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Hedge Funds Showing Increased Interest in Litigation Claims

January 15, 2019

Hedge Funds Showing Increased Interest in Litigation Claims

It’s no secret that over the last several years, Wall Street has been pouring money into the litigation space – whether indirectly by capitalizing litigation funders, or directly via their own investments into the space. However the recent revelation of Baupost Group’s $1 billion purchase of legal claims against utility company PG&E illustrates both the scope and scale of the hedge fund world’s interest in the legal sector. As reported in Yahoo News, billionaire Seth Karman’s Baupost Group has long been one of the titans of the hedge fund world. Now Baupost is spreading its wings, having purchased $1 billion of legal claims against utility giant PG&E. Interestingly, Baupost appears to have purchased the claims as a hedge on its investment in PG&E stock. Klarman’s fund invested in PG&E, which subsequently plummeted over 80% after the California wildfires left the utility company $30 billion in debt and facing imminent bankruptcy. However, in a process known as subrogation, Baupost also purchased legal claims against PG&E, held by the utility company’s insurer. The hedge fund reportedly paid 35 cents on the dollar for those claims, and now maintains the right to sue PG&E, the very same company it invested in. Insurance claims are repayable in a bankruptcy proceeding, however Baupost may be in for a bumpy ride to recoupment, given their status as a general unsecured creditor. That classification essentially places them last in line. This is not the first subrogation claim Baupost has pursued, and it is currently engaged with another similar claim. Sometimes the hedge fund purchases a partial subrogation, and partners with an insurer in the litigation of an entity. All of this shows how far Wall Street is willing to go when it comes to capitalizing legal claims.

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Commercial Regulatory Issues

Government to End PACCAR Limbo for Litigation Funding Agreements

By John Freund |

The UK government has pledged to introduce legislation to resolve the uncertainty created by the Supreme Court’s PACCAR ruling, which has left many litigation funding agreements in legal limbo. The Ministry of Justice confirmed its intention to bring forward a bill that will clarify that third party litigation funding agreements (LFAs) are not damages based agreements (DBAs) under existing law, a classification that, since PACCAR, has rendered many LFAs unenforceable and raised deep concerns across the funding market.

An article in The Law Gazette reports that the forthcoming legislation will specifically address the fallout from the 2023 PACCAR decision, which had classed typical litigation funding arrangements where a funder receives a share of damages as DBAs, bringing them within regulatory restrictions and making them invalid unless they met DBA regulatory requirements. This has undermined the clarity and enforceability of funding agreements for collective actions and other high value cases.

Industry sources and legal commentators have long advocated for a statutory fix. Over recent months, funders and claimant groups have pointed to the erosion of access to justice while PACCAR uncertainty persists, given that many have been hesitant to underwrite new claims under a model the courts deemed unenforceable. The government’s proposed change to statute rather than judge made law aims to restore the pre PACCAR position and reaffirm that LFAs do not fall within the DBA regime.

If enacted, the bill is expected to provide greater certainty for both existing and future litigation funding arrangements, reinforce the UK’s position as a leading venue for funded litigation, and encourage finance for complex group and commercial claims. Observers note that while the legislative promise is welcome, its timing and detailed provisions will be closely watched by funders, claimants and legal practitioners alike.

Commercial People Moves

Omni Bridgeway Bolsters U.S. Team with Claire-Naïla Damamme & William Vigen

By John Freund |

Omni Bridgeway has further strengthened its U.S. litigation finance platform with two senior strategic hires in its Washington, D.C. office. In a move signaling expanded capabilities in both international arbitration and antitrust litigation funding, the global legal finance leader appointed Claire-Naïla Damamme and William Vigen as Investment Managers and Legal Counsel. These additions reflect Omni Bridgeway’s continued commitment to deepening in-house legal and investment expertise amid growing demand for sophisticated funding solutions.

Omni's press release states that Claire-Naïla Damamme brings nearly a decade of distinguished international legal experience to Omni Bridgeway, where she will lead the firm’s U.S. International Arbitration initiative. Damamme’s background includes representing sovereign states and multinational corporations across energy, telecommunications, infrastructure, and technology disputes. Her expertise covers the full lifecycle of investor-state and commercial arbitrations, including enforcement before U.S. courts, honed through roles at top global law firms and institutions like White & Case LLP, WilmerHale, and the International Court of Justice.

William Vigen complements this expansion with more than 15 years of trial and litigation experience, particularly in antitrust enforcement and government investigations. Before joining Omni Bridgeway, Vigen worked at the U.S. Department of Justice’s Antitrust Division and later as a partner in private practice, where he led complex criminal prosecutions and major civil antitrust matters. At Omni Bridgeway, he will spearhead investment sourcing and evaluation in antitrust and related litigation.

According to Matt Harrison, Omni Bridgeway’s U.S. Managing Director and Chief Investment Officer, these appointments underscore the firm’s focus on delivering world-class legal finance expertise both domestically and internationally.

Case Developments Commercial

Archetype Capital Partners Secures Injunction in Trade Secret Battle with Co‑Founder

By John Freund |

A significant legal win for litigation funder Archetype Capital Partners emerged this month in the firm’s ongoing dispute with one of its co‑founders. A Nevada federal judge granted Archetype a preliminary injunction that prevents the ex‑partner from using the company’s proprietary systems for underwriting and managing mass tort litigation while the underlying trade secret lawsuit continues.

According to an article in Bloomberg, Archetype filed suit in September against its former co‑founder, Andrew Schneider, and Bullock Legal Group LLC, alleging misappropriation of confidential methodologies and business systems developed to assess and fund mass tort claims. The complaint asserted that Schneider supplied Bullock Legal with sensitive documents and leveraged Archetype’s systems to rapidly grow the firm’s case inventory from a few thousand matters to well over 148,000, a jump that Archetype says directly undercut its competitive position.

In issuing the injunction, Judge Gloria M. Navarro of the U.S. District Court for the District of Nevada found that Archetype was likely to succeed on its trade secret and breach of contract claims. While the court determined it lacked personal jurisdiction over Bullock Legal and dismissed the company from the suit, it nonetheless barred both Schneider and Bullock from distributing proceeds from a $5.6 billion mass tort settlement tied to video game addiction litigation that had been structured using Archetype’s proprietary systems.

The order further requires the return of all materials containing confidential data and prohibits Schneider from soliciting or interfering with Archetype’s clients.