerated—and therefore not pay the full amount. The scuffle over costs was one of many in a class action over a gold dust investment scheme advanced by the now-defunct Anubus Holdings Limited. The defendant, a legal advisor for Anubus, facilitated the scheme and endorsed it to investors. Claimants are funded by Managed Legal Solutions Limited, with an agreement for an undisclosed portion of any award. As is now common among defendants in class actions, Dentons applied for securities for costs against the funders because they aren’t able to order security against individual claimants in a class action. All this back and forth typically results in higher legal fees and costs passed down to claimants. A similar case previously ruled that ATE insurance could represent 66% of security for costs, rather than the 50% suggested in this case. This seems to hinge on contract language, specifically the word “exaggerated,” which is vague at best and arbitrary at worst. Suffice to say that going forward, the language used in ATE insurance policies will be more important than ever.
Case Developments Commercial

Insurance Comparison Site Facing Antitrust Complaint

More than 20 million potential claimants believe they overpaid on their homeowner’s insurance because of overt bias on a price comparison website. Augusta Ventures is backing the claim for an undisclosed percentage of any potential award. Law 360 explains that Home Insurance Consumer Action, the group formed to advance the claim, asserts that the website abused the “most favored nation” clause. These made expansion and challenges by competitors more difficult and restricted 30+ insurers from offering lower prices elsewhere. Kate Wellington, director of Home Insurance Consumer Action, affirms that such sites play a vital role in helping consumers make informed decisions. This site allegedly did the opposite, and rightfully should refund their customers. According to the claim, plaintiffs are owed damages regardless of where they purchased their insurance. Again we see the value in litigation funding helping homeowners who could otherwise never hope to seek compensation from Comparethemarket.com individually. The site has already been fined $24 million, but has stated its intention to appeal.
Case Developments Commercial

Kleiman v Wright Bitcoin Case Kept Alive by Litigation Funding

Can a marketing rep of average financial means successfully mount a civil case against a billionaire? A few decades ago, probably not. But now that third-party legal funding is on the scene, a complex civil suit is finally reaching the trial phase after years of delays. CoinGeek details that Kleiman sought funding for years before securing it. Evidence exists suggesting that Kleiman offered substantial interest in “the Bitcoin space” to potential funders in exchange for bankrolling the lawsuit on behalf of his late brother’s estate—a brother he describes as being the co-creator of Bitcoin. In his disclosure of interested parties in the case, Kleiman listed “BTCN 1610-491 LLC.” This implied that Kleiman obtained legal funding from either BTCN 1610-491 LLC or a related funder, Parabellum. Kleiman was not forthcoming about the specifics, but eventually, lawyers affirmed that BTCN 1610-491 LLC is owned by Parabellum—and that Parabellum was the funder of record on the case.   In the case itself, parties have agreed not to bring up the issue of litigation funding, so long as neither side puts the issue in question. At the same time, it’s been suggested that third-party funding prevents defendants from confronting their accusers. This may be even more true in the case of Wright—a well-known name in blockchain currency. One significant factor here is that if the case does not go Kleiman’s way, Wright may be able to recover his legal costs from the funders, according to Florida law. This happens in instances where funders allegedly maintain control over the claim in the form of “value-added” services that clients may utilize along with their funding. Given the length and complexity of the case, legal expenses on both sides are bound to be staggering.
Consumer

Legal Funder Accused of Misusing $10 Million

Litigation lending has a reputation for unscrupulous, or even predatory behavior. One such lender, KrunchCash, was recently accused of squandering a large investment, hiding relevant information, and using threats to intentionally amplify risk to that investment.

Law 360 details that a complaint filed in a Florida federal court alleges that KrunchCash, its subsidiary, and owner Jeffrey Hackman have repeatedly threatened investors with sabotaging the litigation they invested in. Over the course of two years, KrunchCash also allegedly hid recoveries and misappropriated funds.

Earlier this year, investor Pursuit Special Credit Opportunity Fund LP learned of the actions of KrunchCash and hired lawyers to protect its investment. By this time, KrunchCash was cash poor and had become a one-man operation. Jeffery Hackman, the suit alleges, had become secretive, aggressive, and unpredictable.

Pursuit invested more than $10 million that was intentionally put at risk of a complete loss. When Pursuit wanted to move funds into an escrow account—Hackman refused to do so, according to the complaint.

The claims in the case include breach of contract, unjust enrichment, breach of fiduciary duty, and constructive fraud. In addition to seeking $10 million in damages, Pursuit also seeks penalties under Blue Sky Laws—a Florida legal provision designed to protect investors from just this kind of misappropriation.

