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Commercial Regulatory Issues

Calls for Europe to Regulate LF Marketplace

With the exponential rise in funded claims across Europe, calls for further regulation abound. Similar to what we’re seeing in the US and Australia, many on the continent want to see added transparency and regulatory control in the nascent industry.  The Parliament Magazine’s Axel Voss argues preserving the purity of justice is key to avoiding the limbo of a profit-focused legal system. The LF industry is generally an unregulated sphere across Europe, which prompts Voss to warn that a lack of transparency and regulation standards could fuel abuse across the industry. The funding industry’s prized pitch is offering litigation access to those normally unable to afford justice. However, oftentimes, successful funders target top dollar cases, and pass over smaller, less profitable ones. With the global LF scene staking $45b-$90b a year currently, Voss urges the European justice system to act on “common sense regulation and transparency.”  While some consider tackling regulation a radical venture, Voss hints at proposed standards which he claims are common sense. A study of over 5,000 respondents spanning Poland, Spain, France and Germany found that 83% of Europeans want LF regulatory standards in place. Similarly, only 31% embraced the idea of the LF marketplace being self-regulated.  Voss notes that LF revenues will likely increase exponentially year-over-year and that it is “crystal clear” Europe should innovate in cultivating common standards, beyond today’s loose regulatory arbitrage wild west. Adding that the market sees some instances of 500% return on investments, claimants sometimes lose out on fair compensation, according to Voss.  Voss says it is now up to members of the European Parliament to work with the Commission to usher in a modern generation of regulatory standards.
Consumer

Advocate Capital Scores Top Texas LF Prize

Texas Lawyer Magazine crowned Advocate Capital one of the top three Consumer Litigation Funding Providers across two of Texas’s major metropolitan areas for 2021.    Texas Lawyer recognized Advocate Capital, Inc’s legal professionals, and showcased the firm’s products in the publication’s annual year-end edition. The Texas Magazine heralds Advocate’s standout attorneys, replete with the essentials they require to compete in today’s legal market. Advocate is planning for a successful 2022 as a leading plaintiff injury practice, with attorneys staffed across Texas and the United States.  
Commercial Legal Innovation Special Features

Key Takeaways from LFJ’s Podcast with Steve Shinn

On the latest episode of the LFJ Podcast, Steven Shinn, founder of FinLegal, described the solutions his platform provides for both funders and lawyers, and explains his company's points of differentiation with other third party platform providers.

Q: Why move into litigation funding and after-the-event insurance? Can you explain how FinLegal’s offerings are different than those of traditional funders?

A: Absolutely. I think one of the challenges is that the litigation funding market could grow a great deal. But there are challenges where lawyers don’t necessarily understand litigation funding, and there are a lot more funders that you can go to. So you want to help educate people who are new to litigation funding and ATE about how to access it and how it works.

There are more funders joining, which is increasing the number of claims that get funded. So whereas before you might have only had funders looking to deploy $5 million to a claim, you now find situations where there are funders who want to deploy as little as $100,000 or less. So there’s a much broader range of funders...and it’s hard to go to all of them individually and it’s hard to know who’s in the market.

We thought, let’s build a sticky platform which provides the law firm with visibility and control over those funding requests, and let’s give them an online process (to write the best possible funding request) in terms of how it’s positioned to the funders so that it does get funding. With lots of funders to navigate, let’s build a platform to help lawyers navigate them, help them understand it—and let’s help them put forward the request with the best possible positioning.

Q: You mentioned getting involved in group actions (the UK version of US-style class actions). What got you interested in that space particularly, and does your technology background in any way penetrate that space?

A: Definitely. It started out as me seeing the VW group claim, and also seeing cartel claims, price-fixing on football shirts, and things like this. With my technology background, I thought ‘Well, how are law firms doing this?’

I saw that they had a lot of off-line case management platforms, they use a lot of spreadsheets. You know these systems didn’t talk to each other. There’s a lot of manual effort and no mobile interfaces for claimants to interact with the law firm. So I thought, ‘We can build a platform that will enable that.’ Essentially, we’d be taking a completely fresh look at it. With a technology and software development background and a product development background. How do we build/provide something that enables lawyers to spend the least time possible working with each claim. We know that’s important to the economics of the claim—not having to spend a lot of manual effort on each claim.

So that’s what we produced, a solution that works on a management by exception basis, so essentially the claimant goes through an automated set of steps. And where they fall out of those steps or where they don’t meet certain criteria, only then do they need to get picked up by the law firm.

Q: I know you offer a claim automation solution, can you explain what this solution does?

A: The main benefit of the solution is that it increases the volume of clients. So what you tend to find, is if there’s a bad claimant experience, people fall out of the process. You’ve spent money on acquiring that claimant, you spend advertising pounds or dollars to get them into your funnel, to start working with them. But they become disenfranchised from your process, right? Or they don’t like getting a lot of phone calls, or they feel like the process is insecure and it happens via Email without clear instruction. So if you have a good online process, it increases the volume of clients. That’s the first thing.

And it reduces the amount of time spent per client also, because...the law firm is only working with clients who fall out of the automated process. It’s also plug-n-play, so if you want to start work on a new type of matter it might be that this week you’re building a book of emissions claimants, and the following week you want to launch a shareholder claim.

You can launch that from the platform in a matter of days and start book building. You’re not having to have lots of different contractors and different systems that you have to modify to start doing something new or different. You talk to us, we set it up for you, and then you manage it through an interface that you’re very familiar with.

