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Case Developments Commercial

$1M+ Divorcee Litigation Funder Clawback

Litigation finance is a tool for justice, even in divorce. But, when a divorcee bypasses the funder, justice will follow the failed nuptials all the way to the bank.  Lawgazette.co.uk reports that a litigation funder lent capital to a spouse who needed help disposing of her $3M+ marriage. But, her husband countered, and the obligation of the court was to entertain the proceedings. Then, the husband submitted a last minute deal to absolve himself of the situation.  All the while, negotiations were structured to leave the soon-to-be ex-wife without access to liquidity to navigate the split. A funder helped her in her time of need, seemingly a successful venture given the ex-husband’s folding under pressure.  However, given the complexity of the matter, it would appear that the successful party to the claim is not returning the funder’s favor. Now, the court is taking another gander at the outcome, deliberating if the funder is due its fair share.  
Commercial Regulatory Issues

Truckers Cheer Highway Fairness Act 

Louisiana truckers pay the highest premiums, according to a new report on trucking litigation finance. The 2021 Highway Fairness Act is hailed by many long-haulers on America’s highways. ‘Justice driving litigation’ is the phrase everyone is talking about, in reference to the act.  Trucking.org profiles the act as a curb to third party litigation abuse, which is rampant across the industry. Primping the National supply chain pump is the key to keeping people happy across America. The act is sure to tip the balance of fairness in trucking litigation.  The aim is to squash hazards on the highway and protect trucking operators from the deliberation headaches of questionable claims. However, the litigation funding in support of North American trucking is not going to dry up anytime soon.  The Act prompts the trucking companies to consider the following:
  • Legitimate trucking litigation shall support accident victim compensation 
  • Federal courts shall embrace no regulatory arbitrage tricks for claims across state lines  
  • Supply chain harmony is key to keeping the trucking industry profitable, hence no funny business should be promoted leading to litigation finance fraud 
  • Litigation finance firms should champion transparency in trucking claims, setting a new standard for the industry
The Act is especially important to protect insurers from defending dubious claims resulting from staged incidents. Likewise, the Act is expected to protect law enforcement from the headache of rogue truckers gaming the system.
Commercial Regulatory Issues

 U.S. Supreme Court and Congress Assess Patent Law 

Just as Moderna faces a potential COVID-19 patent infringement lawsuit, the Supreme Court and Congress are assessing sweeping changes to United States patent law. All this with a new Patent and Trademark Office director priming the pump for consequential changes to patent eligibility.  Reuters recently outlined a report on the questionable reliability related to patent infringement claims. One such instance explores American Axle and Manufacturing Inc.vs. Neapco and the potential for the Supreme Court to weigh in on the timeless question of when a new invention can earn patent protection. Similarly, Congress is picking up the baton on patent infringement eligibility, as a group of Senators has stated that it was way “past time that Congress act to address this issue.” The question is, will new and broadened legislation engage more patent and trademark litigation?  Meanwhile, two new patent claims are on the desk of Moderna’s CEO:
  • The question of whether the National Institutes of Health scientists should recieve credit for vaccine patent applications has the government and Moderna at odds. 
  • Moderna may also be pressed on who should be credited for mRNA technology via patent protection. 
Pfizer has similar headwinds, facing patent litigation on the origin of fluorescent proteins. Time will tell if Pfizer is held responsible for corresponding patent infringement related to its COVID-19 vaccine design.  All this said, President Joe Biden has signaled his intent to lobby the World Trade Organization to forego intellectual property concerns specific to COVID-19, in an effort to increase vaccine production worldwide.
Consumer

Market Insights: Pre-Settlement Lawsuit Funding 

Pre-settlement funding is a financing tool for claimants who need access to capital in order to invest the necessary resources to succeed at litigation. Prudence requires all members of a pre-settlement agreement to consider a holistic approach to the funding agreements, and any potential ethical actions by all parties during litigation.  Advance Market Analytics has announced new industry research, titied “Pre Settlement Lawsuit Funding Market Insights, to 2027." The 232-page text charts leaders in the pre-settlement space, and makes global predictions on drivers of trends, opportunities for stakeholder and predictions on target markets, that enable funders to direct research and development budgets in order to capture market share.   Here are some key pre-settlement funding topics the report covers:
  • Market trends outlining growing demand for pre-settlement funding to avoid claimant bankruptcy 
  • Demand of pre-settlement funding will continue exponentially industry market growth  
  • Immense public awareness opportunities for funders to educate the border public about pre-settlement funding and associated benefits  
  • Educational demands are necessary to mitigate risks associated with pre-settlement disasters that could hinder the broader market
  • Exploring process oriented techniques to finesse the time complexity of successful litigation 
  • Broader pre-settlement funding market awareness of pitfalls associated to non-compliance of data privacy and cybersecurity
Checkout the report for a full outline of Advance Market Analytics’ predictions for the future of pre-settlement funding. 
Announcements Commercial

CIO Magazine Recognizes Kerberos as the “Very Best of Institutional Investing”

Kerberos Capital Management was named as a finalist in the private credit category of the 2021 Industry Innovation Awards by Chief Investment Officer (CIO) magazine. The Innovation Awards celebrate the “very best of institutional investing” and recognize management firms that have “truly and reliably enhanced the portfolios of their clients” using innovative approaches to asset management, according to CIO. Finalists and winners are chosen by the CIO editorial team in conjunction with an advisory board of chief investment officers.

