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  • An LFJ Conversation with Brenna Legaard, Partner, Invenio LLP

Litigation Funding – Section 107 Needs Amending

By Ken Rosen |

Litigation Funding – Section 107 Needs Amending

The following was contributed by Ken Rosen Esq, Founder of Ken Rosen P.C. Ken is a frequent contributor to legal journals on current topics of interest to the bankruptcy and restructuring industry.

The necessity of disclosing litigation funding remains contentious. In October 2024, the federal judiciary’s rules committee decided to create a litigation finance subcommittee after 125 big companies argued that transparency of litigation funding is needed. 

Is there a problem in need of a fix?

Concerns include (a) Undisclosed funding may lead to unfair advantages in litigation. Allegedly if one party is backed by significant financial resources, it could affect the dynamics of the case. (b) Potential conflicts of interest may arise from litigation funding arrangements. Parties and the court may question whether funders could exert influence over the litigation process or settlement decisions, which could compromise the integrity of the judicial process. (c) The presence of litigation funding can alter the strategy of both parties in negotiations. Judges may be concerned that funders might push for excessive settlements or prolong litigation to maximize their returns. While litigation funding can enhance access to justice for under-resourced plaintiffs, judges may also be wary of the potential for exploitative practices where funders prioritize profit over the plaintiffs’ best interests.

A litigant’s financial wherewithal is irrelevant. A litigant’s balance sheet also addresses financial resources and the strength of one’s balance sheet may affect the dynamics of the litigation but there is no rationale for a new rule that a litigant’s balance sheet be disclosed. What matters is the law and the facts. Disclosure of litigation funding is a basis on which to argue that anything offered in settlement by the funded litigant is unreasonable and to blame it on litigation funding. 

Ethics rules

The concerns about litigation funding are adequately dealt with by The American Bar Association’s Model Rules of Professional Conduct, as well as various state ethical rules and state bar associations. An attorney’s obligation is to act in the best interests of their client. Among other things, attorneys must (a) adhere to the law and ethical standards, ensuring that their actions do not undermine the integrity of the legal system, (b)  avoid conflicts of interest and should not represent clients whose interests are directly adverse to those of another client without informed consent, (c) fully explain to clients potential risks and implications of various options and (d) explain matters to the extent necessary for clients to make informed decisions. 

These rules are designed to ensure that attorneys act in the best interests of their clients while maintaining the integrity of the legal profession and the justice system. Violations of these ethical obligations can result in disciplinary action, including disbarment, sanctions, or reprimand. Disclosure of litigation funding is unnecessary because the ethics rules adequately govern an attorney’s behavior and their obligations to the court. New rules to enforce existing rules are redundant and unnecessary. Plus, disclosure of litigation funding can be damaging to the value of a litigation claim.

Value maximization and preservation

Preserving and enhancing the value of the estate are critical considerations in a Chapter 11 case. Preservation and enhancement are fundamental to the successful reorganization, as they directly impact the recovery available to creditors and the feasibility of the debtor’s reorganization efforts. Often, a litigation claim is a valuable estate asset. A Chapter 11 debtor may seek DIP financing in the form of litigation funding when it faces financial distress that could impede its ability to pursue valuable litigation. However, disclosure of litigation funding- like disclosure of a balance sheet in a non-bankruptcy case- can devalue the litigation asset if it impacts an adversary’s case strategy and dynamics.

The ”364” process

In bankruptcy there is an additional problem. Section 364 of the Bankruptcy Code sets forth the conditions under which litigation funding – a form of “DIP” financing- may be approved by the court. 

When a Chapter 11 debtor seeks DIP financing, several disclosures are made. Some key elements of DIP financing that customarily are disclosed include (a) Why DIP financing is necessary. (b) The specific terms of the DIP financing, including the amount, interest rate, fees, and repayment terms. (c) What assets will secure DIP financing and the priority of the DIP lender’s claims. (d) How DIP financing will affect existing creditors. (e) How the proposed DIP financing complies with relevant provisions of the Bankruptcy Code. 

Litigation funding in a bankruptcy case requires full disclosure of all substantive terms and conditions of the funding- more than just whether litigation funding exists and whether the funder has control in the case. Parties being sued by the debtor seek to understand the terms of the debtor’s litigation funding to gauge the debtor’s capability to sustain litigation and to formulate their own case strategy.

Section 107 needs revision

Subsection (a) of section 107 provides that except as provided in subsections (b) and (c) and subject to section 112, a paper filed in a case and on the docket are public records. Subsection (b) (1) provides thaton request of a party in interest, the bankruptcy court shall protect an entity with respect to a trade secret or confidential research, development, or commercial information.Applications for relief that involve commercial information are candidates for sealing or redaction by the bankruptcy court. 

But the Bankruptcy Code does not explicitly define “commercial information.” 

