Tag Archive for litigation funding

New York University’s 2015 Fall Conference: Litigation Funding

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New York University’s Center on Civil Justice held a conference in late 2015 on the topic of litigation funding. The all day affair featured three different panels where the topic was examined from different viewpoints. The first panel featured representatives from different legal funding companies and they explained the basics of the litigation funding.

New York University is one of the premier universities in the entire world with campuses all over the globe. Their panel on litigation funding adds stature to the industry and the panelists also added an additional level because of where they are in the industry. Some of the panelists were representatives from the biggest litigation funding companies. Others were people from academia who have studied and written about the topic.

Litigation Funding has been the topic of the month and has been gaining traction in recent months as the industry continues to grow. It is such a huge topic and growing part of the legal and finance industries, people need to be educated on all sides of the industry. In the recent years, several hedge funds, venture capital firms have put money into companies that are in the legal funding sector. In addition, several high powered attorneys in the law have defected to some litigation funding companies. So the industry now has name recognition and stature in the legal, finance, and increasingly in the media. The New York Times, The Wall Street Journal, Financial Times, and The Economist have all covered the litigation funding industry. Those stories and others have helped increase the profile of the industry to the general public and interested parties.

FWO Chartered Accountants Law Firm Funding Webinar

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A webinar hosted by FWO Chartered Accountants based in Australia discussed the hot topic of law firm funding. The speaker on the webinar is Matt Schlyder, who is the Director of FWO Chartered Accountants. Law Firm Funding has been the topic “Du Jour” these past few months and the space has become white hot for investors and others seeking to get in the business. What many may not realize is that the industry was started in Australia and the United Kingdom and from there spread to the United States. The industry may still expand to places like Europe and Africa.

So a webinar informing interested parties on the law firm or litigation funding field is a welcomed inclusion in the educational material about the space. There are numerous white papers, and law review articles about the field and there will be more as it becomes more mainstream. As it stands now, even with all the material about law firm funding available to read, there is still some confusion about the space and its diversity gets lost.

Whenever law firms pursue litigation, they are undoubtedly burdened with huge costs. It is quite expensive to advertise for a case, gather the clients for the case, and then litigate the case in court. For really huge cases, a well-funded law firm would need to handle it otherwise small law firms are going to buried under their costs. That harms them and the clients they are representing. Plaintiff Attorneys are competitive and its hard to give up what they determined is a really good case, but the economics of the law firm are just as important as underlying argument of the case. That is why a lot of attorneys refer their “really good” cases to bigger firms because they were better equipped to handle the litigation.

The emergence of law firm funding has helped smaller firms keep their cases and pursue them to the finish line. Law Firm Funding companies provide the necessary resources to law firms.  In that scenario, they make a lot more money doing this instead of taking a smaller cut, giving away the case to a bigger firm, and losing an opportunity to burnish their reputation. Law Firm Funding can be used at any stage during litigation. Pre-Settlement, Post-Settlement, Judgment, and Verdict. It can even be used for costs during litigation, which is Case Cost Funding. The webinar breaks down all the benefits and costs of law firm funding in great detail.

Crowdfunding Continues To Expand Into Litigation Funding

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Crowdfunding has been all the rage since the JOBS ACT was passed in 2012. There are currently crowdfunding platforms for different industries including litigation funding. A California publication, WestSide Today, published a story about the latest platform developed for the industry, TrialFunder. The company is based in California and seeks to “democratize the economics of law” according to the COO of the company. Litigation Funding is an industry that has grown exponentially since its beginnings in the early 1990s. The problems people have bringing cases to trial against huge corporations has been exacerbated. Crowdfunding as an industry seems new, but is built on an old concept.

The current technology allows people from anywhere to invest through the platform if they are interested in the case. As long as the person investing is an “accredited investor”, they are eligible to invest their money into a case they believe in. While the companies engaged in crowdfunding litigation funding tout the social benefits of such a practice, they also tout the money that can be made for an investor in crowdfunding litigation funding. Since its arrival in the United States, litigation funding has primarily been a small operation with high-net worth individuals being the providers of funding. Recently, there have been inquiries and entrances from major institutions and companies looking to or getting into the space. In addition to TrialFunder, platforms like Lexshares and Mighty.com have emerged providing the same opportunities to investors.

The JOBS ACT through crowdfunding has given the high-net worth individual a chance to be able to participate and not get pushed out by the big institutions and companies. Most of the articles written or talked about concerning the JOBS ACT pertain to the possibilities crowdfunding can offer to the litigation funding industry. None of the crowdfunding platforms geared toward litigation funding have released information on their profitability yet. Crowdfunding for litigation funding is still in its early stages, but the opportunities it offers to both people who want their cases funded and investors looking to make a great return are endless. Title III in the JOBS ACT specifically deals with crowdfunding.