“We are honored to be named a finalist for the Innovation Award, given especially the pedigree of prior Innovation Award winners and finalists,” said Joe Siprut, CEO and CIO of Kerberos. “I am proud of the work our Investment and Operations Teams have done to continually evolve our client offerings and seek opportunities to improve our investment platform. We think of ourselves as innovators who provide white-glove service to our clients while generating consistent results.”

About Kerberos

Kerberos Capital Management is a boutique alternative asset manager. Kerberos’ flagship strategy is providing innovative capital solutions to law firms. The firm’s differentiated offerings leverage an extensive network of industry relationships, creative financing capabilities, broad credit structuring, and special situations expertise. The depth of our private credit and direct lending platform has enabled us to generate differentiated absolute and risk-adjusted returns in litigation finance markets, regardless of the business cycle or economic environment.

Kerberos’ investment team is comprised of senior members from both the legal and private credit industries, including former principals of the world’s leading law firms and multi-billion dollar private credit funds. In 2020, the independent, London-based Private Debt Investor magazine named Kerberos Capital Management one of its Top 3 Global Newcomers in the private debt fund category. Kerberos manages both separate accounts and pooled vehicles for institutional and high net worth investors worldwide.

To learn more, please visit www.kerberoscm.com.

Commercial Regulatory Issues

Reinsurers Clamor for Regulation of Litigation Finance

It’s fewer than two decades old, but Litigation Finance has blossomed into an industry worth $17 billion across the globe. Just over half of that money, 52%, is being spent in the United States. One reinsurer places blame on legal funding for enabling more large legal awards in cases involving medical malpractice and various types of liability. Calling it “social inflation,” reinsurers decry the industry currently hard at work increasing access to justice for those who can afford it least. Insurance Journal explains that over the past ten years, commercial auto lawsuits and general liability cases are ending in multi-million dollar awards far more than in previous years. For claims involving vehicle negligence, the percentage of outsize awards rose from 21% to 30%. Insurers complain that larger verdicts lead to higher loss ratios and larger premiums for all clients. But surely that’s a reason for businesses to behave better, rather than restrict access to judicial relief for those who have been victimized? We hear insurance providers lamenting their losses, as well as the fact that third-party funders are enjoying high returns on their investments. Could that be because funders use their talents to help clients and businesses, while insurers spent much of the pandemic looking for reasons to not make good on their policies? Not everyone agrees that Litigation Finance is the problem. Michael B McDonald of Morning Investments Consulting, explains that funding is used for meritorious claims—so while this may increase the number of lawsuits overall—it does not make individual lawsuits more expensive. McDonald also points out that legal funding can be used by law firms who are typically barred from raising equity as other businesses can. Debate over funding issues like disclosure, percentages, and security for costs are bound to continue. But the evidence that further regulation is necessary appears to be lacking.
Case Developments Commercial

Award for TPF Costs Upheld by English High Court

International arbitration cases are utilizing third-party litigation funding at increasing rates. As this industry grows, thorny legal issues often arise. One such decision in Tenke Fungurume Mining v Katanga Contracting Services is being hailed by funders and the clients who work with them. Overall, the decision affirms that an arbitration taking place in London is authorized to award costs for expenses relating to third-party funding. MONDAQ details that the arbitration involved commercial agreements regarding a mine in the Democratic Republic of Congo. The arbitration was seated in London and governed by ICC rules. After the hearing, submissions on costs and interest were exchanged by the parties. At which point, Katanga Contracting Services revealed that they had a litigation funding agreement. Some disclosure was ordered, while a request from Tenke Fungurume Mining to cross-examine witnesses in the cost claim was denied. Ultimately, TFM was ordered to pay all expenses claimed by KCS. Counterclaims were dismissed. The litigation funding portion of expenses is estimated at about $1.7 million US dollars. The two challenges were brought under section 68 of the Arbitration Act 1996. This rule states that a party may challenge an award where there’s a “serious irregularity” resulting in an intolerable injustice. The grounds for this challenge were that the tribunal was remiss in not adjourning the arbitration to permit a visit to the construction site, and failing to adjourn the arbitration due to a lead counsel getting COVID. The courts eventually determined that the tribunal considered all relevant factors before rendering a decision, as required. It was suggested that some tribunal decisions were made specifically to hasten the case’s resolution. In fact, the arbitration agreement contained a specific clause that the proceedings should be done as expeditiously as possible. In addition to clarifying costs associated with funding, this ruling affirmed a non-interventionist trend in the courts.
Commercial Fundraising