Commercial

Social Inflation Meets Litigation Finance

Social inflation is a significant factor impacting the future of the litigation finance (LF) industry, detailed in a new report released by Swiss Re. With LF investment increasing to $17B in 2020, the market saw a 16% increase year over year, highlighting a greater need for transparency and disclosure standards across the industry.   The Insurer notes the global LF industry is forecasted to reach $30B+ by 2028, with the United States leading with over half of overall investment. LF investment is also allegedly contributing to social inflation across the industry, with the report estimating that 57 percent of LF investment is earmarked for legal expenses, compared to 45 percent, historically.  Regulatory arbitrage could be a significant factor for LF investors to consider over the next decade. Swiss Re highlights that LF regulation is emerging with no real common regulatory standard across the global marketplace. With this trend, transparency is a factor that claimants should consider, as LF investors may choose to operate under opaque regulatory circumstances.  Swiss Re suggests the LF industry adopt compulsory standards of disclosure of investment arrangements to all parties. These disclosures are a bid to usher in transparency and ensure overall consumer protection. Swiss Re forecasts a continued disparity between sophisticated LF investors assessing social inflation costs that will generally affect net proceeds to client plaintiffs. Finally, the report suggests that large corporations may seek investment in “legal expense insurance policies” that may serve as a buffer and/or alternative to the LF marketplace. 
Commercial Fundraising

Alt Investment Platform LegalPay Raises Funding

Venture capitalists and Amity Technology Incubator are leading the funding of LegalPay, an Indian investment platform democratizing investment in third-party legal funding and tangential services like insolvency financing. LegalPay specializes in legal financing products backed by assets. These investments have potentially lucrative IRRs, often as high as 30%. Economic Times details that New Delhi-based fintech invites investors at all levels. This includes family offices, retail investors, international funders, and others. Investment in this type of alternative asset class is an excellent means of diversifying a portfolio while instilling the benefits and discipline of long-term investing. This, aside from the obvious benefits of potentially high returns in an asset not connected to the global market. Founder and CEO Kundan Shahi explains that LegalPay opens LitFin investment to those who had been shut out of legal finance since its inception. Now, everyday investors have access to assets that were only available to the mega-rich--even as recently as last year. Among its other products, LegalPay offers short-term interim finance for distressed businesses. This is obviously an important service in the time of COVID when many businesses continue to struggle. LegalPay has also launched technology products to meet the needs of insolvency professionals including banks, resolution specialists, ARCs and other creditors. By offering an efficient and seamless process, more parties in need have access to help. Ultimately, LegalPay will enable customers to use AI and other tech to effectively invest in this alternative asset class.
Commercial Regulatory Issues

On ATE Insurance as Security for Costs

Article 6 of the European Convention on Human Rights states that every citizen has the right to unimpeded access to the courts. Citizens of modest means who cannot afford an attorney might say that principle falls short in practice. Legal Futures explains that the insurance market and third-party legal funding both have a crucial role to play in collective actions, and for individuals who cannot afford to pursue their claims. Yet, there’s an imbalance between access to justice and cost protection. This imbalance has led to claimants, particularly those in class actions, feeling frustrated. After-the-event insurance is typically used as protection against an adverse costs order, but can also be deployed for the defendant’s costs. But ATE may not always be enough to cover security for costs. So, who bears the financial risk when a David takes on a Goliath? Do the courts ultimately favor the clients with the biggest war chest? What happens when securities for costs are ordered against a third-party funder? In the so-called Ingenious litigation, a funded case with over 500 claimants sought to recover losses. Defendants filed for security against a litigation funder, requiring that Justice Nugee revisit specific legal points. He ultimately found that ATE policies, in this case, did not provide sufficient protection. Is the only option for claimants to purchase an anti-avoidance endorsement so that insurers cannot void or terminate a policy? Some say so, despite the significant financial outlay for such an endorsement. Such an expense would ultimately be counted against any future recovery.
Commercial Regulatory Issues

Calls from Reinsurers to Regulate US Litigation Funding Continues

In any discussion on rising insurance costs, fingers are sure to be pointed at Litigation Finance. LitFin is a $17+ billion industry, with more than half of assets being leveraged by US clients. Reinsurers have claimed that third-party legal funding is the catalyst for the increase in excessively large legal awards. Insurance Journal explains that litigation funding is being blamed for the increase in liability insurance premiums in a number of industries—including commercial auto, general liability, and medical malpractice. One might think the impetus would be on manufacturers and medical care providers to conduct themselves in a way that won’t attract lawsuits. The alternative is to complain about the rise in verdicts of over a million dollars—which is the path many have chosen. Still, the size of verdicts is growing. From 2010 to 2019, awards surpassing $1 million increased from 29% to 36%. During the same time frame, average awards for cases over $1 million rose from $8 million to more than $10 million. Is this just general inflation? Or is litigation funding really causing havoc among insurers and the insured? Michael McDonald of Morning Investments Consulting doesn’t agree that LitFin is the cause of high insurance prices. He explains that litigation funding makes it possible for meritorious cases to find their way to court, and this represents increased access to justice, rather than a cudgel with which to beat insurers. Indeed, insurers could benefit from some aspects of third-party legal funding, such as making their own investments or monetizing legal assets. So while funders are creating solutions that work for attorneys, clients, and investors, insurers and reinsurers are fighting for increased regulation. Is this out of an abundance of caution—or a desire to hobble a thriving industry that’s making life harder for those who aren’t meeting their obligations to customers?
Case Developments Commercial

