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Trends and Key Developments Impacting the Litigation Finance Market

How are inflation and rising rates impacting the litigation funding market? How can funders attract more institutional capital in today’s economic environment? What new products are emerging to disrupt the market? IMN’s 5th Annual Financing, Structuring, and Investing in Litigation Finance event kicked off with an opening panel on “The State of the Market: Where is the Litigation Finance Market Headed?”

The panel consisted of Douglas Gruener, Partner at Levenfeld Pearlstein, Reid Zeising, CEO and Founder of Gain (formerly Cherokee Funding & Gain Servicing), William Weisman, Director of Commercial Litigation at Parabellum Capital, Charles Schmerler, Senior Managing Director and Head of Litigation Finance at Pretium Partners, and David Gallagher, Co-Head of Litigation Investing at the D.E. Shaw Group. The panel was moderated by Andrew Langhoff, Founder and Principal of Red Bridges Advisors.

There is a lot of experimentation happening in the Litigation Finance market, whether that be single-case financing, portfolio financing, secondaries investment, defense-side funding and other strategies. Regardless of one’s position in the market, it is evident that the Litigation Finance sector continues to grow, both in terms of demand for the industry’s products and in terms of adoption within the broader Legal industry.

Interestingly, David Gallagher of D.E. Shaw noted that while both funder AUM and new commitments by funders continue to rise, the rate at which AUM is rising is slowing down while the rate at which new commitments are rising is speeding up. So, there are no longer ‘too many dollars chasing too few deals,’ as was the case for the past several years. William Weisman of Parabellum corroborated that narrative by noting that his phone and the phones of many other funders continue to ring with new deals. And while the majority of cases Parabellum sees are single case funding, there is increasingly demand for portfolio funding. Weisman also noted that there is opportunity in the smaller end of the market, which larger funders can’t focus on due to opportunity cost or LTV reasons.

Doug Gruener added that average deal size has indeed trended upwards over the past few years, primarily due to a recent influx in mass tort investments. Nine-figure deals are not uncommon in today’s funding environment. Also, the cost of legal services goes up every year, especially in an inflationary environment, which of course necessitates larger and larger case investments. Charles Schmerler of Pretium noted that pricing is up, but that is relative to the previously muted pricing.  Funders are now able to underwrite in ways that are more sensible, in terms of what investors are looking for.

Moderator Andrew Langhoff then asked if demand is up, AUM is up, pricing is up, why are funders having issues raising capital? David Gallagher responded that just because a handful of market participants are having trouble, that doesn’t imply systemic risk. In fact, it underlines the sustainability of the industry, given that specific operators can have problems and the rest of the industry still grows. Charles Schmerler added that in any economy, there will be idiosyncratic distress. This will impact the market. Things shake out, and for funders to succeed, they need to understand what sophisticated investors in the market are looking for. There can be a disconnect there—funders need to understand investors’ needs and exit strategies.

The question then turned to duration risk—is this what is causing hesitation amongst LPs? Doug Gruener stated firmly that he’s found that duration risk is not the issue, rather it’s the broader state of the market that is causing some investors to sit on the sidelines, perhaps due to a ‘risk-off’ approach. Another factor that doesn’t help is the age of the industry—this is the 5th annual IMN event, after all—so that FOMO that existed in year one simply doesn’t exist anymore.

Reid Zeising of Gain did stress duration risk as an issue, however. “Lesson 101 in Finance,” he reminded, is that “asset and liability should match duration. If you extend your liability beyond your asset, that is the number one way to get in trouble.”

Other parts of the discussion centered around regulation (“The Chamber of Commerce is the shill of the Insurance Industry,” according to Reid Zeising), secondaries (“There were a large number of investments made five to seven years ago, so the opportunity is ripe both on the demand side and supply side,” says Doug Gruener), and disclosure (“In the space of disclosure, if both sides could have a reasonable discussion, it might work. But we’re not in a space where both sides can have that discussion,” claims Charles Schmerler).

Overall, the first panel at IMN covered a broad range of topics impacting the Litigation Finance sector in 2023. It was a robust and well-rounded discussion, and set the table for subsequent panels which dove deeper into the topics touched upon here.

 

*Editor’s Note: An earlier version of this article incorrectly stated that David Gallagher noted that new commitments by funders are now falling. Mr. Gallagher in fact stated they are rising. We regret the error. 

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Case Developments Commercial

Sony and Apple Challenge Enforceability of Litigation Funding Models

By John Freund |

A pivotal UK court case could reshape the future of litigation finance agreements, as Sony and Apple reignite legal challenges to widely used third-party funding models in large-scale commercial disputes.