ESG Investors Enable Discrimination and Racial Harassment Litigation

As the Litigation Finance industry matures, leading funding groups have been vocal about the importance of ESG investing. This is investing in support of Environmental issues, Social Justice, and Governance that works for the greater good. With that in mind, a new fund has been made available specifically for racial discrimination and harassment cases. Black Wall Street details that when funding is used in support of ESG cases, there is more deployable cash for cases involving social justice—such as racial harassment and discrimination litigation. This facet of responsible investing is gaining popularity among third-party litigation funders and LPs who invest with them—leading to positive outcomes for those impacted by environmental and social justice failures. In discrimination and harassment situations, it’s vital that the victims have a path toward justice against their abusers. It’s equally important that employers and services providers are brought to account when they do not follow the law. In a recent video, George the Poet eloquently explains that we all have a responsibility to further the interests of justice. In this context, justice refers to public empowerment on ESG subjects that ultimately impact us all.
Announcements Commercial Fundraising

Forbes Ventures Plc – Update on Litigation Funding Securitisation

Forbes Ventures provides a further update on its first Litigation Funding Securitisation and an update on the suspension of trading in its shares. Litigation Funding Securitisation Update Forbes is advised by its Maltese Corporate Advisors that Forbes Ventures CC 1 (the “Issuer”) for which the Maltese Corporate Advisor acts as manager, did not receive the expected binding commitments for the First Issue by 17 December 2021. The Issuer is continuing its discussions with multiple investors and the Company is continuing to work on the First Issue during the last week of December 2021. The Company will make further announcements upon receipt of relevant information. Publication of Results and Restoration of Trading The Directors expect that the Company’s audited accounts for the year ended 31 December 2020, and the interim accounts for the period to 30 June 2021, will be published on 31 December 2021, and that trading in the Company’s ordinary shares on the Access segment of the AQSE Growth Market will be restored following those announcements. CC Capital Limited (formerly MEGH UK Limited), the Company’s principal shareholder, has confirmed that it will continue to provide funds to meet the operating costs of Forbes Ventures, pending receipt of funds by the Company from Litigation Funding Securitisations. The Directors of Forbes accept responsibility for the contents of this announcement. For further information, please contact:
Forbes Ventures Peter Moss, Chairman Rob Cooper, Chief Executive Officer01625 568 767 020 3687 0498
AQSE Corporate Adviser Peterhouse Capital Limited Mark Anwyl020 7469 0930
Market Abuse Regulation (MAR) Disclosure This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation EU 596/2014 as it forms part of retained EU law (as defined in the European Union (Withdrawal) Act 2018).
Commercial Regulatory Issues

China’s Social Justice Approach to Litigation Finance

Former Communist China has not been known for access to justice. In fact, recent protests in Hong Kong sprung up due to China’s Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation. Yet Communist China is experiencing a Social Spring (a transformation from Communism to Socialism). What role will China’s Communist roots play in future access to justice?  Recently the Bank of International Settlements (BIS) discussed financial inclusion. For litigation finance to reach peak ‘high quality’ development, robust international standards are required. The United Nations Universal Declaration of Human Rights (UNDHR) is an example where 192 countries agreed on the common standards of achievement for all people and nations. There is no ‘regulatory arbitrage’ when dealing with human rights.   BIS is pioneering the social etiquette around litigation finance, according to Mr. Liu Guiping, Deputy Governor of the People's Bank of China. Mr. Guiping’s startling approach marks a historic milestone for access to justice in China. Guiping says China aims to pioneer social justice, and that litigation finance’s ultimate potential logically requires coordinated development of regulation innovation. China’s Social Spring Key Takeaways: 
  • Guiping remarks on China’s potential to harmonize the now clunky relationship between attorneys, third-party investors and claimants. 
  • China is a very large country with 31 provinces. The Social Spring in China must ethically address claimants in certain jurisdictions, while in others champion access to justice, reasonable disclosures and a standard for litigation finance regulatory innovation. 
  • The notion of a common cross-border regulatory standard for litigation finance is considered absurd by many. International funders have boosted litigation finance revenues by leveraging regulatory arbitrage structures. How will China play into all of this? Only time will tell… 
As an added bonus, we collated 39 highlights from Guiping’s speech, for reference. 
Commercial Deals

The Third Party Funding Market in Asia

Funding requests across Asia are on the rise, prompting exponential growth in third party investment. Paul Starr, co-head of arbitration at King Wood & Mallesons, is one of Asia’s third party funding pioneers. Starr underscores the various litigation costs that weigh heavily on investors' minds.  In a video produced by Conventus Law, Starr profiles Asia’s third party funding marketplace. Below are some key highlights from a corresponding report from Starr, also under the Conventus banner: Starr: “It’s at the point where clients have requested a review of already-agreed legal fees for ongoing cases. While discussing such things at the start of a case is not an issue, it becomes exponentially more difficult once a case is underway.” Starr added: “Some are even opting to settle disputes for far less than expected, rather than continue carrying the cost of the case. In some cases, settlements have been reached on the verge of a judgment being handed down.”
Commercial Legal Innovation

