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Key Takeaways from LFJs Digital Event: Litigation Finance: What to Expect in 2024

February 12, 2024

Key Takeaways from LFJs Digital Event: Litigation Finance: What to Expect in 2024

On February 8th, 2024, Litigation Finance Journal hosted a special digital event titled ‘Litigation Finance: What to Expect in 2024.’  The event featured Gian Kull, Senior Portfolio Manager at Omni Bridgeway, David Gallagher, Co-Founder of LitFund, Justin Brass, Co-CEO and Managing Director of JBSL, and Michael German, Co-Founder and CIO at Lex Ferenda. The event was moderated by Peter Petyt, founder of 4 Rivers. The discussion covered a range of topics pertinent to the litigation funding space. Below are some key takeaways from the event: Which areas are you particularly interested in investing in over this coming year?  MG: There is a supposition that this industry will continue to grow in 2024. All of the indicators suggest that the industry will continue to grow–nearly all of the funders are funding bankruptcy-related cases, and three quarters are funding patent cases. Those are areas of interest to us, and I think that will continue to make sense, given the types of commercial cases they are – complex cases that require significant amounts of attorney time and defendant time,  and yield significant costs to the litigaiton. JB: We’re going to see a continued expansion into the mass arbitration space. That is something that has been coming up with more frequency. Mass torts has been staying quite busy. And where we see a lot of potential is with the evolution of the secondary market. There are a lot of funders coming up with maturing cases, and it makes sense for those funders to redeploy that capital into other opportunities – not necessarily exit that case – but just sell a minority stake or a portion of it. We that in traditional fixed income classes, so we think that is going to continue in the funding market as well. Are you seeing any kind of appetite to invest in jurisdictions you haven’t previously invest in? Have some jurisdictions matured to the point where you now will give them a serious look?  GK: That’s a hard question to ask Omni Bridgeway as a whole, because we try to be in a lot of places. But from my own experience in Europe, we’ve gotten quite comfortable in the Netherlands, we have a very large investment in Portugal. Spain is next on the list. Italy is after that. The jurisdiction I’ve been most disappointed in – aside from the UK with the regulatory issues there – is Germany. For such a large economy, from a commercial collective redress perspective that is a dead end. As we move through Europe, I’ll be watching the regulatory regimes and how those are tested over the coming years. Are you seeing many requests for monetization of judgements or awards, or is that not an area that you are particularly interested in?  DG: We’re especially interested in that, largely because my partners have spent a lot of their careers making those types of investments. And just speaking from my own experience, that has always been an important part of the market, and continues to be an important part of the market. I think the availability of judgement preservation insurance makes funding more available and appropriate both on the funder’s side and the client’s side. In my view, it’s very interesting to see the number of people in the market moving into the insurance space. In my view quite a surprising number – it’s certainly indicative of a trend. LFJ just announced today that Ignite has launched a capital protection insurance resource. So there are a lot of interesting things happening here. Is it still early days for this space, because there are a lot of people moving into it with interest?  MG: I share the sentiment of having a general level of surprise with how many folks from the litigation finance industry insurance has drawn. From the Lex Ferenda perspective, insurance has proven to be a very expensive option, that ultimately my clients and I don’t feel is worth the cost. But the vast majority of our investments – from an insurer’s perspective – are probably the least good fit, so that’s probably why it’s reflecting in the price. JB: I think the insurance aspect of litigation finance is here to stay. There will be growing pains along the way. I think even as recently as last week, there were disclosures in the Affordable Care Act fee dispute where the law firm got an insurance policy related to its fee award. What was interesting there, was the law firm was seeking disclosure about the policy, and in essence how it worked. So not only is it new and here to stay, we’re seeing it become public. The risk to early-stage cases is the pricing can be expensive, but what will happen over time, is like anything else, the insurers will be tracking the progress on those cases, and as funders come back as repeat customers, they’ll be looking at you and factoring that relationship into their pricing, just like how a bank factors that into a credit score. I think the best path forward is figuring out how to work together and create a level of transparency and trust, because it’s not going away. For the full recording of the event, click here.

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Case Developments Commercial

Delaware Chancery Court Dissolves Litigation Funder Amid Partner Deadlock

By John Freund |

The Delaware Court of Chancery has ordered the dissolution of a litigation funding operation after its two principals reached an irreconcilable impasse, offering a rare look at what happens when the business relationships behind funding ventures break down.

As reported by Law360, the court ruled to wind down the partnership between a hedge fund manager and a Florida-based personal injury attorney who jointly operated the funding business. The dispute involved Priority Responsible Funding and Settlement Funding LLC, entities that had been providing capital for litigation matters.

Rather than assigning fault to either party, the Chancery Court determined that the partners' falling out did not involve wrongdoing that would prevent an orderly dissolution. The ruling permits the business to be wound down under the court's supervision, a resolution that allows both sides to move forward without the protracted litigation that often accompanies contested partnership breakups.

The case highlights a less-discussed risk in the litigation funding industry: the internal dynamics between business partners and co-investors. While much of the regulatory and media attention around litigation finance focuses on funder-client relationships and disclosure requirements, the Delaware case underscores that the operational structures behind funding entities carry their own set of governance challenges.

The decision may serve as a reference point for other litigation funding ventures navigating partnership disputes, particularly as the industry continues to attract new entrants and capital from diverse financial backgrounds. The full decision is available through the Court of Chancery.