The interpretation of “commercial information” has been developed through case law. For instance, in In re Orion Pictures Corp., 21 F.3d at 27, the Second Circuit defined “commercial information” as information that would cause an unfair advantage to competitors.” This definition has been applied in various cases to include information that could harm or give competitors an unfair advantage, and it has been held to include information that, if publicly disclosed, would adversely affect the conduct of the bankruptcy case. (In re Purdue Pharma LP, SDNY 2021). In such instances allowing public disclosure also would diminish the value of the bankruptcy estate. (In re A.G. Financial Service Center, Inc.395 F.3d 410, 416 (7th Cir. 2005)). 

Additionally, courts have held that “commercial information” need not rise to the level of a trade secret to qualify for protection under section 107(b), but it must be so critical to the operations of the entity seeking the protective order that its disclosure will unfairly benefit the entity’s competitors. (In re Barney’s, Inc., 201 B.R. 703, 708–09 (Bankr. S.D.N.Y. 1996) (citing In re Orion Pictures Corp., 21 F.3d at 28)). 

Knowledge of litigation funding and, especially, the terms and conditions of the funding can give an adversary a distinct advantage. In effect the adverse party is a “competitor” of the debtor. They pull at opposite ends of the same rope. Furthermore, disclosure would adversely affect the conduct of the case- which should be defined to include diminution of the value of the litigation claim. 

The Federal Rules of Bankruptcy Procedure should be amended to clarify that information in an application for litigation funding may, subject to approval by the bankruptcy court, be deemed “confidential information” subject to sealing or redaction if the court authorizes it.

Conclusion

A new rule requiring disclosure of litigation funding is unnecessary and can damage the value of a litigation claim. If the rules committee nevertheless recommend disclosure there should be a carve out for bankruptcy cases specifically enabling bankruptcy judges to authorize redaction or sealing pleadings related to litigation funding. 

About the author

Ken Rosen

Ken Rosen

Commercial

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An LFJ Conversation with Brenna Legaard, Partner, Invenio LLP

Below is our LFJ Conversation with Brenna Legaard, Partner at Invenio LLP.

Brenna Legaard is an accomplished first chair trial attorney, patent attorney, and intellectual property strategist with more than 20 years of experience advising technology companies on the protection, commercialization, and enforcement of their innovations. Her practice spans high-stakes litigation, strategic IP portfolio development, licensing, and deal support. Brenna has represented Fortune 500 companies and cutting-edge startups alike, guiding clients through patent portfolio development, enforcement campaigns, trademark enforcement, and sophisticated cross-border matters. She is deeply engaged in the evolving landscape of litigation finance, leveraging this important tool to fulfill the promise of the patent system for inventors.

To set the stage, tell us about Invenio and your move there from K&L Gates. Invenio is built around legal underwriting, IP monetization and specialty finance rather than a traditional full-service practice. What did you see in the market that made that the right platform for IP enforcement work in 2026?

After many years in Big Law, I was drawn to how entrepreneurial and nimble Invenio is. The legal market, and what clients need from it, is changing fast. I wanted to be somewhere built to respond to that change in ways that are both innovative and disciplined.

Litigation finance was a big part of the draw, too. I spent 25 years helping companies get patents, build portfolios and protect their IP. When litigation finance arrived, it was a remarkable tool. In the right circumstances, it lets a patent owner actually use that IP without cost standing in the way. Invenio's focus on that space gave me the chance to bring the two halves of my career together. It also lets me do more plaintiff-side work than I'd been able to before.

IP underwriting is where a great deal of capital is won or lost. Walk us through what rigorous underwriting of a patent matter actually looks like in practice. What separates a genuinely fundable case from one that merely looks good on paper, and where does diligence most often fall short?

Every patent case comes down to three questions. Are the patents infringed? Are they valid? And are the damages large enough to justify the investment? Those questions are usually treated as separate workstreams, but they're deeply intertwined. When you interpret the claims for infringement, you're committing to a particular claim scope, and you have to live with that same scope on validity and damages. So the real question is whether the claim scope you need for infringement is also valid, and valuable enough to support robust damages. The most common failure I see in underwriting is answering those questions in silos instead of as one interdependent analysis.

The second place diligence falls short is in understanding the real technical value of the invention. Too often, people treat sales figures as a proxy instead of asking whether the industry truly needs the innovation.

Finally, I have strong views on how AI should, and shouldn't, be used in IP underwriting, which I've written about here.

Patent investments are multi-year commitments, but the policy environment around them moves faster than that. USPTO leadership, PTAB practice and discretionary denial standards can all shift with a change in administration. How should funders future-proof IP investments against that volatility, and what does a durable enforcement strategy look like when the rules may change mid-case?

I don't believe your direction should change with the administration. What changes is whether the policy landscape gives you headwinds or tailwinds, but if your direction is sound, you keep heading there either way.

The North Star in patent litigation is claims that are valid and technologically important. That's what preserves a case's value in a hostile environment, and it's what maximizes that value in a friendly one. Right now, the policy climate may let some people get away with looser underwriting. If policy swings back to where it was a few years ago, they won't. The right answer is the right answer, whichever way the wind is blowing.

Large firms that historically defended patent cases are moving onto the plaintiff side, often with contingency or hybrid arrangements. What is driving that shift, and how should funders think about managing those relationships on economics, control, conflicts and case selection compared with working with established plaintiff-side boutiques?