Business Litigation Finance – What You Need to Know

We know that Litigation Finance is an excellent tool for individuals or groups who have meritorious litigation that they cannot afford to pursue. But what about businesses looking for new ways to put their limited capital to good use? Curiam discusses the ways in which businesses can use third-party legal funding to monetize legal assets, transform legal departments into profit centers, and offset the risk and expenditure of pursuing litigation. Using legal funding allows claimants to choose the legal team they want—even if that team doesn’t work on contingency. Funding lowers risk for businesses and can free up capital that can be applied to recruitment, expansion, or operating expenses. When used in a case already in progress, legal funding affords plaintiffs a stronger bargaining position—making it more difficult for defendants to push through a low-ball settlement offer. Before seeking funding, it’s important to understand the process and what funders are looking for when vetting cases for potential funding.
  • First, a non-disclosure agreement will be executed. Then relevant details will be offered to the funder.
  • 1-3 Weeks, the potential investment is evaluated and financial due diligence conducted.
  • Next, a funding agreement is proposed. Terms are agreed upon, and funds are deployed.
  • Finally, the investment is monitored and progress assessed regularly. While funders do not control litigation strategy or decisions, it’s typical for funders to remain attentive to the case until an award or settlement is reached.
Commercial

Litigation Funding Matures in 2021

Litigation finance picked up steam in the U.S. in 2021. Notably, the largest litigation funder in the world, Burford Capital, announced that corporate business outpaced direct law firm earnings for the first time.   Law.com reports that the litigation funding marketplace was generally crisis free in 2021, foreshadowing that year over year growth in 2022 may continue to trend up. While all signals seem positive, some critics highlight the concern of social inflation being a red flag for the industry, along with some debate over the disclosure of funding agreements.   Disclosure will be a hot topic for the industry going forward. Many legal reform initiatives have focused on litigation finance regulation as a marquee accomplishment. Overall, the industry does not seem to be rushing to find common ground on funding agreement regulatory considerations.  2021 also saw law firm investment schemes evolve in novel and unique ways. For example, Arizona lawmakers now allow non-attorneys to invest in law firms. The pace of these types of transformations are expected to increase as the litigation finance industry matures.  The emergence of hedge fund investment into the litigation finance sector continues to draw robust attention. The prospect of large funds entering the space is expected to accelerate, as litigation finance continues to grow exponentially on the international stage. 
Commercial Regulatory Issues

The Dawn of Litigation Finance in South Africa

South Africa is experiencing the emergence of litigation funding as a key driver of access to justice. Regulation, however, figures to be the burning issue foreshadowing thorny ethical debates regarding the country’s nascent litigation funding marketplace.  Cms-lawnow.com profiles insights across continental Africa, highlighting South Africa as a prime market for investment in litigation finance. The future of the industry depends on the actions of attorneys who engage third party investment in client litigation. South African lawyers must embrace pure intentions when parties enter into funding agreements. Without such stewardship, litigation finance stands to be banned by South African lawmakers.  Conflicts of interest are obviously a must to avoid. In the United States, third party funders hold a passive role in the litigation process. South Africa’s market is still budding, thereby generating concerns over who will be making strategic decisions.  Similarly, ownership of the overall work product in South African litigation funding agreements is vague. Regulatory guidance can solve such matters, but until then, funders and attorneys must strive to promote and embody avantgarde ethical standards to protect claimants. 
Commercial Legal Innovation

LegalPay Aims to Democratize Litigation Finance

Legal Pay is a standout across India, championing the goal of access to litigation finance tools and services. Traditionally, many in India were forced to rely on friends, relatives and/or personal loans to fund litigation if they did not have access to adequate capital. Today, Legal Pay is not only spearheading litigation funding, but also bespoke insolvency products.  Recently, Asia Tech Journal’s Ashu Agrawai (AA) sat down with Kashish Grover (KG), Legal Pay’s Chief Investment Officer, for a video interview on the future of litigation finance in India. Here some key takeaways from the conversation:  AA: What is the construct of Legal Pay? What kind of products are you doing? You basically rate and assess the quality of an asset and open it up for people to invest, right?  KG: You have actually summarized what we are doing in a very plain way. I think that the vision or idea is to help structure the entire litigation finance funding market to help plaintiffs who do not have money… You create wealth and diversify.   AA: What is the role that you play?  KG: It can take ages for cases [to mature]. That is where our filtering criteria comes into play… We only take a cut or receive any money once you win a case or receive the money. The idea is pretty simple, but we have our own proprietary algorithm that rates each case on scoring criteria.  AA: Is the money coming from your coffers? Is the money coming from partners? Because financial institutions have continued to stay away from [litigation finance].  KG: Imagine this: We have a pool or different basket of funds. If this case fits in, we allocate the case. We have investors who can invest $20,000 - $25,000. Basically, digitizing a VC model.  The interview with Legal Pay extends nearly an hour. Follow the link above to check out the entire video. 
Commercial