An article in Law360 reports that the two tech giants are questioning the validity of litigation funding arrangements tied to multibillion-pound cartel claims brought against them. Their core argument: that certain litigation funding agreements may run afoul of UK laws governing damages-based agreements (DBAs), which restrict the share of damages a representative may take as remuneration. A previous Court of Appeal decision in PACCAR Inc. v. Competition Appeal Tribunal held that some funding models might qualify as DBAs, rendering them unenforceable if they fail to comply with statutory rules.

This resurrected dispute centers on claims brought by class representatives against Apple and Sony over alleged anti-competitive behavior. The companies argue that if the funding arrangements breach DBA regulations, the entire claims may be invalidated. For the litigation funding industry, the outcome could severely curtail access to justice mechanisms in the UK—especially for collective actions in competition law, where third-party financing is often essential.

The UK’s Competition Appeal Tribunal previously stayed the proceedings pending clarity on the legal standing of such funding arrangements. With the dispute now heading back to court, all eyes will be on whether the judiciary draws a clear line around the enforceability of funder agreements under current law.

The decision could force funders to rework deal structures or risk losing enforceability altogether. As UK courts revisit the DBA implications for litigation finance, the sector faces heightened uncertainty over regulatory compliance, enforceability, and long-term viability in complex group litigation. Will this lead to a redefinition of permissible funding models—or to a call for legislative reform to protect access to collective redress?

Case Developments Commercial

Funder’s Interference in Texas Fee Dispute Rejected by Appeals Court

By Harry Moran |

A Texas appeals court has ruled that a litigation funder cannot block attorneys from pursuing a fee dispute following a remand order, reinforcing the limited standing of funders in fee-shifting battles. In a 2-1 decision, the First Court of Appeals found that the funder’s interest in the outcome, while financial, did not confer the legal authority necessary to participate in the dispute or enforce a side agreement aimed at halting the proceedings.

An article in Law360 details the underlying case, which stems from a contentious attorney fee battle following a remand to state court. The litigation funder, asserting contractual rights tied to a funding agreement, attempted to intervene and stop the fee litigation between plaintiffs' and defense counsel. But the appellate court sided with the trial court’s decision to proceed, emphasizing that only parties directly involved in the underlying legal work—and not third-party financiers—are entitled to challenge or control post-remand fee determinations. The majority opinion concluded that the funder’s contract could not supersede procedural law governing who may participate in such disputes.

In dissent, one justice argued that the funder’s financial interest merited consideration, suggesting that a more expansive view of standing could be warranted. But the majority held firm, stating that expanding standing would invite unwanted complexity and undermine judicial efficiency.

This decision sends a strong signal to funders operating in Texas: fee rights must be contractually precise and procedurally valid. As more funders build fee recovery provisions into their agreements, questions linger about how far those rights can extend—especially in jurisdictions hesitant to allow funders a seat at the litigation table.

Commercial Regulatory Issues

Oklahoma Moves to Restrict Foreign Litigation Funding, Cap Damages

By John Freund |

In a significant policy shift, Oklahoma has enacted legislation targeting foreign influence in its judicial system through third-party litigation funding. Signed into law by Governor Kevin Stitt, the two-pronged legislation not only prohibits foreign entities from funding lawsuits in the state but also imposes a $500,000 cap on non-economic damages in civil cases—excluding exceptions such as wrongful death. The new laws take effect November 1, 2025.

An article in The Journal Record notes that proponents of the legislation, including the Oklahoma Civil Justice Council and key Republican lawmakers, argue these measures are necessary to preserve the integrity of the state's courts and protect domestic businesses from what they view as undue interference. The foreign funding restriction applies to entities from countries identified as foreign adversaries by federal standards, including China and Russia.

Critics, however, contend that the laws may undermine access to justice, especially in complex or high-cost litigation where third-party funding can serve as a vital resource. The cap on non-economic damages, in particular, has drawn concern from trial lawyers who argue it may disproportionately impact vulnerable plaintiffs without sufficient financial means.

Oklahoma’s move aligns with a broader national trend of state-level scrutiny over third-party litigation funding. Lawmakers in several states have introduced or passed legislation to increase transparency, impose registration requirements, or limit funding sources.

For the legal funding industry, the Oklahoma law raises pressing questions about how funders will adapt to an increasingly fragmented regulatory landscape. It also underscores the growing political sensitivity around foreign capital in civil litigation—a trend that could prompt further regulatory action across other jurisdictions.