McDonald’s Faces Class Action for Alleged Denial of Employee Breaks

Shine Lawyers, with backing from Court House Capital, has filed a class action in Federal Court alleging that McDonald’s failed to provide employees with 10-minute breaks. These are required during shifts of four hours or more. Inside Retail explains that in addition to not providing proper breaks, McDonald’s routinely misrepresented the breaks workers were entitled to. The case alleges a systemic failure. The victims of these failures are mostly minors, many working their first proper jobs. The suit alleges that the loss of breaks impacted the physical and mental well-being of employees. The blatant disregard for established rules protecting employees has been described as ‘breathtaking.’ McDonald’s gave a short statement affirming their own compliance.
Announcements Consumer Deals

Legal-Bay Lawsuit Funding Taking Applications on Astroworld and Other High Profile Personal Injury Claims

Legal-Bay, the premier Pre Settlement Funding Company, announced today that over 150 lawsuits have been filed in the Astroworld tragedy that took place at Houston's NRG Stadium last month. The event was sponsored by Live Nation and intended to be a showcase for rapper Travis Scott. Unfortunately, however, the day took a darker turn when attendees rushed the stage causing numerous injuries, and in the case of ten people, death. Over a dozen law firms representing approximately 600 plaintiffs have filed premise liability and gross negligence suits against Scott, concert promoter Live Nation, and numerous other businesses including venue staff and security of NRG, along with first-aid providers that were hired to attend to injured fans. Plaintiffs claim that security and medical services were inadequate, leading to a predictable and preventable catastrophe. Safety measures could and should have been put in place in order to avoid the carnage that occurred, but instead, numerous corners were cut at almost every step. Concertgoers soon found themselves in an environment they had no control over, leading to the hundreds of injuries and tragic deaths that took place. Plaintiffs allege that there was a lack of crowd management even though official plans stated that this was necessary, lending weight to the negligence charges being brought against the defendants. Reportedly, there wasn't even a strategy for a crowd surge, even though comparable problems had occurred during Astroworld's preceding event held in 2019. In Scott's case, it might be even more difficult for him to claim he had no idea a crowd crush would happen since his own concerts have had other similar incidents, a fact which the venue and event organizers of this year's Astroworld were most certainly already aware. In 2015, he was arrested and charged with disorderly conduct after he flay-out told a Chicago audience to ignore security and rush the stage. Chris Janish, CEO, commented on the situation, "We are expecting many more of these unfortunate large scale personal injury events in 2022 now that larger events are being planned following the Covid hiatus. To our knowledge, we are the only company funding Astroworld plaintiffs at this time. Our staff is familiar with cases of this nature and can evaluate quickly for victims who are in need of cash now." If you have an existing lawsuit and need a loan on lawsuit against your impending case settlement, Legal-Bay may be able to assist you immediately. To apply online, please visit us HERE or call the company's toll-free hotline at 877.571.0405. Even outside the Astroworld tragedy, Legal-Bay has seen a flood of new premise liability filings in 2021, and their team is prepared to keep up with the demand. They're one of the leading lawsuit loan funding companies in the industry, and offer a lightning-fast approval process. A good thing, considering there's been a noticeable backlog in the courts due to Covid delays and court closures in response to the pandemic. Rather than wait indefinitely until cases get settled, Legal-Bay believes plaintiffs shouldn't be left waiting for the money they have coming to them. They have expanded their premise liability and personal injury departments in order to accommodate litigants who would rather opt for presettlement funding. Applications are reviewed on a case-by-case basis, and funding is awarded based on the merits of your particular situation. The legal concept of premise liability is used in certain personal injury cases if the injury involved was caused by a property owner's failure to ensure his property is safe. To win a premise liability case, the injured person needs to prove that their injuries were caused by unsafe conditions as a direct result of the property owner's negligence to suitably maintain the property. However, just because you were injured on someone's property doesn't automatically mean that the property owner is liable. Proof will need to be provided showing the property owner was aware of the unsafe conditions on his premises and failed to take action to rectify an unsafe situation. That being the case, you may be entitled to compensation. If you are involved in an active personal injury or premise liability lawsuit and need an immediate cash advance against an impending lawsuit settlement, please visit Legal-Bay HERE or call toll-free at 877.571.0405. Legal-Bay is one of the market's premier funders. If you've previously been denied by other funding companies, you might want to give Legal-Bay a try. More often than not, they'll be able to refinance your rate at a lower cost than other funders, with an added bonus of getting you more money. Anyone that has an existing lawsuit and needs cash now can apply for loan settlement funding to help get through their financial crises. Legal-Bay funds all types of premise liability loans for lawsuits including personal injury, slips and falls, car accidents, construction site accidents, work-related injuries, injuries incurred due to negligent business practices or lack of maintenance on private property, and more. Legal-Bay's pre settlement funding programs are designed to provide immediate cash in advance of a plaintiff's anticipated monetary award. The non-recourse law suit loans—sometimes referred to as loans for lawsuit or loans on settlement—are risk-free, as the money doesn't need to be repaid should the recipient lose their case. Therefore, the lawsuit loans aren't really loans, but rather cash advances. To apply for lawsuit funding right now, please visit the company's website HERE or call toll-free at: 877.571.0405 where agents are standing by.
Contact:Chris Janish, CEO Email: info@Legal-Bay.com Ph.: 877.571.0405 Website: www.Legal-Bay.com
Commercial Regulatory Issues

