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Recent Developments in Litigation Finance (Part 2 of 2)

December 11, 2017

Recent Developments in Litigation Finance (Part 2 of 2)

By Mauritius Nagelmueller This article aims to provide an overview of the most significant recent developments in the litigation finance industry. Part 2 of this 2-part series discusses the rapid growth of litigation finance across the globe, as well as its multi-dimensional expansion into diverse markets. If you’d like to reference Part 1 of this series, you can find it here. Growth The most significant overall trend in litigation finance is simply put: growth – a vibrant and ongoing increase in the use and acceptance of the industry. Litigation finance has emerged from a promising niche into a mainstream alternative asset class. The use has multiplied in the recent years, and among many other characteristic features, investors are attracted by the chance to diversify their portfolios with uncorrelated assets. The demand in the legal world is still much higher than the supply of litigation finance – an indicator that normally only the best cases are receiving financing. By now, the business spans the financing of both plaintiffs and defendants, single cases and portfolios, at practically every stage of the dispute, for example also at the enforcement phase. As litigation finance has become a multi-billion-dollar business, surveys and reports by universities and journals, as well as financing providers point to its continued growth, with no signs of stopping any time soon. While detailed data grows increasingly available, it is hard for reporters or councils to keep pace with the industry, which continues to evolve before initial research can proffer valid conclusions. While this powerful forward movement promotes access to justice in the eyes of many, the impact on the civil justice system concerns others. Calls for more rules and regulation regarding inter alia, disclosure and conflicts of interest remain loud. Whichever side one chooses, the market for this service is growing, the demand enormous, and high-quality cases tend to find high-quality finance providers. Expansion For all the reasons stated above, as well as in the Part 1 of this series, 2017 has been the year of expansion for litigation finance firms. New offices in multiple jurisdictions, new funds that are larger or have innovative structures, and broader services providing the full spectrum of finance and risk management related to legal disputes. A wave of new office launches took place in multiple directions internationally. Litigation finance firms from the U.K. entered the U.S. market, and are eager to establish their business in New York City, Washington D.C., Philadelphia, California, and a number of other locales across the U.S. Strategic recruiting, e.g. of former U.S. judges and biglaw partners, builds strong teams in a constantly growing environment, and makes a career in litigation finance a more and more attractive option. Following the developments in Asia described previously, litigation finance firms have opened their first offices in Singapore. The market is also growing in Canada, where local courts have increasingly embraced litigation finance for the past 15 years. International litigation finance and insurance firms seem attracted, and have ventured into Canada this year. And funds are growing bigger accordingly. The largest players have billions of dollars committed to the legal market, able to invest hundreds of millions in a short period of time. The biggest single litigation investment fund in North America has been raised this year, at $500 million. An increase in size is not the only development, however, since crowdfunding and innovative online platforms play a progressively important role, opening the market to an even broader range of participants. Litigation finance has never been one-dimensional, but has included tailored financing concepts and related services like asset tracing for some time. The progress of portfolio financing shapes the market thoroughly. More recently, the range of available insurance options has developed in the U.S., bringing a new variety of sophisticated services, such as contingency fee insurance and attorney fee insurance solutions which can offer a cheaper hedge compared to financing. All in all, it will be fascinating to watch how things play out in the years ahead. Whatever the outcome, 2017 will certainly be remembered as a transformative year for the nascent industry of litigation finance.   Mauritius Nagelmueller has been involved in the litigation finance industry for more than 10 years. This 2-part article is for general information purposes only and does not purport to represent legal advice. The views and opinions expressed are those of the author and do not necessarily reflect the position of his employer. No reader should act or refrain from acting on the basis of any information related to this 2-part article without seeking the appropriate advice from a lawyer licensed in the recipient’s jurisdiction.

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Connecticut Op-Ed Warns of Hidden Costs of Litigation Funding

A new opinion piece out of Connecticut casts third-party litigation funding as an under-regulated market whose costs ultimately fall on the public, adding to the chorus of consumer- and insurance-side critics pressing for greater transparency.

As argued in a CT Insider op-ed by Lisa Lounsbury, president of Big I Connecticut, the growth of third-party litigation funding (TPLF) has turned lawsuits into an investable asset — with the resulting costs, she contends, showing up in higher insurance premiums borne by ordinary consumers.

Lounsbury acknowledges the access-to-justice case for funding, noting that it can help plaintiffs pursue legitimate claims they could not otherwise afford. But she argues that expanded access does not justify operating without meaningful transparency or consumer protections. In many states, including Connecticut, she writes, consumers who turn to litigation funders have little protection: the industry is largely unregulated, with no caps on fees, no clear disclosure of true costs, and inadequate safeguards against referral arrangements between lawyers and funders.

She reserves particular concern for disclosure in the courtroom, warning that funding deals often need not be revealed to judges — leaving courts unaware of who holds a financial stake, who may be influencing litigation decisions, and whether conflicts of interest exist. The piece adds a Connecticut voice to a national debate over how, and how much, the funding industry should be regulated.

Commercial

New Jersey Supreme Court Sets Five-Factor Test for Third-Party Funding in Criminal Cases

The New Jersey Supreme Court has established a framework for trial judges weighing the ethical implications of third-party funding in criminal matters, extending scrutiny of outside financing into a context that has drawn far less attention than its commercial counterpart.

As reported by Bloomberg Law, the unanimous court issued the framework in a ruling that upheld the conviction of a defendant whose legal bills had been paid by a witness the state called to testify — an arrangement that raised clear questions about divided loyalties. The opinion set out five factors judges should weigh in determining whether a third-party payment arrangement creates a conflict of interest for a defendant's counsel.

At the center of the decision is the principle that an attorney's duty "requires the attorney's exclusive loyalty to the client, without diversion of that loyalty in favor of another person." By articulating specific factors rather than a blanket rule, the court gave trial judges a structured way to assess when outside payment for a criminal defense threatens that loyalty.

The ruling adds a criminal-law dimension to an ongoing debate over transparency and control in third-party litigation funding, which has largely centered on commercial disputes. For courts confronting funded criminal defenses, the decision offers a template for surfacing potential conflicts before they compromise a defendant's representation.

Commercial

Counsel Financial Names David Le to Lead Product and Digital Transformation

Counsel Financial has expanded its technology leadership with the appointment of David Le as Director of Product and Digital Transformation, a newly created role aimed at modernizing the platforms that underpin its litigation finance operations.

According to a company announcement, the Buffalo-based firm — a provider of specialized financial solutions for plaintiff law firms and litigation finance stakeholders — said Le will lead its digital transformation strategy, overseeing the development and modernization of internal systems supporting underwriting, operations, reporting, and enterprise-wide workflow. The company framed the hire as a step toward strengthening operational efficiency, data integrity, and scalable technology as it continues to grow.

Le brings more than 15 years of experience leading product strategy and digital transformation across legal, financial, and operationally complex organizations. He most recently served as Senior Product Manager for Financial Operations at Urgently, where he led the modernization of internal payment and financial systems. Earlier roles included Head of Product at a consumer technology company and leadership positions at Anthroware and Garretson Resolution Group, where he directed platform initiatives supporting mass tort and personal injury settlement administration. He began his career in corporate strategy and engineering roles at Toyota.

The appointment reflects a broader trend across litigation finance, where funders are investing in technology to sharpen underwriting discipline, improve reporting, and manage increasingly complex portfolios at scale.