Texas Wrestles with Backlog as Energy Market Bounces Back

It’s estimated that the state of Texas will be dealing with case backlogs for the next 3-5 years—particularly for in-person jury trials. Before COVID, Texas saw more than 10,000 jury trials per year. In 2020, jury trials numbered 222. While the energy market is bouncing back, it will take a long time before it reaches pre-COVID levels. With all that in mind, litigation funding can offer low-risk solutions that can be highly profitable and beneficial. Validity Finance explains that as of June 2020, COVID created a bleak landscape, especially with regard to key industries. At that time, the price of oil was below the zero mark, unemployment hovered around 13%, and revenue losses were plaguing the healthcare system. Months later, bankruptcies were piling up at an alarming rate—with the energy sector being among the hardest hit. At the same time, the Texas court system ground to a halt. In 2019, it was common to have an average of 186 jury trials per week. Between March–December 2020, that number fell to just four trials a week. COVID continues to negatively impact the global economy, causing rampant uncertainty as to when, if ever, things will return to normal. Legal services, however, have enjoyed boom times during the pandemic. Legal funding in particular has grown by leaps and bounds. COVID has inspired creativity and adaptability in the legal field, while third-party legal funders are managing record sums of cash from investors clamoring for uncorrelated assets with the potential for high returns. Legal firms and clients alike are making use of Litigation Finance to share risk, bring in revenue, and pursue cases that would otherwise not be economically feasible. Legal funding also allows firms to engage in alternative fee agreements, providing greater flexibility to clients. As the world continues to address the impacts of COVID, litigation funding stands by to assist.
Commercial Regulatory Issues

Tribunal Award for Costs Upheld by English High Court

Is an award for costs of legal funding an excess of power? Not according to the English High Court. The High Court recently affirmed that tribunals may award costs for litigation funding. This is the second High Court ruling rejecting challenges to an award of funding costs. Burford Capital explains that “other costs,” as defined by section 68 of the English Arbitration Act, can indeed include costs associated with obtaining legal funding from a third party. The first case to affirm this was Essar Oilfields Services v Norscot Rig Management. Earlier this month, the issue of arbitrators awarding funding costs was affirmed in Tenke Fungurume Mining SA v Katanga Contracting Services. Both cases confirmed that awards for funding costs cannot be challenged under section 68. The challenge from TFM asserted several grounds of irregularity that impacted the proceedings in an unfair way. Ultimately, TFM argued that awarding funding costs was an excess of power—but was not able to demonstrate that the tribunal exercised a power it did not have. Thus, the argument was dismissed. TFM further argued that the award of funding was inappropriate under public policy grounds—owing to the established public policy in favor of award enforcement. Unsurprisingly, third-party legal funders found this ruling welcome. It appears to foreshadow the widespread acceptance of allowing parties to recover the costs of obtaining third-party funding. It’s also probable that more cases have contained similar rulings—but aren’t known publicly, as they are confidential. Arbitrators have long had the authority to award “other costs” associated with a case—and therefore awarding costs associated with legal funding cannot be an excessive use of power. English courts have long supported litigants recovering costs they undertake to defend their rights. This could apply not just to funders, but to expert witnesses, research, and other costs associated with a case.
Commercial Regulatory Issues

Litigation Finance a ‘Sleeping Beauty’ in Germany

Access to justice in Germany is awakening a ‘Sleeping Beauty’ (that being litigation finance), according to a new report. Heavy hitters such as Roland, Foris, Allianz and Legial dominated the German litigation finance market for well over a decade. Now, new opportunities are sprouting up across Germany, as tech-savvy investors help claimants ‘beat Goliath.’  The German publication Deutscheranwaltspiegel.de released a new essay outlining litigation finance as one of the most discussed legal instruments in German civil law. The report highlights a mood of accommodation to litigation finance as an import of ‘American Conditions.’  Litigation finance in Germany is being sought as a tool of opportunity to tackle thorny insurance cases. According to the report, one German hotel proprietor purchased business interruption insurance before COVID-19, only to be left empty-handed when the insurance company ran out of cash. He turned to a litigation finance investor to help save his hotel business from ruin.  Deutscheranwaltspiegel.de shares that regulation is coming into focus, as one-off litigation wins can cost consumers more than they bargained for. Similarly, some critics speculate that savvy litigation financiers could extort frivolous lawsuits.  Germany appears to be evolving from the ‘rights of the fittest,’ to justice for all. As such, the German litigation finance market will be one to watch over the coming year.
Commercial Deals

Frozen Accounts Seek Litigation Funding

Business professionals sometimes find themselves in a situation where their operating account has been frozen due to an unforgiving legal circumstance. Evolving past this scenario can be painful, especially with no access to capital.  The Canadian publication Alllaboutestates.ca, shares that litigation funding is a smart decision when funds are tied up, regardless of the reason. For example, estate litigation often yields situations where property and other assets are haggled over before the ultimate decision of ownership is reached.  With competing claims on capital or property, whoever feels they are the rightful owner may find his or herself with no cash on hand to take sophisticated legal action. Claims of fraud are one such instance, according to the report. Other scenarios include multiple parties claiming various percentages of a pot of money. What is the most efficient way to litigate success in such instances? Alllaboutestates.ca highlights that litigation funding is emerging as a strong option in various instances when accounts/assets are frozen, with claimants forced to wrestle up cash in order to properly pursue a legal argument. 
Commercial

Litigation Finance Predictions for 2022

Litigation Finance has enjoyed a successful 2021. More players entered the funding space, funds were raised at a rapid clip, and more capital was deployed than in any previous year. Overall, there’s a general recognition that litigation funding brings fairness to the legal system.