What Claimants Need to Know About DBAs and LFAs

When surveying funding agreement options, claimants will often come across damages based agreements, or “DBAs,” and litigation funding agreements, or “LFAs.” Both DBA and LFA agreements help clients achieve the ultimate goal of winning a case, and transfer the overall cost and risk of litigation on to the representatives tasked with investing in the case.  As Temple Legal reports, the objective of a DBA or LFA is an overall shared responsibility that the litigation will be funded, and in the event of a successful outcome, the benefits shared between the parties. When organizing any deal of this nature, both parties should be careful to look after their own long term interests.   Things can get complicated when an LFA evolves into a DBA, prompting consequences which the parties may want to evaluate. Overall, DBA agreements are associated with claims management services more than traditional LFA  contracts. In fact, a recent court of appeals decision found that funders of litigation do not typically engage with claim management. Should any degree of claim management exist, the contract would therefore be considered a DBA contract. In conclusion, the differences between DBAs and LFAs are contingent on the funder providing litigation services such as advocacy and/or claims management. However, if at any time there is a question of whether the terms and conditions of an LFA are in jeopardy, either party should seek professional advice to remedy the matter.
Commercial

Reading a Legal Funding Agreement: Five Tips

Legal funding agreements are not yet standardized. Before signing, it’s essential to read a funding agreement carefully and ask questions about anything you don’t understand. Validity Finance’s Joshua Libling shares his insights for reading a term sheet for a litigation funding agreement.
  • Collateral. In this context, collateral is the case itself. Take note of any rights of refusal or mention of future litigation. The description of collateral is often broad so the funder is a party to relevant awards or settlements.
  • Budget Risk Responsibility. Funding isn’t a bottomless well. If a case goes beyond the expected budget, someone must pay the difference. It’s essential that the claimant know who that is.
  • Calculation of Return. How the division of a payout is calculated is very important and should be thoroughly understood before the deal is reached. Understand terms like waterfall, deployed vs committed capital, and net vs gross in the calculation of the funder’s return.
  • Fees. In addition to a percentage of an award, funders may charge structuring or transaction fees—usually based on a small percentage of the committed amount. Be sure you ask when fees are due and if the funder gets a return on the fee.
  • What’s Missing. Not every eventuality will be covered by the funding agreement. That’s not necessarily cause for alarm.
Commercial Deals

How LitFin Drives Profits for Investors and Lawyers

Those attorneys who represent venture capital or private equity firms understand that it’s common to make big decisions about whether or not to invest in litigation—even when the case is strong and the outcome potentially lucrative. Still, encouraging clients to pursue litigation can be a steep hill to climb. Omni Bridgeway explains that many firms are reticent to spend on litigation when their capital is needed for operating expenses, expansion, or product development. Complex litigation is risky. The timelines and outcomes are largely unpredictable. One adverse ruling could erase years of careful planning and shrewd investment. What’s the solution? Litigation Finance. Lawyers for private equity or venture capital firms greatly benefit when they offload their legal spending to a third-party. Non-recourse funding means that the risk is essentially transferred to that party in exchange for a portion of an eventual recovery in accordance with the funding agreement. Funding agreements vary depending on the case, funder, and other factors. In addition to the long-term benefits present when cases are won, legal funding carries with it several immediate financial benefits. The legal expertise funders bring to the table is substantial. Funders can vet cases and focus on which ones have the greatest probability of success. In single case funding, legal expenses can be removed from the books as soon as they’re incurred. Portfolios are typically funded with a large one-time deployment, or in several lump sum payments on a predictable schedule. This cash can be used for legal expenses, but may also fund operating expenses. The capital infusion itself is a financial asset, as is any revenue from successful claims. The process begins with selecting the right cases for the funding portfolio. Strong merits, a large expected recovery, and a defendant with the ability to make good on an award are all vital factors funders consider when vetting any portfolio of cases.
Commercial Deals

IPOs Dominate as Legal Firms Pursue Post-COVID Growth

Are we about to see a deluge of IPOs? A recent survey of 200 law firm partners in the UK suggests as much. Of those surveyed, 31% said their firm is actively considering an IPO sometime over the next year and a half. Another 44% said their firm is contemplating a stock market listing with no time frame given. Harbour Litigation Funding details that a whopping 78% of partners came from firms actively pursuing a credit infusion to supplement its own equity. The reason? For about half of respondents, ambitious plans for growth was the catalyst. Meanwhile, 86% of partners stated they felt pressure to reduce costs.
Commercial Regulatory Issues

New Possibilities in Litigation Funding

As the Litigation Finance industry grows, attorneys, insurers, corporates, and even small businesses are seeing the benefits of non-recourse third-party funding. As regulation adapts to these new realities, new opportunities are arising. Bloomberg News reports that one main driver of litigation funding growth is the search for non-correlated assets with the potential for high returns. Consumers are fueling the advancement of funding with claims portfolios, individually financed cases, class actions, and corporates reorienting legal departments as profit centers by monetizing existing legal assets. At its finest, litigation funding is a win-win proposition. Claimants receive the funding they need and could not otherwise afford. Law firms can reduce risk and add to operating budgets—allowing them to take on more contingency and even pro-bono work. Meanwhile, investors receive the large returns needed to encourage further investment, helping even more people who need assistance funding litigation. Debate about the transparency and discoverability of litigation funding agreements will continue. Courts have already explored what happens when lawyers advise clients to use legal funders, but no cross-jurisdictional consensus has been reached. So too are issues of privilege, as vetting by potential funders necessitates access to information typically held between lawyers and clients. So far, courts seem ambivalent on the common interest privilege. As more players enter the Litigation Finance space, we can expect more access to funding, a wider range of funding solutions for clients to choose from, and investment opportunities for smaller investors. As legal funding evolves, law firms are likely to rethink compensation models for partners and associates alike—especially when adopting flexible payments structures combining contingency and hourly billed models. As some jurisdictions relax restrictions on non-lawyer ownership of firms, compensation and bonus structures are likely to evolve further. Courts, financial specialists, and bar associations will have to rise to the challenges that the expansion and maturity of Litigation Finance will bring.
Consumer

