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Balancing Risk and Reward in Litigation Finance: Lessons from High-Profile Case

By Jeff Manely |

The following is a contributed piece by Jeff Manley, Chief Operating Officer of Armadillo Litigation Funding.

The allure of substantial returns from mass tort litigation has historically tempted law firms and their third-party financiers to commit resources to speculative cases. While investing strongly in speculative torts certainly has its time and place, prevailing trends highlight the necessity of certain risk management practices. The unpredictable outcomes of high-profile cases, like the Camp LeJeune water contamination lawsuits, accentuate the imperative for a discerning approach to case selection and the strategic diversification of portfolios.

Balancing Opportunity and Prudence in Speculative Torts

Early-stage speculative torts like the Zantac litigation represent a blend of potential and caution. (In re Zantac (Ranitidine) Products Liability Litigation, 2021). Initially, Zantac cases drew significant attention from law firms with projections of substantial compensation figures. However, the legal complexities and subsequent valuation adjustments highlighted the disparity between initial projections and actual compensation figures realized, reinforcing the need for meticulous risk assessment in speculative torts. While similar cases have captivated law firms and financiers with their substantial projections, they also underscore the importance of an exhaustive risk assessment—demonstrating how initial excitement must be tempered with diligent legal analysis and realistic valuation adjustments.

Navigating the Complex Terrain of Camp Lejeune Litigation

The Camp Lejeune water contamination lawsuits represent promising ventures for financiers and mass tort firms to affirm their moral duty by advocating for those who served our country. However, these cases also carry lessons on the pitfalls of overzealous investment without careful scrutiny. The drawn-out nature of the litigation serves as a reminder that while the pursuit of justice is noble, it must be balanced with sound risk management to ensure long term firm stability.

Endurance in Talc Litigation: A Testament to Long-Term Vision

The protracted legal battles surrounding talcum powder’s health risks underscore the necessity for long-term strategic planning in mass tort litigation. Firms must factor in the operational demands and the financial foresight to manage compounded interest on borrowed capital over extensive periods. Simultaneously, it’s critical to sustain investment in new torts, ensuring a balanced portfolio that accommodates both ongoing cases and emerging opportunities. This balanced approach underpins the stamina needed to endure through a decade-long commitment, as exemplified by the talc litigation.

Understanding Returns in the 3M Earplug Litigation

The 3M earplug litigation concluded within a standard timeframe, yet the distribution of settlements spans several years, offering more modest financial returns than many anticipated. This outcome serves as a pragmatic reminder of the nuanced nature of mass tort settlements, where significant payouts are not always immediate or as substantial as predicted. Nonetheless, this reinforces the value of prudent risk management strategies that account for longer payout terms, ensuring a stable financial forecast and the firm’s resilience in the face of lower-than-expected returns.

Strategic Portfolio Diversification

Given these varied experiences, it is imperative that law firm owners and financial backers craft a robust case portfolio strategy. By balancing the mix of cases from speculative to those with a more established settlement trajectory, firms can better manage risk and ensure operational stability. Strategic diversification is not just wise—it’s a vital tactic to maintain resilience in the evolving landscape of the mass tort industry.

The Value of Expert Financial Partnerships

Choosing a reputable and experienced litigation finance partner is essential for law firms aiming to effectively balance their case portfolios. A seasoned funding partner provides invaluable guidance in evaluating potential cases, assessing financial risks, and optimizing investment strategies. Their expertise in navigating the nuanced terrain of litigation finance is a critical asset.

Adopting a balanced portfolio strategy—carefully curated to include a variety of torts at different development stages—provides a more stable foundation than pursuing an “all-in” strategy on a single high-potential tort. This method not only reduces dependency on the success of any single case but also positions the firm more favorably in the eyes of prudent lenders.

Recent high-profile cases in the mass tort arena, like those mentioned above, serve as potent reminders of the inherent uncertainties in litigation finance. For law firm owners and their financial backers, the path forward demands a nuanced view of risk, underscored by strategic portfolio diversification and the cultivation of partnerships with experienced financing entities. By adopting these principles, stakeholders can safeguard their investments against the capricious nature of mass litigation, securing a resilient and prosperous future in the challenging yet rewarding domain of legal finance.

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Case Developments Commercial

Parabellum Capital Funding ‘Daniel’s Law’ Cases in New Jersey

By Harry Moran |

Whilst there is constant debate and discussion over the level of transparency and disclosure that should be required for the involvement of litigation funders in cases, the state of New Jersey is demonstrating how these rules work in practice after a plaintiff disclosed that it anticipated using litigation funds in an ongoing series of lawsuits.