Validity Finance’s Ralph Sutton has four predictions for Litigation Finance in the new year. He believes that the public’s understanding of third-party funding will increase, expanding the idea that it is a net gain for society. A recent survey showed that nearly 90% of attorneys who have used litigation funding affirm that it gives clients greater access to justice. That bodes well for the continued growth of the industry.

Third-party funders are beginning to recognize their place in the sociopolitical ecosystem. Funders are taking steps to advance initiatives related to the environment, social justice, and governance. So-called ESG goals are inspiring funders to give grants and zero-profit loans to worthy entities like the Innocence Project. A roundtable held earlier this year consisted of academics, funders, and judges to consider starting a social impact litigation fund to provide capital for worthy causes.

Offsetting risk via insurance is expected to grow in popularity. ATE (after the event) insurance is not a new product, but it’s being used in new ways to mitigate risk in funded cases. Ultimately, this type of insurance allows fund managers to keep more awards and settlements. While expensive, insurance for cases or portfolios can protect principal amounts—sharing risk between funders and insurers.

Changes in rules regarding ownership of law firms by non-lawyers could lead to sweeping, industry-wide changes. Exceptions to ethical Rule 5.4 may offer firms the ability to raise capital like any other business. This, in turn, allows law firms to recruit new talent or take more risk. Many states have or are considering this rule change, including California, Florida, New York, Illinois, and Texas.

Commercial Fundraising

The Impact of COVID on Litigation Funding

While many industries suffered during the pandemic, Litigation Finance has flourished. Most industry professionals believe the growth and maturation of third-party legal funding will continue into the new year and beyond. Bloomberg Law details that in the first nine months of this year, law firm revenues increased an average of 14%. In some AMLaw 100 firms, per partner profits have reached an all-time high. The introduction of regulations impacting legal funding, along with the founding of multiple professional organizations has led to changes within the industry. Economic factors alter the ways some cases are vetted for funding. For example, assessing a defendant’s ability to pay an award or judgment. Because of this, it can be more difficult for plaintiffs to get backing from a litigation funder. Meanwhile, business interruption claims against insurers are plentiful, but insurers are successfully getting cases dismissed more often than not. It’s likely that in the coming months, funders will flock to complex cases with the potential for high payouts. Cross-border breach of contract cases covering manufacturing and logistical failures, or delays in delivery are the most common. Inflation rates and competition for legal talent are expected to accelerate the rise in prices for legal services. Fortunately, the funding market has no shortage of capital, and that is expected to continue as investors seek out uncorrelated investments. Changes in law firm ownership rules are pending in multiple jurisdictions. This change is expected to result in third-party funders buying into big firms, altering some dynamics while offering clients more creative and flexible pricing options. The discussion over disclosure of funding agreements will continue until or unless a consensus is reached. While some jurisdictions are passing regulations requiring disclosure, others have determined that the source of funding is rarely relevant to the facts of a case.
Commercial Deals

Litigation Funding Gaining Popularity in Poland

Polish attorneys are navigating the lack of congruence in the country's emerging third party litigation funding space. Many claimants are not aware of the benefits of third party funding, and the different aspects of how investments of this nature can benefit their bottom line.  RP.pl reports positive structural shifts taking shape, rallying popularity in third party litigation finance. Many international investors have entered the Polish market looking for returns. RP notes that in terms of arbitration proceedings, third party funding has now become a permanent fixture in Poland.  The RP feature outlines several visionary funding scenarios for claimants and plaintiffs to consider. One unique instance applies to both parties participating in third party funding, for example related to a counterclaim. RP shares that this feature is extremely risk-focused, in that the funder would habitually require a high degree of certainty as to the counterclaim’s success.  The success of Poland’s third party litigation funding market hinges on overall public awareness. Many individuals are looking to attorneys to promote and inform awareness associated with features of third party funding. 
Commercial

Longford Capital’s Justin Maleson is Bullish on Litigation Finance

Big Law’s acceptance and public embrace of litigation finance is a major milestone, says Justin Maleson of Longford Capital. As one of the first litigation funders in the United States, Longford sports a rich history of litigation finance innovation.  LawDragon.com recently profiled Maleson in a broad discussion spanning Longford’s pioneering start, to how the funder is developing and driving creativity in litigation finance. Maleson underscores that the versatility of litigation finance is similar to a Swiss Army knife, allowing for different use case tools to fit unique situations.  Longford rejects most litigation finance cases presented for evaluation. Hence, Maleson highlights his career as a defense attorney as prime background for assessing the best cases for investment. Maleson also notes that the litigation funding space will continue exponential success, with the right marketing propelling top tier investors.   Maleson attributes Longford’s success to a novel, modern approach to litigation investment. The firm initially sprouted via single claim funding. Today, Longford monetization techniques include sophisticated portfolio products, inventive business development facilities and original defense solutions.  The people behind Longford are what Maleson values most. He claims that if not for the close connections between his peers, the entire innovation and pioneering spirit at the company would be muted. 
Commercial