Consumer

Attorney Under Fire for Missing Oral Arguments Claims Sabotage by Opposition

Attorney Farva Jafri has been ordered to show cause as to why she should avoid disciplinary action for missing oral arguments in a recent case. The Seventh Circuit panel had ordered Farva to appear in court on the matter of costs. Farva did not. Law 360 explains that Farva, in her statement to the Seventh Circuit, asserted that counsel for Oasis Legal Finance and Gary Chodes (former CEO) had settled their issues and sought to end the appeal. She further claimed that attorneys for Oasis misrepresented a conversation in which they agreed to convey relevant details of the settlement on behalf of all involved. The court also pointed out that Jafri did file a motion to dismiss the appeal. But it was filed late Friday night—too late for the court to consider the motion. The court claimed the motion was also incomplete. Even though the dismissal was agreed to by both parties, it was missing vital signatures and did not address issues relating to costs. In an amended motion, Jafri explained that the parties agreed to settle with no payments of any kind. Instead of relaying that to the court during oral arguments, Jafri says opposing counsel made statements that were intentionally misleading and designed to paint her in a negative light. Opposing counsel also reversed its position on costs, saying that appellants should cover costs. According to the motion, Chodes accepted the agreement to forgo a request for fees. Jafri lives in New York and argued that it was not practical or necessary to fly to Chicago for an appeal that had already been dismissed. Barry Irwin, lead counsel for Oasis, agreed to convey this to the court at the oral arguments hearing. He did not, and has since asserted that Jafri’s assertions are inaccurate. Jafri characterized the actions of opposing counsel as a “sandbag.”
Commercial Regulatory Issues

Discovery of Funding Source Allowed by Court in Nunes Farms Libel Action

Recently, Magistrate Judge Mark Roberts released his decision in the NuStar Farms action, regarding discovery of the identity and terms of the third-party legal funder supporting the plaintiffs. Citing “unusual” circumstances in the case, Judge Roberts determined that disclosure was necessary in this instance. Reason details that the plaintiffs in the defamation case never hid the fact that they were using third-party legal funding. Thus far in the case, plaintiffs have only incurred $500 in charges. One plaintiff, Anthony Nunes III, also the corporate representative, is not even aware who is paying plaintiff lawyers. The circumstances in the case elevate the defense’s inquiry into funding from guesswork to a more concrete suggestion of potential conflict. As such, this case differs from say, a personal injury case, or a case where the defendant petitioning for disclosure cannot identify how funding could impact credibility. The question of malice is a vital factor in any defamation case. The government adopted a specific standard so as not to give public figures or politicians an unfair advantage over those they serve. In a defamation allegation, public figures are usually required to prove malicious intent. On that note, it's not yet known whether there has been collaboration between Congressman Nunes and the rest of his family. But the inquiry into the funder’s identity could establish coordination or a lack of it. Why is the identity of the funder even relevant here? If Anthony Nunes III does not know who is paying lawyers for the plaintiffs, this could mean that entities related to NuStar Farms have a financial interest in the case—and would therefore be relevant to an investigation of potential conflicts. Defendants also asserted that a witness in the case may be closely connected to the funders. That would create an obvious conflict of interest and should be disclosed to the court.
Commercial Legal Innovation

Hemp Vendor Apothio Launches Blockchain-Based ILO Token

Blockchain-based token offerings are finding their way into the Litigation Finance sector. Apothio, an Indiana grower and distributor of hemp, has launched the initial litigation offering in the hopes of raising $5 million. Law 360 reports that Apothio is suing California’s Department of Fish and Wildlife, alleging that it illegally destroyed hundreds of acres of farmlands during the hemp growing season. Those who invest in the blockchain tokens will earn revenue if the suit is successful—based on a multiplier of how many tokens are held, and for how long. This will be payable after contingency fees are paid to Roche Freedman. Tokens are being hosted on the Avalanche blockchain, currently being managed by Ava Labs. Investors on the Republic platform can buy into the ILO, which is governed by crowdfunding rules. According to Republic’s website, the litigation offering allows low-level investors to invest in assets, not unlike those a litigation funder would have in its portfolio. That said, single case funding is inherently more risky than portfolio funding. There is a pending motion to dismiss. If Apothio loses the motion, investors will get back 80% of their investment. If the case loses at trial, the investment is lost.
Commercial Regulatory Issues

Australian Parliament Introduces Litigation Funding Reforms

This week, the Australian Parliament has introduced the Corporations Amendment Bill 2021. It’s designed to promote what’s described as a “more fair” distribution of awards from class actions. Mirage News details that court oversight over the dispersal of class action proceeds will increase if the bill passes. Courts will have authority to approve or alter the allocation of awards or settlements—ensuring that the interests of class members supersede those of third-party litigation funders. The Corporations Amendment Bill will also require consent from plaintiffs in order for funders to collect fees or commissions. This is meant to encourage responsible book building, and ensures that funders have support from actual claimants.  
Commercial Regulatory Issues