Novitas Loans Announces Cessation of New Client Acceptance

Despite an announcement that assets reached more than GBP 200 million in 2019, Novitas Loans recently announced that it will stop funding new customers. The statement affirmed that the company will continue to manage current cases. Applications for extension funding will also be considered. Law Gazette reports that Novitas’ owner, Close Brothers, stated that the current profile of the company was not in line with the long-term strategy or tolerance for risk. For the fiscal year ending July 2020, Novitas’ assets were up more than 50%, though profit before taxation decreased to GBP 10.3 million. Director dividends were up from 6.1 million to 8.3 million. Still, COVID negatively impacted Novitas’ profitability, though Novitas did appear to have adequate resources for the next fiscal year. In July of this year, Novitas was ordered to end a funding agreement with a client, and required to cap her liability at under GBP 2,000. This was after the Financial Ombudsman Service found that the client was duped over a GBP 45,000 loan. Novitas was also impacted by three collapsed loan facilities that together owe Novitas nearly GBP 2 million.
Commercial Resources

Webinar on Increasing the Value of Insurance Claims with LitFin

A free online webinar will cover the fine points of utilizing Litigation Finance to unlock the value of insurance claims. It is possible for insurers and policyholders to make use of non-recourse funding when pursuing matters of bad faith, reinsurance, coverage issues, subrogation, and more. Chambers and Partners details that the upcoming webinar will offer insight on these issues from leading litigation funders and lawyers with experience working with funders. Topics include:
  • Funding reinsurance and insurer subrogation claims.
  • Funding policyholder claims and using bad faith claims to resolve third-party actions.
  • Explanation of how non-recourse finance is secured by potential litigation awards or settlements.
The panel of speakers is scheduled to include:
  • Linda Kornfeld, Partner Insurance Recovery-Blank Rome. A prominent insurance recovery lawyer in predominantly high-stakes litigation. Her specialties include risk mitigation and maximizing recoveries.
  • Gavin Beardsell, Investment Manager and Head of New Zealand – Omni Bridgeway. Based in the Sydney office, Beardsell’s experience in managing insurance matters spans over 25 years.
  • Maurice Thompson, Senior Equity Partner – Clyde & Co. Thompson has nearly three decades of experience advising clients in the natural energy industry, and founded the Global Drones Group.
  • Simon Christian, Editor – Chambers and Partners. Editor of the High Net Worth Guide, Christian has an LLB from University College London and studied for the BPTC at City Law School.
Commercial Regulatory Issues

New Jersey Disclosure Rule Puts Undue Burden on Litigants

Much has been made of the US District Court of New Jersey’s Local Rule 7.1.1, which requires disclosure of any non-recourse legal funding used to support a case. Some have suggested that this “harmless” rule will encourage transparency and increased oversight. But does it? Law 360 explains that the rule necessitates burdensome filings requiring tens of thousands of attorney work hours—leading to increased expenses for clients. At what point should we ask what purpose this serves, and whether or not it’s worth the extra resources. After all, it can be argued that transparency is a vague, even arbitrary goal. Why should legal funders and their clients be subjected to it, given all the good that funding does? Commercial litigation funding works to ensure that litigation focuses on merits rather than legal games meant to frustrate parties with fewer resources. Funded plaintiffs cannot be pushed into lowball settlements or stalled until they run out of money. This, of course, leads to increased fairness—which should be everyone’s goal. This is emphasized by the fact that funders only take on cases with merit. A solid claim backed up by compelling evidence and a clear illustration of damages is what funders are looking for. The cacophony of accusations of ‘frivolous litigation’ simply cannot be supported by evidence. Confidentiality is an essential part of any case. Any legal professional should view intrusions of confidential information with suspicion. Protecting attorney-client privilege is a vital part of that relationship. It’s worth noting that other legal services are exempt from mandatory disclosure, such as consultants or strategists. Perhaps the most sinister part of Rule 7.1.1 is how easily it could be weaponized against clients who use legal funding. Defendants concerned about a losing case, or frustrated with untenable settlement offers, could make spurious demands for funding agreements, even when no suggestion of impropriety is present.
Commercial

Australian Funding Partners Declares Bankruptcy

Once hailed as the team behind the Banksia class action, Australian Funding Partners has gone into administration. In October, Supreme Court judge John Dixon found that the litigation funder and five lawyers involved in the case had committed fraud, and made dishonorable attempts to charge unnaturally high legal fees to Banksia claimants. Lawyers Weekly details that in 2018, AFPL reached a settlement with Banksia Securities over an investor loss of AU $660 million in 2012. Later, a class action participant challenged the nearly $5 million in legal fees and a further $12 million+ in funder commissions. The Victorian Court of Appeal did not approve them. As a result of the actions of AFPL and the attorneys involved, Norman O’Bryan and Michael Symons were ordered removed from the roll. Prosecutions may soon follow for the pair.
Commercial Deals

What Makes a Case Attractive to a Litigation Funder?