Litigation Finance Transaction Attorney One Sheet

Why should non-litigators be aware of litigation funding? Transaction attorneys are well positioned to glean knowledge of funding opportunities to better serve their clients and gain overall firm market share and partnerships.  Austin, Texas-based DealLawyers compiled a one sheet with tips for transaction attorneys as they navigate and educate their clients on litigation finance possibilities. Claims of all shapes and sizes should be considered monetizable assets. Litigation funding should be considered a tool to maximize asset potential, according to DealLawyers.  Universities are one such example of organizations naturally averse to public litigation, yet who can leverage funding opportunities to protect intellectual property rights. With a litigation funding investment’s clear differentiation from a traditional loan, clients of every size can benefit from zero capital investment, while sharing in the upside of only successful claims.  The EBITDA value is tremendous for traditional firms not privy to litigation finance. Most importantly, litigation funding investors are passive participants in proceedings. Clients and their respective attorneys are in complete control without a proverbial backseat driver.   Read DealLawyer’s one sheet provides an expanded view of the emerging litigation funding space, and opportunities non-litigators should consider as they look to expand their business.  
Commercial Legal Innovation

How Technology is Reshaping Litigation

The legal landscape has been slower than other industries to embrace technology. Yet e-discovery tools and contract-review software are finally opening the doors to enhanced legal tech. The third-party legal funding market is one industry that’s making use of available tech to predict outcomes, source cases, and clarify costs.

Canadian Law Review’s National Magazine’s new interview with Amanda Chaboryk, Disputes and Litigation Data Lead at Norton Rose Fulbright, talks about her role in advancing tech in law. Below are some notable comments from Chaboryk:

  • "In general, the last decade has seen a lot of changes in the law. We’ve seen increasingly innovative forms of alternative pricing arrangements and insurance products. So in the UK, success fee arrangements include conditional fee arrangements and damage based agreements—which of course are subject to certain conditions."
  • "Just as a whole, the insurance market has developed, with some insurers offering dispute resolution and after the event insurance solutions for both litigation and arbitration. The increase of risk transfer insurance and the sophistication of the market has just been huge for litigation funding and insuring cases as a whole."
  • "If I had to divide the case types into the most common, I would say meritorious claims for damages whether through court or contract—some will be brought by single claimants, some through group actions. The scope is very large, I’ve even seen now some funders funding defamation, divorce and personal injury claims. Years ago I wouldn’t have thought that was possible."
  • "In terms of data stewards, I’ve noticed over the past few years that sometimes law firms will hire consultants or people with different data-related skill sets—especially if you think about different sources of data that law firms have."
  • "Looking at a judgement or a decision—look at all the data points you can, as well as the causative actions and the data that was cited. There’s a lot of publicly available data, and that’s why tools like Lex Machina have been transformational."
Commercial Regulatory Issues

Litigation Finance in Arbitration: Current Trends

The mainstreaming of Litigation Finance is expected to continue long after COVID. The practice's use in arbitration has become increasingly common, despite an overall dearth of legislation to regulate it. Stockholm Chamber of Commerce Arbitration Institute details that while third-party legal funding is no longer a new industry, the number of cases in which parties disclose funding agreements is rising. In the early days of funding, such disclosures were left up to individual courts to order, or not. Another initial source of contention was the recoverability of costs paid to funders by clients. The question of whether funders should be limited in the fees and percentages they take remains largely unanswered today—as do questions surrounding security for costs in funded cases. Typically, third-party funding is not reason enough to order security for costs. As a rule, arbiters don’t have authority to identify, or request the identity, of a third-party funder. This led to the SCC encouraging disclosure of any parties with a financial interest in the outcome of a dispute. This includes not just funders, but parent companies and owners. Typically, claimants are offered funding for arbitrations, but in rare cases respondents can receive funding as well.
Commercial Deals

How Construction Litigation Funding Can Drive Returns

LF investors are looking to construction and engineering litigation in a bid to diversify earnings. WIth large scale development projects slated for many metropolitan areas, more construction litigation claims are expected in court.  Engineering News Record (ENR) reports that some LF construction portfolios expect to see a 10 to 1 return on investment. Burford is one such firm looking to invest big dollars in construction litigation, noting that construction claims are part of the industry's fabric.  Recently, there have been several LF construction case wins, such as investing $6M in a developer case that saw a settlement of $18M. Another success came by investing $2.1M in a roofing defamation case that saw a $14.5M award. As the real estate and construction LF market matures, large investments are being made in Canada, Australia and the United States. But not everyone is thrilled about the increasing potential of construction LF. Some point out that construction, real estate and engineering fields may become a target for unnecessary legal disputes that only seek to take advantage of once negotiable claims. Others counter that the LF market is too ripe to invest in shaky claims. The premise of LF is to seek quality claims for investment, as the antithesis would drive funders out of business. 
Announcements Commercial People Moves

Former NPR General Counsel and CEO of Texas Public Radio Joyce Slocum Joins Board of Directors of Validity Finance