Litigation Finance: The Cost of Class Actions

Litigation funding expenses are fundamentally related to the cost of doing business—so says a federal district court judge in their rejection of a request to recover expenses. In Perez v Rash Curtis & Assoc, the judge held that if funding expenses were recovered from a class settlement fund, that it would undermine necessary transparency—particularly in cases in which funding agreements were not pre-approved by the court. Lexology details how this ruling affirms that litigation funding expenses should be treated the same as other financing agreements used in class actions. As such, expenses resulting from a funding agreement should not be recoverable from any settlement. Take this case involving the Telephone Consumer Protection Act. Class counsel and a third-party funder agreed to enforce the recovery of a judgment of more than $250 million. Additionally, the funder paid $10 million to class counsel, and more to a separate legal firm to assist. When it came time to divide the award, counsel attempted to recover $300,000 for payment to the broker who arranged the funding agreement, plus $15 million to the funders—amounting to a return of $5 million on a $10 million investment. It could be argued that the funder and broker made the $75 million (the final settlement amount) possible. The district court, however, insisted that funding expenses must not be charged to claimants. No regulation affirms that expenses relating to litigation funding are recoverable. As the court concluded, such fees are directly related to the cost of doing business—and not a recoverable expense relating to litigation. Of course, this might all go differently if counsel sought court approval of their litigation funding agreement. This could open a Pandora’s Box of questions regarding disclosure and the standards of scrutiny the courts apply to funding agreements.
Consumer

Former Oasis CEO Fails to Appear in Court for Oral Arguments

Can a former CEO simply not show up for a court date? Not without consequences. Earlier this week, former Oasis CEO Gary Chodes was required to appear before the Seventh Circuit Court for oral arguments. These pertained to a resolved trademark dispute and the allocation of appeal costs. Judge Easterbrook presided, stating that there were valid reasons the motion to vacate could not be approved. Law 360 explains that the court was not happy that Chodes declined to appear. The court had been informed that the parties involved wanted to forgo the appeal, but did not approve a subsequent request to vacate oral arguments. Chodes is no longer CEO of Oasis after being fired for unspecified reasons in 2013. He was embroiled in a case addressing whether he had infringed on the name of his former company when he founded Oasis Legal Finance Group and Oasis Disability Group. Chodes maintains that he owns multiple Oasis trademarks that include using the word “Oasis” with regard to Litigation Finance. Oasis argued that Chodes had taken multiple steps to connect the two companies in the minds of potential litigants. A representative from Oasis stated that the appellant should cover the costs, especially since she (the Oasis rep) appeared in court as required and was ready to proceed. In March of this year, a district court judge awarded $3 million to Oasis for attorney fees.
Commercial Regulatory Issues

Privilege & Litigation Funding in the United States

The purpose of attorney-client privilege is to allow clients and their legal teams to discuss cases privately without fear of disclosure to other parties. Yet third-party funders require information about cases in order to vet them for potential funding. How is this dichotomy addressed? MONDAQ details that normally, the presence of a third party invalidates the privilege between attorney and client. If this was applied to third-party funders, it would have a profound and damaging impact on clients, cases, and indeed—justice. What client would be willing to risk privilege for any reason, even funding? The Excalibur decision resulted in a judge affirming that Litigation Finance is a feature of modern litigation. That is to say, the practice is mainstream and must be accommodated in order to facilitate access to justice. How then, do courts recognize the validity of the funder’s due diligence without destroying the basics of privilege? Currently, courts cannot agree on whether sharing information with a funder is a waiver of privilege. Surely the client’s intent should matter? Courts have largely concurred that the work product exception can apply to both due diligence documents and funding agreements. At the same time, some jurisdictions—notably New Jersey—have passed more stringent legislation requiring disclosure of funding agreements and their terms. In the Leader case, a judge determined that funders and plaintiffs did not share a common interest strong enough to extend attorney-client privilege. The court held that common interests must not be solely commercial, and should be identical interests, not merely similar. More broad interpretations of common interest and work product are also common. Many courts have held that a common enterprise is also a common interest. As of yet, there is no consensus as to the precise definition of what common interest is. Until that happens, venue selection will be vitally important in funded cases.
Commercial

Third-Party Legal Funding in Germany

Germany is already well-known for its robust legal system, and is a preferred venue for international and domestic arbitration. Litigation funding has been in use in Germany for more than two decades. For most of that time though, funding has been used by cash-poor clients on a single case basis. This is beginning to change as funders step up and develop new solutions to meet complex legal funding needs. Burford Capital details the many ways in which funding can be used by companies to reduce risk and get an immediate influx of cash for a case that could take years to resolve. Third-party legal funding is typically deployed on a non-recourse basis. Essentially, the company is advanced a portion of an expected award in a meritorious case. If the case is successful, the funder is paid back for their investment, plus an agreed-upon portion of the award. If the case fails, the funder loses its investment, but the company pays nothing. Monetizing claims may seem simple, but it actually requires extensive expertise to value claims correctly. This expertise is an essential part of successful litigation funding—if the funders aren’t valuing cases accurately, their bottom line can be adversely impacted—leading to less deployable cash to go around. Expertise is only half the battle though. Big cases call for big investments, and not every firm is equipped to handle a large portfolio of cases, or even one very big and complex case. The time it can take a case to completion can be long or unpredictable. Delays are common, not to mention appeals. Monetizing cases allows companies to better control cashflow. The timing of funding deployments is controlled and known beforehand. This is also true of award enforcement. The help of experienced funders can make this process worry-free for companies in exchange for a share of the recovery.
Commercial

Mainstreaming Legal Funding: Good News or Bad?

