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Move Over Carnival: Litigation Funding in Brazil is Heating Up!

February 13, 2018

Move Over Carnival: Litigation Funding in Brazil is Heating Up!

Writing for Vannin’s Funding in Focus series, Carolina Ramirez, Managing Director in Vannin’s newly-formed New York office, describes the litigation funding climate in South America’s largest and most populous nation. Ramirez highlights both the perceptions and practical applications of litigation finance in Brazil, as well as the regulatory climate and challenges facing industry growth in the region.
Although third party funding arrived on the Brazilian scene only recently, the practice has been warmly embraced relative to other Latin American markets. That has to do with Brazil’s liquidity crisis following the Great Recession, in addition to fallout in the aftermath of Operation Car Wash, or Operação Lava Jato, and the subsequent reliance on arbitration as a result. According to Ramirez, Brazilians maintain a perception that litigation funding is utilized solely by impecunious claimants, or those facing liquidity constraints. Although perceptions are gradually changing, she points to one local practitioner who claims that “case law on the matter is scarce and major Brazilian arbitration chambers do not publish their precedents, so parties (be it funders, funded parties or adversaries to a funded party) still have to deal with a reasonable (and potentially damaging) degree of uncertainty.” Yet despite the uncertainty, the benefits of litigation funding are widely being recognized, with one practitioner going so far as to state that the practice “will evolve to [allow] major companies seeking reasonable financing that allows them to pursue their core business objectives while conducting high level litigation.” Such is the reality of litigation funding in other major jurisdictions, so why not Brazil? Major obstacles to the adoption of litigation funding have to do with costs and time constraints — the former containing too few, and the latter containing far too many. The cost of filing a claim (appeal included) in Brazil is extraordinarily low, which of course precludes firms from seeking external funding. Additionally, cases can go through many layers of appeal before reaching conclusion, which means that funders can’t accurately predict the timing of their expected recovery. Essentially, the barriers to justice that exist in Brazil work against litigation funders, whereas the barriers that exist in the United States, for example (those being high upfront costs and balance sheet exposure), directly play into a litigation funder’s hands. According to Ramirez, by and large, third party funding is unregulated in Brazil. “Only recently did the Brazil-Canada Chamber of Commerce (“CAM/CCBC”) – one of the most renowned institutions in Brazil – issue a resolution specifically recommending that parties disclose the use of funding at the outset of an arbitration (Administrative Resolution 18/2016).” Practitioners on the ground believe in the likelihood that other arbitral institutions will at some point promulgate further regulations on third party funding in Brazil, though at present, the industry remains unregulated. So is Brazil on the precipice of future growth in the area of litigation funding? Ramirez seems to think so. “The resounding message,” she writes, “is that Brazil is ripe for third party funding and that the time to enter the market is now. It is also clear that practitioners are enthusiastic about the prospect of having foreign third party funders with significant experience enter the market and level the playing field which has thus far been dominated by a single local Brazilian third party funder.” To read Ramirez’s article in its entirety, please visit this link. 

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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.

Case Developments Commercial

Law Firms Collect $48M from BHP Class Action

By John Freund |

In a development drawing fresh scrutiny to fee arrangements in class action proceedings, law firms involved in the high-profile shareholder lawsuit against BHP have collected nearly three times the legal fees they initially represented to the court. The firms took in approximately $48 million from a $110 million settlement approved in the Federal Court of Australia, despite earlier representations suggesting significantly lower costs.

An article in the Australian Financial Review details how the legal teams, including Phi Finney McDonald and US-based Robbins Geller Rudman & Dowd, initially indicated their fees would constitute a relatively modest share of the final settlement. However, court filings reveal a different outcome, with the firms ultimately securing a much larger cut after a revised funding structure was approved during the settlement process.

The underlying class action was brought on behalf of shareholders following the catastrophic 2015 collapse of the Fundão dam in Brazil. The case centered on allegations that BHP failed to adequately disclose risks associated with the dam's operations, leading to sharp share price declines after the disaster. While BHP did not admit liability, the $110 million agreement was one of several global legal settlements related to the event.

The revised fee arrangement was approved as part of a “common fund” order, which allows for legal and funding costs to be deducted from the total settlement on behalf of all group members. The final order was issued without a detailed public explanation for the increased fees, prompting concerns from legal observers and stakeholders about transparency and accountability in class action settlements.

Case Developments Commercial

King & Spalding Sued Over Litigation Funding Ties and Overbilling Claims

By John Freund |

King and Spalding is facing a malpractice and breach of fiduciary duty lawsuit from former client David Pisor, a Chicago-based entrepreneur, who claims the law firm pushed him into a predatory litigation funding deal and massively overbilled him for legal services. The complaint, filed in Illinois state court, accuses the firm of inflating its rates midstream and steering Pisor toward a funding agreement that primarily served the firm's financial interests.

An article in Law.com reports that the litigation stems from King and Spalding's representation of Pisor and his company, PSIX LLC, in a 2021 dispute. According to the complaint, the firm directed him to enter a funding arrangement with an entity referred to in court as “Defendant SC220163,” which is affiliated with litigation funder Statera Capital Funding. Pisor alleges that after securing the funding, King and Spalding tied its fee structure to it, raised hourly rates, and billed over 3,000 hours across 30 staff and attorneys within 11 months, resulting in more than $3.5 million in fees.

The suit further alleges that many of these hours were duplicative, non-substantive, or billed at inflated rates, with non-lawyer work charged at partner-level fees. Pisor claims he was left with minimal control over his case and business due to the debt incurred through the funding arrangement, despite having a company valued at over $130 million at the time.

King and Spalding, along with the associated litigation funder, declined to comment. The lawsuit brings multiple claims including legal malpractice, breach of fiduciary duty, and violations of Illinois’ Consumer Legal Funding Act.