As Litigation Finance grows in popularity and sophistication, not everyone is on board just yet. In fact, some clients and even their legal teams aren’t sure how to attract the interest of an experienced litigation funder. As the practice grows in use, understanding it becomes even more important. Lesa Online explains that there are some things funders look for when vetting any potential funding opportunity. This generally begins with an NDA followed by a thorough vetting. This due diligence may include looking into the viability of case theory, the defendant’s ability to make good on an award or settlement, and the evidence itself. Time, cost, and expenses are all considered, including the possibility of security for costs. How is this broken down?
  • Merits. The case should have a very high probability of success based on applicable law and existing evidence.
  • Damages. A sound theory of damages must be present and is typically valued using the most conservative estimates.
  • Budget. How much will the case cost? A viable case must have a solid ratio between what will be spent vs a potential reward.
  • Ability to pay. Regardless of merits or proven damages, if the defendant cannot reasonably pay the award, funders will not be interested. 
  • Adverse costs. Cost exposure is an essential aspect to consider when vetting any case for funding. Insurance is often applicable here as well.
Commercial Resources

The 2021 Litigation Finance Survey Findings

In September, Bloomberg Law surveyed 38 litigation finance providers, 37 lawyers, and 75 legal professionals in the UK, US, and Australia on their interest in and use of Litigation Finance. This survey provides a stirring look at developments and attitudes within the industry. As Bloomberg Law explains, the main area of concern for funders and attorneys is the question of who maintains control over the litigation. Current and pending legislation tends to guarantee that clients retain the right to decision-making even in funded cases. Meanwhile, it appears that ethical implications are of far greater importance to lawyers—with 55% listing it as a concern, compared to just 14% of funders. Matters of return waterfall provisions (based on a multiple of invested capital) and attorney returns subordinated to return of funder capital were of high importance to both funders and lawyers. Factoring duration risk in calculations of proceeds distribution is also important to lawyers and funders—though funders find it a more crucial issue. Funders also focus on the right to withhold funding. When lawyers are considering entering a funding agreement, they tend to look at the factors in this order.
  1. Financial terms
  2. Reputation of the funder
  3. Track record of the funder
  4. Type and quality of in-house legal consultancy
Commercial litigation remains the most popular area of practice for funder/attorney agreements. This is followed by international litigation, antitrust matters, international arbitration, insolvency, patent law, environmental actions, copyright/trademark cases, insurance issues, and product liability. General industry views are largely positive toward funding, though there are some specific areas of concern. At least 39% of funders and 56% of lawyers do not feel that Litigation Finance is transparent as an industry. In more positive news, more than ¾ of lawyers and 97% of funders do not agree with the oft-repeated accusation that legal funding enables frivolous filings and cases without merit clogging court dockets. Still, lawyers were largely neutral on the positive ethical reputation enjoyed by funders. Most interestingly, about half of lawyers and nearly 4/5 of funders disagree with mandatory disclosure of legal funding agreements. In the end, we see that lawyers are 69% more likely to seek out litigation funding compared to five years ago. That’s solid news for this industry that continues to grow and adapt to meet the changing needs of lawyers and clients.
Case Developments Commercial

Woodsford Funds Govia Thameslink Railway Action

A legal claim that could be worth as much as GBP 100 million has Govia Thameslink Railway concerned. It alleges that one of the most active commuter railways in Britain has been routinely overcharging as many as 3.2 million passengers. The claim, filed late last month, is funded by Woodsford. Woodsford Litigation Funding explains that the case addresses a lack of access to ‘boundary fares’ in which commuters with a London Travelcard are entitled to discounted fares from the boundary zones covered by cards to their destination. A similar case, also funded by Woodsford, involves a claim seeking up to GBP 93 million against two unconnected rail operators. Govia Thameslink Railway is accused of not making boundary fares available to riders, nor informing passengers that they were an option. Since November 2015, it’s estimated that 240 million trips could have been more affordable thanks to boundary fares—had commuters been aware of them. This constitutes a breach of UK competition rules, plus an abuse of market powers. To be eligible for inclusion in the class action, claimants must meet specific criteria:
  • Must have owned a Travelcard after 10/2015.
  • Must have also purchased at least one rail fare from a station within a zone covered by the Travelcard.
  • Must have purchased a rail fare to a location outside the zone of the Travelcard.
Potential claimants aren’t required to bring individual claims, nor is there a fee to participate in the action. Funding from Woodsford makes it possible for claimants to sign on at no initial cost to them.
Commercial Regulatory Issues

What Have We Learned from Lloyd v Google?

The Supreme Court recently rejected the claim filed by Richard Lloyd against Google. Lloyd is the former executive director of Which?, a consumer protection organization. The case involved a data breach from over ten years ago, wherein Safari users were subject to double-click ad cookies without their consent. Law Gazette details that Lloyd v Google tackles two significant issues. First, it examines whether or not there’s a right to bring an opt-out class action in cases involving data privacy and protection. Second, it looks at whether there should be compensation in data rights cases when there has not been proof of individual impact. In February of this year, the UK government debated, then declined, to introduce legislation specific to opt-out class actions for matters involving user data. Their reasoning was that there was another, perhaps better, form of class action. Lloyd pursued this and was not successful. Litigation funders have taken a particular interest in this case—calling it a test case for UK collective actions in the future. Justice Leggatt denied claims made on behalf of roughly 4 million iPhone users in the UK, saying they only have a right to compensation if they have evidence of financial losses or distress. What might constitute evidence of distress is unclear. This ruling means that Big Tech won’t have to demonstrate that they’ve acted ethically. Rather, the people they harm, whose privacy has been violated, have to prove some tangible damage. There are still opt-in class actions, but it’s admittedly untenable to expect millions of clients to collect and submit evidence of the individual impact of a large data mishandling. It also leaves funders in a lurch—choosing between increasing access to justice and risking a large investment on a class action that may never reach a profitable conclusion. Ultimately, we’re left with millions of users allegedly violated by a tech company which will face no tangible repercussions.
Announcements Commercial People Moves