Third-party legal funding is on the rise, both in terms of major players and client requests. Money is pouring in from investors, and some hedge funds are even funding litigation without input from established litigation funders. But is mainstreaming litigation funding a good thing for industry professionals who already appreciated it before it was cool? Therium suggests that while mainstreaming can make some things less unique or special, that doesn’t have to be the case with Litigation Finance. Competition between funders is robust, and new funding entities are being launched regularly. That’s actually good news for plaintiffs looking for funding. An influx of smaller, boutique funders with a specialized focus are even more beneficial to those in need of bespoke solutions. A constant inpouring of capital means more people who need funding will get it. The main reasons legal funding is catching on have more to do with investment considerations than with general economics. Investors love investing in litigation for a few key reasons:
  • Possibility for large rewards—20% annually is not uncommon
  • Returns are uncorrelated to the stock market.
  • Alternative asset classes are a smart way to diversify one’s portfolio
What about the impact on law firms? Most analysts believe the mainstreaming of legal funding will offer greater opportunity. It will likely also lead to firms building relationships with funders, incorporating more sharing of risk into their existing business models. This may also lead to solidifying a hierarchy of funding classes—from large corporate funders to small boutique firms. Educating the public has long been a goal of the funding industry. When the public has a solid understanding of how funding works, the process of pitching funders becomes more streamlined with less wasted effort. In short, there’s no reason to fear the mainstreaming of third-party litigation funding. There’s room, and deployable cash, enough for all.
Commercial Regulatory Issues

Crypto Litigation Finance – Regulated Bitcoin is a Game Changer

What’s the connection between Litigation Finance and cryptocurrency? David Kay, CIO of crypto litigation finance entity, Liti Capital, says that the overlap between these two topics is an increasingly popular discussion in the digital assets theatre. News Nation USA explains that bringing cryptocurrency transactions into the Litigation Finance space is a way of leveling the playing field. Like traditional funders, crypto-focused legal funders provide funds that people can use to finance a meritorious legal case. Investors can use blockchain tokens (LITI, wLITI) to buy equity. Liti Capital finances appeals for crypto investors. Currently, over a thousand investors who lost money during the Binance outage are seeking more than $20 million in damages. Kay is expecting an epic battle once charges are brought against the world’s largest crypto exchange. Now that the SEC has approved a Bitcoin ETF, many suggest it’s bad news for so-called meme coins like Dogecoin and other fly by night cryptocurrencies. As new legislation is passed over the next few years, major industry adaptations are sure to follow. Coins with no real-world utility may fall by the wayside. Kay offered tips for building a portfolio of cryptocurrency. Diversification is necessary, as it is in most types of investing. Bitcoin is relatively stable—but still saw huge swings in the last year. Scams and fraud are also common in the crypto space. Knowing what you’re up against can make all the difference. Ultimately, careful study is the key to smart investing in the crypto space.
Consumer

Is There a Need for Tort Reform? Some Say Yes

October is known by some as “Lawsuit Abuse Awareness Month,” referring to an alleged scourge of abuse of the legal system. One purported example is a recent $80 million judgement against Monsanto, a subsidy of Bayer. After a jury determined in 2018 that the pesticide Roundup caused cancer, ATRA President Tiger Joyce claimed it was based on “junk science.” Inside Sources explains that the purported carcinogen, glyphosate, was declared safe by some organizations, but dangerous by others. This, combined with allegations of a “polluted jury pool” have led groups like ATRA to express a desire to see the Monsanto case reach SCOTUS. But should it? And is this indicative of a need for tort reform? Also under fire is a tendency for major class actions to advertise to potential claimants. On the surface, this may appear to treat a class action as a product to be hawked. But realistically, advertising is a reasonable and necessary way to inform the public about information that impacts them. Another allegation is that advertising for claimants prejudices juries. But of course, there are already safeguards in place, voir dire for example, to weed out biased jurors. Joyce asserts that juries can be swayed by the number of claimants in a class action, referencing a survey by Trial Partners Inc. Is that a bias, or simply a natural and reasonable conclusion? Ultimately, these calls for tort reform stem from the idea that legal funding makes it possible for people of modest means to have their day in court against large companies. Holding companies accountable and increasing access to justice is obviously something that should be encouraged, rather than reformed.
Consumer