Money, of course. As funding becomes more common and more accepted, and as firms worry less about optics and more about profits per partner, they'll follow the opportunity. But Big Law isn't built to take on risk. Large firms have trouble assessing risk, trouble getting comfortable with it, and trouble doing what needs to be done when it shows up in ways they didn't expect. And their financial model assumes they get paid regardless, which creates friction. Contingency plaintiff firms, by contrast, are built for this work and know how to adapt when the unexpected happens.

My biggest caution to funders is that you can't treat these two kinds of firms the same way. What works with a contingency boutique won't work with a Big Law firm. Those firms are not only risk-averse but systemically risk-intolerant, and their compensation systems aren't designed to reward taking on risk.

To that end, here's my best guidance for funders to navigate the space successfully.

Underwrite the firm, not just the case. Understand how partner compensation treats contingency work, who inside the firm has to sign off, and what happens to the team members' numbers if the case runs long.

Structure the economics around that reality. A hybrid arrangement with a meaningful but survivable fee reduction often keeps a large firm more committed than a pure contingency that its compensation committee will start second-guessing two years in.

Agree on the hard things up front. Settle budgets, staffing and a framework for settlement decisions at the outset, within the ethical limits on funder control. And look for plaintiff experience in the team, as there are big strategic differences between defense and plaintiffs.

Press hard on conflicts, including business conflicts that won't show up in a conflicts check. A firm with a deep defense-side book may face pressure from an important client to step away — pressure that can show up when unexpected risk does.

Be disciplined on case selection. Don't let a firm's appetite for headline-size matters set the agenda.

Looking 18 to 24 months out, you work at the intersection of IP, litigation funding and insurance. Where do you expect capital to find the best risk-adjusted returns in IP, what role will insurance play in de-risking those positions, and where should sophisticated funders be positioning now?

With Big Law moving into the space, there's inflation in what counts as a "good case." A lot of attention goes to the mega-deals, meaning litigations with more than $100 million in damages at stake. But verdicts at that scale often don't survive appeal, if they're reached at all. There's a lot of risk at that size, and funders would be well served by finding ways into cases that don't need as much capital. Learning to make good money at a smaller, more reliable scale matters for the health of the whole industry.

As for insurance: candidly, I don't think any funder should take on a large contingency case without insuring it. Insurance addresses many of the problems created by the way our industry takes on risk, especially when Big Law is involved. It tends to push investments toward aggregated structures. Particularly with Big Law, though, insurance may be what makes those deals viable and sustainable. There isn't always room for it in a smaller deal. But for the big cases and the Big Law work, both firms and funders need to look to insurance to manage the risks built into our business model.

Omni Bridgeway Reaffirms Double-Digit AUM Growth Target Through FY28

Omni Bridgeway has restated its medium-term targets for assets under management and cost coverage, telling investors it expects annualised AUM growth of at least 10% through FY28.

As reported by GlobeNewswire, the Australian funder is also targeting 70% coverage of its operating costs by FY28. Assets under management stand at A$5.9bn, up 12% since June 2025, representing a 17% compound annual growth rate since June 2022.

The cost coverage trajectory is the more telling figure. The measure has moved from 17% in FY23 to 53% in FY26, as the business shifts weight from its own balance sheet toward third-party capital and fee income. Operating expenses fell 20% in FY26 while new commitments rose 38%.

Chief executive Raymond van Hulst has positioned the group around capital-light growth. FY26 produced record proceeds of A$350.5m, up 49%, alongside A$712.2m in new commitments, A$862m of third-party capital and more than A$1.6bn in total capital formation.

The guidance is a reaffirmation rather than a new disclosure, and the targets were set out in the company's FY26 results cycle. Its value lies in the consistency of the message: Omni Bridgeway continues to tell the market that growth will come through managed funds and co-investment rather than through expanding its own book.

Legal-Bay Launches Attorney Fee Advancement Program Offering Up to $1 Million

Legal-Bay has introduced an attorney funding and fee advancement program that provides contingency-fee law firms with up to $1m against fees they have already earned but not yet received.

As reported by PR Newswire, the Jersey City-based funder is targeting firms waiting on settlement proceeds. Qualifying firms need a signed settlement agreement and release along with a retainer, and the company says funding can close within two to three business days.

The program sits alongside a broader set of offerings that includes law firm funding against contingency receivables, cash advances, settlement funding and case cost funding. Chris Janish, Legal-Bay's chief executive and founder, framed the product around lawyers who have already completed the work and are simply waiting to be paid.

The launch builds on the firm's existing attorney-facing business. Legal-Bay opened an attorney funding branch in October 2023 and added a case cost program in May 2025.

Fee advancement addresses a structural timing problem in contingency practice. A firm can win a case and still face a gap of months between the settlement agreement and the arrival of funds, during which payroll, case costs and new matter intake all continue. Products of this kind convert a signed settlement into near-term working capital, and the segment has drawn increasing attention from funders looking for shorter-duration, lower-variance exposure than single-case investment typically provides.