Litigation funder Validity Finance has announced that Joyce D. Slocum, currently President and CEO of Texas Public Radio, has joined its board of directors. Ms. Slocum began her career practicing law with prominent law firms based in Dallas, Texas.  She soon moved into an in-house practice, spending almost 10 years at The Southland Corporation, and later serving for more than 14 years as general counsel and head of global legal and business affairs for HIT Entertainment.  She joined NPR as General Counsel in 2008, continuing in that role until being appointed Interim President and CEO in 2011.  She culminated her time at NPR as Chief Administrative Officer from 2012 through 2013. Slocum has served President and CEO of Texas Public Radio for eight years.  Shortly after assuming that role, she was elected to the NPR Board of Directors, including as the chair of its Audit Committee, which oversees the company’s litigation and risk management matters. “I have known Joyce for over 25 years, and have observed her business acumen and innovation in all of her many legal and management roles.  She brings to Validity a keen understanding of how in-house counsel view litigation strategy, planning and budgeting.  Her views will be a valuable complement to the perspective of retained counsel that Allen Fagin, former managing partner of Proskauer Rose, brings to the board,” said Validity CEO Ralph Sutton. “Litigation finance is a significant tool to help increase access to the courts for companies that seek to bring affirmative litigation, in addition to dealing with matters they are obligated to defend,” Ms. Slocum commented.  “The mitigation of risk and additional control over budget and timing of expense can be immensely helpful to in-house counsel in crafting and obtaining management buy-in to a strategic plan to protect a company’s assets. I’m pleased to join the Validity board because I believe their client-centric approach to the opportunities provided by this emerging industry will appeal to in-house practitioners.” Ms. Slocum’s appointment to the Validity board followed shortly after its announcement that it has raised a new managed fund of $70 million – the firm’s second “sidecar fund – alongside its permanent capital. In addition to Slocum and Fagin, Validity’s board is comprised of Jonathan Bilzin, Co-President, managing director of TowerBrook Capital Partners; Michael Carpenter, former chair/CEO of Citigroup Alternative Investments; Dewey Shay, CEO/founder, Unison Site Management; and Ralph Sutton, CEO, Validity Finance.
Commercial Regulatory Issues

Hong Kong Commission Recommends Outcome-Related Fee Structures

A long-awaited report from the Law Reform Commission of Hong Kong was published. On the topic of outcome-related fee structures in arbitration, it recommends that prohibitions on ORFSs be lifted. By allowing outcome-related fee structures, Hong Kong will align more closely with other global arbitration destinations. Burford Capital explains the specific recommendations of the commission, which reflect the growing acceptance of ORFSs around the globe. At present, lawyers cannot legally enter ORFSs for arbitration or litigation proceedings. According to the commission, there are restrictions on three specific types of arrangements that should be lifted:
  • CFAs. Conditional fee arrangements involve a lawyer and client agreeing on a success fee when a case ends in an outcome favorable to the client.
  • DBAs. Damages-based agreements occur when a lawyer only receives payment when they obtain a financial benefit for their client. That payment is typically calculated as a percentage of a settlement or award.
  • Hybrid DBAs. A hybrid damages-based agreement involves paying a fee (often discounted) for legal services, in addition to a percentage of any award or settlement.
It’s largely agreed that allowing for more fee structure options is beneficial for clients and legal firms.
Commercial

Litigation Finance as a Creative Bankruptcy Solution

Since the start of 2020, the pandemic has wrought havoc on the business world. According to S&P, 630 public companies have gone bankrupt, an increase from 578 in 2019.   Above the Law explains that the ravages of COVID happened simultaneously as Litigation Finance began mainstreaming. While traditional investments lagged, and financial turmoil ensued, third-party legal funding became the solution to an economy that was essentially stopped in its tracks. How does Litigation Finance help? When we talk about financing litigation, we aren’t just talking about class action lawsuits or conflicts between two distinct parties. In a bankruptcy situation, legal funding can enable recoveries, preserve assets, enforce judgments, and assure that ongoing claims are processed. In fact, there are many common situations where Litigation Finance can make a profound difference:
  • Increase Cash Reserves. For companies in distress, monetizing existing legal assets can increase cash reserves, offering a financial cushion.
  • DIP Financing. Sometimes, a company or estate’s most valuable assets are in the form of legal claims. In these instances, courts have been more open to approving funding agreements—finding that they best serve both debtors and creditors.
  • Financing Creditors. An estate may provide funding to creditors to pursue litigation. In some cases, funding agreements can also resolve claims between funders and debtors.
  • Sale of Legal Assets. An estate may sell off its stake in existing litigation like any other asset in the liquidation process. This may happen to accelerate impending recoveries, offset expenses, or reduce risk.
  • Liquidation or Litigation Trusts. Litigation trusts are sometimes used by unsecured creditors who may not benefit from bankruptcy proceedings. Such trusts allow for the confirmation of a plan to reorganize. Trusts may get seed funding or may rely on contingency agreements.
As more bankruptcy professionals become aware of the benefits of legal funding, its use and potential for adaptability will only increase.