Anonymous Aussie Solicitor Investigated Over Missing Funds

Solicitor XY, so named because her mental health could be damaged if her name is revealed, has been charged with doctoring invoices to steal funds. Her client, Hanadi Rafraf, sustained injuries in a car accident and was later awarded more than $450,000. Yet her lawyer gave her documents signed by a claims assessor explaining that she would receive $132,000 less than her stated award. Sydney Morning Herald details that the claims assessor, Hugh Macken, has told police that the signature on the fraudulent document was a forgery. Solicitor XY was charged in January of this year for creating a false document to obtain a financial advantage. In addition to this, XY declined to inform the Legal Services Commissioner that she had been charged with a serious crime. She has since claimed that the charges resulted from a dispute over costs, rather than a deliberate attempt to commit fraud. Before the LSC could rule on XY’s request to preserve her practicing certificate, it was discovered that she had fraudulently altered several more invoices in order to obtain funds to which she was not entitled.
Case Developments Commercial

Semiconductor Claim Against Apple Uses Third-Party Funding

Patent filings are on the rise, as 38 Patent Trial and Appeal Board petitions and 71 district court filings occurred last week alone. There have also been a spate of dismissals, settlements, and district court terminations. IP Watchdog explains that some cases are being voluntarily dismissed and refiled due to recent rulings and precedents. Courts have also seen an uptick in new non-practicing entity campaigns. Continental Circuits LLC has successfully sued several tech giants like Samsung, Intel, AMD, and MediaTek—collecting awards. Now, with the support of third-party legal funding,Continental Circuits is suing Apple and TSMC (Taiwan Semiconductor Manufacturing Company) over a set of expired circuit board patents. These originally came from a Florida circuit board company that is now bankrupt. In the case against Intel, the judge ordered disclosure regarding the legal funding in place. After this, the case closed after arbitration.
Announcements Consumer

USClaims Completes Its Seventh Securitization and Continues U.S Growth

USClaims (USClaims.com), the longest continuously operating pre-settlement funding firm in the U.S., today announced its $77.5MM 144A litigation finance securitization. This marks the company's seventh securitization transaction involving this asset class.  It primes USClaims to continue its run of impressive growth across the United States.

USClaims CEO, Steve Bashmakov, commented, "We are excited with the market's response to this continuously growing asset class." He continued, "This positions USClaims for amazing growth and further energizes our pursuit to make Litigation Funding Simplified®. We are changing the perspective about the pre-settlement funding industry by being a major asset to trial attorneys and their clients."

Scott Shey, USClaims CFO, added, "We were delighted to see the level of interest we had in this deal.  Stifel (the arranger) continues to be a key partner and really helped us achieve a great result on pricing and syndicating to a diverse investor mix.  This deal continues to highlight the growing acceptance and adoption of the asset class. "

USClaims was established in 1996 and has been consistently voted among the best in the nation within the pre-settlement funding category. In 2021 alone, USClaims earned first place rankings by the audiences of national legal publications in several categories, including "Best Consumer Litigation Funding Provider," "Best Law Firm Funding Provider," and the coveted "Hall of Fame" award from the New York Law Journal.

About USClaims: For 25 years, USClaims has been one of America's largest providers of non-recourse financial support to personal injury victims, some of whom may have suffered catastrophic injuries from defective products, unsafe premises, motor vehicle accidents, and other types of accidents. This financial support provides the injured plaintiff with the means to pay bills and endure the often long and arduous litigation process. USClaims is here to help plaintiffs and their attorneys stay in the fight. For additional information on USClaims pre-settlement funding, please call (877) 872-5246 or visit USClaims.com.

Commercial Deals

LegalPay Closes Interim Financing Transaction with Yashomati Hospitals

India-based tech-focused startup LegalPay announced that the company has closed an interim finance transaction with Yashomati Hospitals Private Ltd—currently insolvent. Economic Times details that this type of finance is short-term lending, typically 6-12 months. The amount of financing being deployed to Yashomati Hospitals is undisclosed, but is expected to be used for operational costs, payroll, and keeping the company running until the Insolvency and Bankruptcy Code provisions kick in. LegalPay is planning a dozen or more such interim financing agreements. Interim financing is most often used by large corporates. LegalPay focuses on mid-level companies that are undergoing insolvencies. The interim financing trend is expected to grow as an investment opportunity, largely due to the potential for high profits, and the provisions under the IBC which work to the advantage of lenders.
Consumer