Reporting by Reuters highlights a recent court filing in the United States District Court for the District of New Jersey, where the plaintiff, Atlas Data Privacy Corporation, informed the court that it would soon be using funding provided by Parabellum Capital. The litigation funding was secured by Atlas Data Privacy to support over 140 lawsuits that it has been assigned and brought against businesses who have allegedly breached New Jersey’s Daniel’s Law, which allows public officials to protect against the release of their personal information to the public.

In its filing to the court, Atlas Data Privacy said that as New Jersey’s rules on funding disclosure “requires that a statement be filed promptly following the use of third-party litigation funds”, and because the firm “anticipates utilizing such funds shortly”, it was filing the letter to comply with Local Civil Rule 7.1.1. The two-page letter does not provide many details of Atlas’ funding arrangement with Parabellum Capital but confirmed that it was “non-recourse financing provided to Atlas, collateralized by litigation proceeds”. Unsurprisingly, the letter also confirmed that “the funder’s approval is not necessary for any litigation or settlement decisions in these actions.” 

Reuters’ article also includes comments from spokespersons for both Atlas and Parabellum, with the funder’s spokesperson saying that it was acting as “a passive financial partner of Atlas, which is playing an important role in enforcing compliance with one of the most meaningful privacy laws on record.”Atlas’ letter of disclosure to the court can be read in full here.

Case Developments Commercial

GreenX Metals Awarded £252M in Compensation in Arbitration Claims Funded by LCM

By Harry Moran |

Disputes between companies involved in mining operations continue to represent valuable opportunities for litigation funders, with bilateral investment treaties offering avenues for these corporations to seek compensation from nation states.

An announcement from GreenX Metals Limited revealed that the company has reached a successful outcome in its arbitration claims against the Republic of Poland, and has been awarded two substantial sums of compensation by the tribunal. The claims were brought against Poland under the Australia-Poland Bilateral Investment Treaty (BIT) and the Energy Charter Treaty (ECT), with GreenX arguing that the Polish government had breached its obligations under the treaties in relation to the Jan Karski mining project. 

The tribunal awarded GreenX £252 million under the BIT and a further £183 million in compensation under the ECT. However, GreenX also revealed that the tribunal did not uphold the company’s claim in relation to the Dębieńsko project. The tribunal’s ruling on these claims are also final and binding, with no provision for an appeal procedure, in accordance with the United Nations Commission on International Trade Law Rules (UNCITRAL).

As part of the announcement, GreenX highlighted that the claims had been financially supported by Litigation Capital Management (LCM), referring to the company’s July 2020 announcement that it had secured an A$18 million funding facility to pursue the arbitration. GreenX noted that whilst the tribunal has ordered each party to cover their own legal costs, all of GreenX’s costs have already been covered by the funding from LCM.

Case Developments Commercial

Delaware Court Denies Target’s Discovery Request for Funding Documents in Copyright Infringement Case

By Harry Moran |

A recent court opinion in a copyright infringement cases has once again demonstrated that judges are hesitant to force plaintiffs and their funders to hand over information that is not relevant to the claim at hand, as the judge denied the defendant’s discovery request for documents sent by the plaintiff to its litigation funder.

In an article on E-Discovery LLC, Michael Berman analyses a ruling handed down by Judge Stephanos Bibas in the United States District Court for the District of Delaware, in the case of Design With Friends, Inc. v. Target Corporation. Design has brought a claim of copyright infringement and breach of contract, and received funding to pursue the case from Validity Finance. As part of its defense, Target had sought documents from the funder relating to its involvement in the case, but Judge Bibas ruled that Target’s request was both “too burdensome to disclose” and was seeking “information that is attorney work product”.

Target’s broad subpoena contained five requests for information including Validity’s valuations of the lawsuit, communications between the funder and plaintiff prior to the funding agreement being signed, and information about the relationship between the two parties.

With regards to the valuations, Judge Bibas wrote that “while those documents informed an investment decision, they did so by evaluating whether a lawsuit had merit and what damages it might recover,” which in the court’s opinion constitutes “legal analysis done for a legal purpose”. He went on to say that “if the work-product doctrine did not protect these records,” then the forced disclosure of these documents “would chill lawyers from discussing a pending case frankly.”

Regarding the requests for information about the relationship between Design and Validity, Judge Bibas was clear in his opinion that these requests were disproportionately burdensome. The opinion lays out clear the clear reasoning that “Target already knows that Validity is funding the suit and that it does not need to approve a settlement”, and with this information already available “Further minutiae about Validity are hardly relevant to whether Target infringed a copyright or breached a contract years before Validity entered the picture.”The full opinion from Judge Bibas can be read here.