Delta Capital Partners Management Welcomes Michael Callahan as Chief Operating Officer

Delta Capital Partners Management LLC, a global private equity firm specializing in litigation and legal finance, has announced the hiring of new senior executive Michael Callahan. Mr. Callahan joins Delta as its Chief Operating Officer, where he will execute the firm’s strategic and tactical plans worldwide; lead investor relations; and oversee the implementation of new business initiatives, product development, and office openings. Prior to joining Delta, Mr. Callahan worked at Boston Capital for 28 years, where he was a Senior Vice President and the Director of Asset Management. At Boston Capital, Mr. Callahan was responsible for a team of over 60 professionals monitoring and reporting on the performance of Boston Capital's $7.7 billion portfolio, including both lower tier asset management and upper tier investor relations functions.  Mr. Callahan also led the team at Boston Capital that developed a proprietary asset management and reporting platform which was utilized throughout the company. Christopher DeLise, Delta's Founder, CEO and CO-CIO, stated, “We are very pleased to welcome Michael to the Delta team, where his extensive experience in asset management, investor relations, and investment company operations will be invaluable as Delta continues its global expansion and further enhances the firm’s strong position within the litigation and legal finance industry.” About Delta Delta Capital Partners Management LLC is a US-based, global private equity firm specializing in litigation and legal finance, judgment and award enforcement, and asset recovery. Delta creates bespoke financing solutions for professional service firms, businesses, governments, financial institutions, investment firms, and individual claimants. SOURCE Delta Capital Partners Management LLC
Commercial Deals

Burford Managing Directors Talk Potential Law Firm Ownership

Now that several US states are experimenting with non-lawyer ownership of legal firms, it’s no surprise that major players in Litigation Finance are thinking about taking part. Several more states are considering loosening regulations on who may buy into a law firm, including California and Michigan.

Law 360 reports that Burford Capital may be one funder looking to make a law firm investment. Emily Slater (Managing Director) and Andrew Cohen (Director) are jointly responsible for valuing and underwriting the company’s investment risk. Currently, they’re tasked with assessing an investment in legal firm ownership.

With regard to overall strategy, Slater explains that law firm investment compliments Burford’s funding efforts. Permanent equity in a law firm is a long term investment with a collaborative foundation. She goes on to state that there are some key reasons partial ownership by funders can benefit law firms:

  • Investment provides needed capital that can be used to grow and strengthen the business.
  • Partners can maintain equity in the firm after retirement.
  • These benefits may serve to encourage firm management to employ long-term growth strategies and allow more freedom to innovate.

While some have speculated that private equity firms may also race to buy into legal firm ownership, Slater is not convinced. She explains that legal funders have a far better understanding of law firms than other investment managers, which gives them a huge advantage. Beyond that, Slater is confident that Burford will be first to market.

Obviously, ethics will be examined at length as non-lawyers buy into firms. It’s speculated that non-lawyer ownership may lead to financiers making business decisions—such as which cases to take and when to settle—on behalf of lawyers. Andrew Cohen disputes this vehemently. He claims it’s unlikely that investors would make decisions at the client level.

Commercial

Is Brazil the Next Hot Litigation Destination?

The International Chamber of Commerce has ranked Brazil the #2 destination for matters held in the International Court of Arbitration. This is according to a new report on dispute resolution stats—one of many indicators that Brazil’s legal sector is experiencing impressive growth. Omni Bridgeway explains that Brazil has grown more sophisticated in recent years, with many more industries and businesses availing themselves of the benefits of arbitration. Fernando Merino, Managing director at Steptoe & Johnson LLP is licensed to practice law in Brazil and the US. His ties with the Brazilian legal community affords him specific insights into what’s happening in Brazil, and how that will shape the future of Litigation Finance there. His views on the region include:
  • Brazil has been developing new arbitration laws since 2000, to great effect.
  • Much of this new growth stems from the involvement of industrial sectors like mining, and energy excavation and production.
  • The rise of legal funding provides more opportunities to pursue litigation and arbitration when needed.
Commercial Regulatory Issues

AU Litigation Funders See Agreements Grandfathered Through MIS Regime

An Australian court recently offered guidance regarding when litigation funding agreements will be grandfathered, vs when they’ll be subjected to the Managed Investment Scheme regime. This came in the form of a Federal Court decision in Stanwell Corporation Limited v LCM Funding Pty Ltd (2021). MONDAQ details that funding agreements that were signed prior to August 22 of last year can be grandfathered even if the case was in an early investigative phase at the time. At the same time, calling a class action an MIS is something that may be brought before an appellate court. Before 2009, the MIS regime didn’t apply to litigation funding. Decisions made with regard to a work program for investigations and book building can still be considered part of an MIS when they share the same dominant purpose—to facilitate class members seeking remuneration. The decision on grandfathering was determined because, according to amendments made by CALF regulations, a litigation funding scheme is not an MIS, nor will it require an AFSL, if it was entered into before August 22 of 2020. This is provided that the ‘dominant purpose’ (a term that is defined objectively) of the scheme is for claimants to seek remedies for damages incurred. In the case, LCM was accused of operating an unlicensed MIS. When cross-claims were made by LCM, judges determined that even if the scheme had not been eligible to be grandfathered, the scheme itself was arguably not an MIS. It was asserted that the true dominant purpose of the program was not to help claimants seek remedies for damages, but rather, was for LCM’s sole benefit. Ultimately, the case determines that book building or early investigations can be part of a litigation funding scheme—even when group members are not yet involved.
Consumer