Litigation Funder Arrested in Slip-and-Fall Fraud Scheme

A fifth member of a slip-and-fall fraud ring was arrested and charged in a Manhattan Federal Court. The scheme, which amounts to more than $30 million, appears to have begun in 2013. Adrian Alexander, age 75, has been charged with mail fraud, wire fraud, and conspiracy to commit mail and wire fraud for his alleged attempts to gain fraudulent insurance reimbursements. The case will be heard by US District Judge Sidney H Stein. Justice.gov details that Alexander, a litigation funder, allegedly deployed funding for the fraudulent lawsuits. He is accused of knowingly financing multiple cases and profiting from the desperation of others. Lawyers and doctors have already been charged as part of the massive scheme. According to the indictment, the allegations include:
  • Staged or false claims of accidents involving 400+ recruits
  • Referrals to specific lawyers who were involved in the scheme
  • Fraudulent lawsuits filed
  • Referrals to specific chiropractors who were involved in the scheme
  • Recruits paid to have unnecessary surgery
Many of the hundreds of people recruited to partake in the scheme were homeless, very poor, substance addicted, or otherwise financially vulnerable. Some were recruited directly from shelters or rehab facilities. Medical and legal bills were paid by legal funders, including Alexander. This is true even in cases where the patient had insurance coverage or was on a government medical program. The scheme was successful in terms of financial success. Alexander reported annual returns of at least 30%. Meanwhile, he owned an MRI facility that was used in the fraud. After charging excessive interest rates to patients, proceeds from the scheme went almost entirely to the lawyers, doctors, and funders, rather than the patients. The maximum sentence for crimes like this is 20 years in prison. However, sentencing, in the event of conviction or a guilty plea, is determined by the judge.
Commercial

Cross Border Patent Dispute? Legal Funding Can Help

Cross-border patent cases are becoming increasingly common. We all watched as the Apple v. Samsung battle raged. It’s not unusual to see cases spanning multiple jurisdictions in the US, Europe, Asia, and elsewhere. Sounds expensive, right? Omni Bridgeway explains that while the US is noted as the largest global venue for patent disputes, some litigants are seeking global strategies. Different markets lead to different rulings and different theories on injunctive relief. These can dramatically impact the probability of success and the size of potential awards. Patent cases can result in massive recoveries in the hundreds of millions. The cost of pursuing such a case, however, can also be very high. That’s why legal finance is an increasingly popular service for those looking to pursue, or even defend, patent litigation. Finding a funder with a global presence and a solid understanding of a variety of jurisdictions can make a significant difference in the success of a case. Having the funds needed to pursue a case is a great start, but combining that with global expertise is a game-changer.
Commercial Regulatory Issues

Regulations are Coming for Litigation Funders

Despite evidence to the contrary, some still insist that third-party litigation funding is a greed-fest for the already wealthy. In reality, the practice allows increased access to justice for those who can afford it least. But all that non-recourse funding comes at a steep price. The Australian reports on funding reforms, using caustic terms like “honey pot for crooks and profiteers.” A proposed law promises to cap funder shares in awards and settlements—providing a larger share to claimants. While this makes sense in the abstract, it discounts two important factors:
  1. Third-party funders take 100% of the financial risk
  2. Claimants often cannot bring actions without funding in place
Why all the acrimony? It may have started about a decade ago when funders were exempted from rules governing banks and other financial services. This was viewed by some as an invitation to overcharge consumers. But was it? The move kicked off a spate of class action filings that led to consumer payouts. Surely that benefits consumers and funders alike? Despite a constant flow of evidence that third-party legal funding benefits claimants and increases access to justice—further regulations are en route. The debate about opt-in vs opt-out class actions may lead to laws requiring that all claimants opt-in to be considered part of a class. Talk of “speculative” class actions and “astronomical” rates of return fuel the fires that lead to demands for more oversight and regulations to keep funders in check. Current proposals state that as much as 70% of awards or settlements should go to plaintiffs directly. Regardless of the verifiable facts, funders will always be viewed by some as greedy, opportunistic, and even predatory. Luckily, professional organizations are committed to educating the public on the realities of what funding can do, how it helps people—and how funders making sizable returns actually benefits everyone.
Commercial Regulatory Issues

Litigation Funding in Global Jurisdictions

As Litigation Finance makes its way around the world, some jurisdictions struggle with the finer points. Typically businesses in places like Singapore and Hong Kong have a corporate structure that encompasses entities incorporated in their own jurisdiction, as well as offshore locales like BVI, Cayman Islands, or Bermuda. ICLG details that an array of funding options are available for claims. In these jurisdictions, funding is offered on a non-recourse basis. This means funders are repaid only if the cases they fund are successful. Similarly, contingency fee agreements are increasingly common. In these agreements, lawyers aren’t paid until or unless an award or settlement is reached. Champerty and maintenance laws have been watered down or abolished in places where legal funding is welcome. Common law exceptions also exist to allow funding where needed. These exceptions include providing access to justice, the furtherance of the common good, and insolvent companies in liquidation. Still, norms vary depending on the jurisdiction. In Hong Kong, maintenance and champerty laws are in effect—so common law exceptions are vital. Contingency fees are not allowed, so the use of litigation funding is highly limited. The Cayman Islands enjoy liberal access to legal funding from third parties. Still, legislation is being reviewed to impose new regulations for third-party funders. In a move funders are already skeptical about, a proposed regulation would place maximum limits on the percentages paid to funders and attorneys working on contingency. The British Virgin Islands no longer has maintenance and champerty laws on the books. Still, it remains unclear whether funded litigations have to meet common law exceptions. Bermuda has a similar liberal attitude about funding, with impending legislation looming on the horizon. The precedent set in 2012 and affirmed in 2014 held that there is a constitutionally protected right to access the court. Ergo, third-party funding is necessary to ensure that citizens’ rights are not violated. Ultimately, funding options are growing—which is great news for funders, law firms and claimants alike.
Announcements Case Developments Commercial