Commercial Regulatory Issues

Joint ILR-LCJ Letter Calls on Advisory Committee on Civil Rules to Adopt Third-Party Litigation Funding Disclosure Rule, Recommends Rule Text

By John Freund |

Today, the U.S. Chamber of Commerce Institute for Legal Reform (ILR) and Lawyers for Civil Justice (LCJ) submitted a joint comment letter to the Advisory Committee on Civil Rules of the Judicial Conference of the United States Courts (Advisory Committee) urging the body to promulgate a uniform rule requiring disclosure of third-party litigation funding (TPLF) agreements in federal courts and proposing the text of the rule. The comment letter comes ahead of the Advisory Committee’s April 14 meeting where it is expected to discuss the results of its listening tour. The comment proposes new rule text, which would amend Federal Rule of Civil Procedure 26(a)(1)(A) and require the disclosure of third-party funding contracts, in addition to basic information on funders. An original copy of the letter as submitted is available here and here.

The Advisory Committee formed a subcommittee to consider the need for a TPLF disclosure rule in October of 2024, after ILR and LCJ submitted a comment calling for the initiation of the rules process. Since that time, the TPLF subcommittee has conducted a listening tour to gather information on whether a rule is necessary and what it may require. LCJ’s analysis of actual TPLF contracts demonstrates that funders—who are nonparties to the litigation—not only share in the proceeds of litigation, but also have the ability to influence or control litigation and settlement decisions.

The joint letter argues a rule is necessary because the lack of TPLF disclosure causes a series of serious problems for America’s courts, including:

  • Conflicts of interest between funder and parties to the case and/or witnesses remain hidden
  • Time wasted in negotiations between parties who do not have the authority to make dispositive decisions about the resolution of the litigation. 
  • “Zombie” litigation in which litigation continues at the behest of funders despite the parties’ desire to settle.
  • Inability to manage settlement conferences effectively because parties are not empowered to make dispositive decisions. 

The comment letter also explains that courts face a serious rules problem because they are responding to disclosure requests on an ad hoc basis and are doing so in an inconsistent manner. Absent uniformity that only a rule can provide, some judges are rejecting disclosure requests under relevance standards governing the discovery process in Rule 26(a). Other courts are utilizing in camera or ex parte review in ways that are not in keeping with regular procedures regarding motions for protective orders. Some courts are ordering disclosure of TPLF. The comment letter concludes “This lack of uniformity is a rules problem because similarly situated parties in different geographic locations are getting starkly different interpretations of the FRCP and access to much-needed information.”

To solve the problem, ILR and LCJ offer specific language for a new rule that adds to the list of required initial disclosure[s] in Rule 26(a)(1)(A): 

(v) the name, address, and telephone number of any non-party individual or entity (other than counsel of record) that, whether directly or indirectly, is providing funding for the action and has a financial interest therein and, for inspection and copying as under Rule 34, any agreements or other documentation concerning the funding for the action or the financial interest therein.

The letter draws a direct parallel between the situation facing courts today surrounding TPLF with that of insurance contract disclosure before 1970. At that time, courts were split between granting disclosure of insurance contracts and denying such requests, often on the same lack of relevance basis that some courts today are denying TPLF disclosure requests. The Advisory Committee considered courts’ patchwork of approaches and ultimately decided a rule requiring insurance contract disclosure was necessary under Rule 26 to help all parties make a “realistic appraisal of the case.” The letter argues that the Committee should require TPLF disclosure given that, similar to insurance contracts, TPLF contracts can give non-parties a stake in the litigation as well as control over its resolution.

Lawyers for Civil Justice (LCJ) is an advocacy organization whose members support reform of procedural litigation rules to further “the just, speedy, and inexpensive determination of every action and proceeding.” Through collaborative engagement by in-house and outside counsel, LCJ develops and advocates for reform proposals that improve the efficiency and fairness of the U.S. civil litigation system, including through its AskAboutTPLF campaign, which advocates for a uniform rule requiring the disclosure of TPLF.

A program of the U.S. Chamber of Commerce (the “Chamber”), ILR’s mission is to champion a fair legal system that promotes economic growth and opportunity. The Chamber is the world’s largest business federation. It directly represents approximately 300,000 members and indirectly represents the interests of more than 3 million companies and professional organizations of every size, in every industry sector, and from every region of the country.

Commercial

Pennsylvania Supreme Court Committee Proposes Third-Party Litigation Funding Disclosure Rule

By John Freund |

Pennsylvania could become the latest state to require transparency around third-party litigation funding arrangements, with a proposed rule that would mandate disclosure of funding documents during discovery.

As reported by the PA Coalition for Civil Justice Reform, the Civil Procedural Rules Committee of the Pennsylvania Supreme Court has issued a notice of rulemaking for a new Third-Party Litigation Funding Rule. The proposal would require parties to produce documents pertaining to third-party litigation funding as part of the discovery process in civil cases.

The committee framed the initiative as a matter of parity. Under current rules, defendants are already required to disclose insurance policies that may fund verdicts or settlements, but plaintiffs backed by third-party funders face no comparable transparency obligation. The proposed rule aims to close that gap by bringing litigation funding arrangements into the same disclosure framework.

The move adds Pennsylvania to a growing list of states grappling with how to regulate the role of outside capital in civil litigation. Several states, including Georgia, Kansas, Indiana, Louisiana, Montana, West Virginia, and Wisconsin, have already enacted laws requiring some degree of funder disclosure. At the federal level, the Advisory Committee on the U.S. Federal Rules of Civil Procedure is separately considering potential rule amendments that would require uniform disclosure of litigation funding in federal cases.

The Civil Procedural Rules Committee is accepting public comments on the proposed rule through April 22. Comments may be submitted to Karla M. Shulz, Deputy Chief Counsel, at civilrules@pacourts.us.