Consumer Legal Funding in Personal Injury Cases

Sometimes referred to as ‘lawsuit loans,’ funds given by third-party legal funders are not loans at all. Loans are paid back, typically with interest, regardless of what happens with the money once it’s provided. Legal funding is offered on a non-recourse basis, so funders get nothing if the cases they choose aren’t successful. When they are, funders may take what some describe as the lion’s share of an award. National Law Review explains that the legal funding industry is only about two decades old. But it’s recently come barreling into the mainstream. Economic instability exacerbated by COVID led investors to seek out alternative, uncorrelated assets. Understanding the basics of litigation funding is a good idea for any personal injury lawyer. First, funding requires that a lawsuit be filed. Funders vet cases according to their own guidelines and analytics to determine the best candidates for funding. Funded cases are typically those with a probability for a high payout, and defendants that have suffered significant personal or financial damages. Plaintiffs may also be given an advance to tide them over while they wait for their case to conclude. Clients may use the advanced monies in any way they see fit. The timetable for this can be unpredictable, with duration risk being a major consideration for funders, lawyers, and clients alike. The application process can take 1-7 business days to complete. For complex or high-value cases, the vetting process may last even longer. Underwriters will examine discovery, filed paperwork, deposition transcripts, and anything else they may require to determine whether a case has viability for funding. Along with collective actions, personal injury cases are a commonly funded case type. Other common litigation types include medical malpractice, discrimination, whistleblower actions, and product liability. Litigation funding transactions are still largely unregulated—though that is expected to change.
Commercial

Understanding the Data in Legal Analytics

Third-party litigation funding has grown by leaps and bounds over the last decade, and brought with it tremendous innovation. The pandemic spurred many investors to diversify their portfolios with uncorrelated, alternative assets. Litigation Finance has the potential for very high rewards despite the risk and duration involved. Business Law Today explains that while clients, investors, and attorneys are generally positive about their experiences with litigation funding, detractors persist in arguing that funding leads to a glut of frivolous cases lacking in merit. This assertion is disputed by funders and by available evidence. It also fails to hold up to basic logic—since no one wants to invest in a meritless case. In fact, funders vet cases carefully to ensure that only the most viable and promising litigation receives the funding needed to move forward. In 2020, the American Bar Association released Best Practices guidelines. While not legally enforceable, the report outlines vital factors for consideration by industry professionals. It describes third-party legal funding as a form of risk distribution not unlike a contingency agreement. It’s subject to risk, though that risk can be mitigated with careful research, vetting, and analytics. Litigation Finance provides a means to transfer quantifiable legal risk to the parties best able to weather it. Funding is provided on a non-recourse basis, so the funder is taking 100% of the financial risk in a funded case. Ultimately, the ABA Best Practices Report doesn’t mandate rule-following so much as it suggests broad philosophical principles be applied to all funding types. Among its most specific suggestions are:
  1. Clients, not funders, should control decision-making in cases.
  2. Funding agreements should always be in writing, using clear language.
  3. Written funding agreements should include provisions in the event that the client and funder disagree on strategy, or if the funder wishes to withdraw.
  4. Disclosure should be given in accordance with the rules of the jurisdiction, which vary widely.
Commercial Legal Innovation

Initial Litigation Offering is First Tokenized Lawsuit

An ‘Initial Litigation Offering’ billed as the first tokenized lawsuit debuted on Republic in October of this year. In the case against one California county, token holders may receive a stake in any amount recovered. Legal Examiner explains that this ILO began as an initiative by Roche Freedman LLP—a firm also representing the estate of David Kleiman in a case to determine the exact working relationship between Kleiman and Craig Wright during the creation of Bitcoin. Wright has asserted that he is “Satoshi Nakamoto” and therefore owns a huge fortune in Bitcoins. He has maintained his position despite a lack of support from the entire crypto community. Roche Freedman is also involved in multiple class action cases against various token issuers including Civic, Tron, Binance, Status, and Quantstamp. In the ILO case, Apothio is asking for up to $1 billion in damages after the Kern County Sheriff Department destroyed its entire hemp crop in 2019. The Sheriff's department claimed that the crop exceeded the legal THC limit for hemp. The ILO allows investors to buy tokens to fund the case, receiving a portion of the resulting award commensurate with the size of the investment. Republic, a platform known for tokenizing investments normally reserved for high-end investors. Unlike investments that must register with the SEC, this ILO is governed under crowdfunding rules, which are significantly more lenient. The Ava Labs worked with Roche Freedman and Republic to conceptualize and launch the ILO toward the end of 2020. Those who wish to buy tokens in the ILO will first be required to create wallets on the Avalanche platform, which is blockchain-based. Payouts will be automatic through the use of pre-programmed smart contracts which distribute funds once certain conditions are met. The tokenization of litigation funding will allow people of modest means to join the high-risk, high-reward playing field.
Commercial Fundraising

Manolete Secures GBP 35MM Finance Package from HSBC UK

Manolete, the leading UK insolvency LitFin firm, recently secured a GBP 35 million funding package in support of its plans for future growth. The London-based funder focuses on specialist recovery litigation across the UK. Bdaily News details that the company currently manages more than 260 insolvency cases. Part of the incoming package, which includes a GBP 25 million revolving credit facility and a GBP 10 million uncommitted accordion, will be used to invest in new cases over the coming years. Manolete CFO Mark Tavener affirms that a core value of the company is to address inefficiency in insolvency litigation--and to always scale up.