Rail Passengers Cleared to Make £93m Legal Claim for ‘Boundary Fares’

London’s specialist competition court, the Competition Appeal Tribunal (the “Tribunal”) has given the green light to rail passengers to seek compensation for overcharging by the Southeastern and South Western rail franchises by not making ‘boundary fares’ sufficiently available to consumers.  In a judgment delivered today, the Tribunal has ordered that the claims, issued on behalf of millions of rail passengers, can now proceed to trial.  The standalone claim was the first of its kind to be filed in the UK and is estimated to be worth around £93m in damages for rail users.

In its judgment, which can be accessed here, the Tribunal said: ”we authorise the Applicant to act as the class representative in both these  proceedings; and we find that the claims in each action raise common issues and are      suitable to be brought in collective proceedings.”

The Tribunal has authorised the claims to continue as collective proceedings meaning that millions of passengers who have paid twice for part of their journey on Southeastern and South Western routes because they were not sold a boundary fare, will now automatically be represented at court, unless they choose to leave – or opt out – of the claim.  The Tribunal confirmed that Mr Justin Gutmann, formerly of Citizens Advice, will act as the Class Representative.

The claim was launched in the UK’s specialist competition court on 27 February 2019 by Mr Gutmann.  The application for a Collective Proceedings Application Order was heard remotely between 9 – 12 March 2021, leading to today’s decision.

The Class Representative, Mr Gutmann said: “This is a great step forward in my legal campaign to achieve justice for millions of rail passengers who have been overpaying as a result of the train operating companies not offering ‘boundary fares’. It means that we can now hold Southeastern and South Western to account by going to court. “

He added: “I am grateful to everyone involved Charles Lyndon Ltd, Hausfeld & Co LLP, Philip Moser QC, Stefan Kuppen, Alexandra Littlewood of Monckton Chambers, Woodsford and AlixPartnersfor their hard work and dedication to the claims and look forward to the next milestone in the Boundary Fares campaign for justice.”

What is the claim about? What are boundary fares?

Southeastern and South Western are alleged to have not made ‘boundary fares’ sufficiently available for Travelcard holders to purchase, nor making passengers aware of their existence. Boundary fares allow passengers who own a TfL travelcard to travel beyond the zones covered by their travelcard without doubling up on payment. Instead, the rail companies’ failures have left customers with little option but to buy a higher fare than they would have needed to because their travelcard already entitled them to travel for part of their journey. Many passengers have effectively paid twice to travel sections of their journeys.

Independent research has shown that boundary fares are not readily available through online platforms or over the telephone from South Western or Southeastern and are rarely offered at ticket counters unless expressly requested by passengers. This imposition of an unfair price for fares is an abuse of the companies’ dominant position and in breach of UK competition laws.

Mr Gutmann has been successful at first instance with the Tribunal certifying Mr Gutmann’s claims against the rail companies. Southeastern and South Western continue to refuse to compensate passengers who have been overcharged, and the claims will now proceed to trial for the Tribunal to assess liability and damages.

Comments from the legal team and funder:

Rodger Burnett, Director of Charles Lyndon, said: “This is an important victory for rail passengers and citizens’ rights more generally.  Charles Lyndon is delighted to have represented Mr Gutmann in these claims and is pleased the Tribunal recognises the position that Charles Lyndon have long held: that dominant companies have duties to make pricing transparent, especially when dealing with consumers. We look forward to preparing for the next stage of the claims with Mr Gutmann.”

Anthony Maton, Managing Partner at Hausfeld & Co LLP said: “Millions of train passengers, often commuting daily on South Western and South Eastern, can now claim for the double charging that saw them pay twice for many journeys – once through their travel cards and once through their ticket journeys. Today the court agreed to allow the claims to proceed so that rail passengers are a step closer to obtaining restitution from the rail franchises for these long running malpractices.”

Woodsford’s Chief Investment Officer, Charlie Morris, said: “This is an important milestone in the promotion of collective redress in this country, which allows consumers and small businesses to achieve compensation for the wrongs committed by big business. With Woodsford’s support, Mr. Gutmann is now much closer to obtaining compensation for the many thousands of consumers who have been overcharged by train operators and we look forward to continuing to help those consumers achieve access to justice.”

What next?

Class members who live in the UK will be automatically included in the claim without having to take any steps, although they can choose to opt-out by sending confirmation of this to the following email address: info@charleslyndon.com or by post to: Charles Lyndon Ltd, 22 Eastcheap, London, EC3M 1EU.

Affected passengers who do not live in the UK will also be eligible to join the claim but must proactively opt-in to participate. If you are not domiciled in the UK and you wish to opt-in to join the claim, you must do so by sending confirmation of this to the following email address: info@charleslyndon.com or by post to: Charles Lyndon Ltd, 22 Eastcheap, London, EC3M 1EU.

Commercial

Former SDNY Judge Shira Scheindlin Discusses Litigation Funding

Retired justice Hon. Shira Scheindlin has a lot to say about litigation funding, as we learned in the first half of her recent interview. She is now Of Counsel at Stroock & Stroock & Lavan, in addition to being a leading neutral at CPR, FedArb, and AAA. Above the Law details the rest of her interview here, with commentary from interviewer Gaston Kroub. Kroub points out that a former trial judge might be in huge demand as part of a due diligence process for funders. At present, Judge Scheindlin has not been invited to participate in due diligence by any funders. She has, however, been asked to lend her expertise to review due diligence reports compiled by funders to determine their veracity and the probability of a win. Certainly, judges and experienced lawyers have the tools and skills needed to offer opinions on funding for specific cases. It’s noteworthy though, that Scheindlin is clear in saying that she offers an opinion—but does not have a vote in whether or not a case will receive a funding offer. Mediation and arbitration are both hot issues at present, because of court delays caused by COVID and the ready availability of legal funding. Experienced neutrals are a vital part of this process, which can bring new perspective to the facts of the case at hand. In many instances, arbitration can bring about a fast resolution that is cost-efficient. Scheindlin explains what she views as a vital misconception about legal funding—that far too many people regard funders as opportunistic and greedy. The focus of litigation funding has always been increasing access to justice. The fact that a return on investment is needed to sustain the business model is hardly evidence of wrongdoing, or even greed. Legal fees are expensive—which is why legal funding is in such high demand.
Consumer

Did Girardi Keese’s Creditors Know About the Fraud?

Legal troubles for Tom Girardi and his wife, reality star Erika Jayne of The Real Housewives of Beverly Hills, are still mounting. Now there’s word that a bankruptcy trustee will be hiring a firm to investigate an allegation that attorney Tom Girardi’s lenders were aware of fraudulent cash transfers in the millions. Law.com reports that a new legal filing is targeting at least three legal funders that were given access to bank and tax statements, along with other financial details, case lists, plaintiff data, and even online banking information. Elissa Miller, one trustee for Girardi Keese's bankruptcy, has sued Girardi’s estranged wife, and remains adamant that lenders may have extensive information about Girardi’s improper use of funds—including an alleged $25 million “loan” given to Erika Girardi. Girard Sharp, special counsel to the trustee, is expected to assist with evaluating and investigating claims against the lenders. This includes plans to retain founding partner Daniel Girard at a rate of $975 per hour, plus a partner ($750 / hour) and an associate ($425 / hour). Meanwhile, claims and actions against Girardi Keese are piling up. Hundreds of claims are currently pending against the defunct legal firm from other law firms, consultants, medical companies, clients, vendors, and former employees all seeking remuneration. Several entities have multimillion dollar claims against the firm, such as Virage SPV, Stillwell Madison, and California Attorney Lending. Liens currently stand on several specific cases, and some on all assets of the firm. Erika Girardi continues to extricate herself from the proceedings, despite mounting evidence that she received millions in unearned capital that should have gone to clients, staff, or creditors. Before filing for divorce from her husband, Girardi stated that she was advised by counsel to leave The Real Housewives of Beverly Hills. However, she declined to do so, even returning for a reunion special.
Commercial Legal Innovation

What You Need to Know About Litigation Risk Insurance

As any legal professional can tell you, predicting an outcome with certainty is rarely an option. Ethical guidelines prohibit lawyers from promising or guaranteeing a positive outcome, even when a case looks like a clear winner. If lawyers can’t promise skittish litigants a win, what can a lawyer say to reassure clients? AON suggests that litigation risk insurance can assuage many relevant concerns. There are different types of litigation risk insurance—but the product typically takes one of two forms: judgement preservation insurance (plaintiff side), and adverse judgement insurance (defense side). Such insurance can help clients by determining at the outset how much, if any, financial risk they are taking on. Adverse judgement insurance protects current and future defendants in litigation against large judgements against them. Such policies are crafted on a case-by-case basis, leading to bespoke solutions. Consider a company being sued for hefty damages. It can buy insurance coverage for most of the amount of the potential award, not counting a small percentage for ‘retention.’ If the company loses the judgement, they pay only the retention fee, and insurance covers the rest. Defendants can use a similar strategy to leverage a better settlement using adverse judgement insurance. Letting an overreaching plaintiff know that defendants can’t be manipulated by financial worries can be a game changer. Adverse judgement insurance isn’t just a cost-saving product. When pending litigation is turning off investors, a company can regain its financial certainty with this type of insurance. Essentially, any party wishing to reduce its exposure to astronomical legal judgements stands to benefit from this type of insurance. Judgement preservation insurance can be helpful when appeals are likely. Even in situations where plaintiffs don’t need an immediate payout, this type of insurance guarantees plaintiffs will receive their full award—or as much of it as they chose to insure.