Photo Credit: Crowdfunding by Rocio Lara

Legal Funding Firms Merge, Bringing Two Countries Together

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According to a news article in the Australian, two litigation funding firms from the United States and Australia have decided to combine their efforts to expand their resources to compete in both places. Longford Capital based in Chicago, IL and JustKapital based in Sydney, Australia are joining forces to challenge the dominant litigation funding companies in their respective countries. Most analysts and observers of the space know it is gaining traction among investors and active participants. There seems to be new entrants in the space every day and news concerning litigation funding appears daily in different publications. Many have recognized the short term and long term benefits litigation funding will provide law firms. Different law reviews have published studies about the industry and a variety of legal commentators have spoken on the topic. As for the industry, some have suggested that it is ripe for mergers given the amount of companies currently in the space. Philip Kapp of JustKapital was quoted in the Australian saying:

“We think litigation financing will go the same way as private equity. Private Equity 20 years ago, a lot of funds started but a lot of them merged and bought each other out.”

Australia and the United States have been “hotbeds” for litigation funding. Australia is the birthplace of the industry. It came to U.S. in the early 1990s, but has kept growing ever since. Litigation Funding continues to expand to different countries across the world and the legal practitioners are adjusting to the industry. Critics, mainly big business entities, are trying to stop its expansion and deride it as an unnecessary evil. As debate over the industry continues, the merger of JustKapital and Longford Capital added a new major player to a crowded and growing industry.

Photo Credit: Image by Steve Conover 

Photo Credit: Image by Flag Program

Two Truths and a Lie, Legal Funding Edition

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For today’s blog post, I want to try something a little bit different. We’re going to play a game.

You might be familiar with this one – it’s called “Two Truths and a Lie”, commonly played as an ice-breaker event. You can think of this as your ice-breaker introduction to legal funding, if you’re still pretty unfamiliar with the concept.

Legal funding is such a new industry that it can be difficult to separate fact from fiction. Not only is the industry shy of celebrating it’s 20th birthday in the United States, but it’s already developed multiple sub-industries. Figuring out the the precise nature of legal funding as a whole – not to mention the details of each sub-category of legal finance – can be quite a tedious task.

It shouldn’t be too hard, so go on, give it a try! Which ones are true, and which one is false?

Legal Funding Isn’t For Everyone

“Legal Funding,” “Litigation Financing,” and “Lawsuit Loans” Are The Same

Traditional Loans Are More Intensive Than Legal Funding

Here’s a little humorous intermission to give you time to think it over, before I let you see the answers.

Alright. That should have been plenty of time. Are you ready to test your answers against mine?

Here goes.

Legal Funding Isn’t For Everyone. TRUE!

As much as I wish this one were false, it isn’t.

Legal funding is NOT for everyone.

If you’re a plaintiff who is seeking an attorney to try a case, legal funding likely isn’t for you. A legal finance firm will not fund a case before it has been accepted by an attorney or by the courts.

If you’re a defense attorney coming from a well-funded defense firm, legal funding is not for you. You already have the funds to litigate your case successfully, and have no need for extra assistance. You’d be wasting both your time and the time of the funding company if you applied for financing.

If you’re a plaintiff’s attorney seeking fee acceleration on a settlement that will pay out within a few days time, you likely won’t receive legal funding. You would be setting yourself for unnecessary repayments and paperwork if you applied for legal funding in this situation.

While there are a few other instances where you won’t qualify for legal funding, there are plenty of other cases where you will. From pre-settlement and post-settlement funding, to appeals and judgment funding, there are legal funding options for almost every situation.

“Legal Funding,” “Litigation Financing”, and “Lawsuit Loans” Are All The Same. FALSE!

Legal Funding and Litigation Financing can be used interchangeably, but Lawsuit Loans are a completely different thing.

The key word here is “loans”.

Legal funding, also known as litigation finance, is a process by which a legal funding firm purchases legal receivables from a plaintiff or an attorney. Such receivables include an attorney fee attached to a settlement (post-settlement funding) or anticipated proceeds from ongoing litigation (pre-settlement funding) — and then advances that purchase amount to the client. Then, at a later date, the client will repay this advance, along with a pre-determined amount of discount, from proceeds of the settlement or judgement.

In some cases, legal funding is non-recourse. This can occur when a settlement or fee does not get paid for unforeseen, non-preventable reasons. When this happens, the client does not return the advance to the funding company.

This is NOT how a loan works.

Loans are given out regardless of whether or not a future sum in the form of a settlement, a fee, or otherwise will be paid to the client. At an agreed upon future date, the client is expected to repay the loan along with a predetermined amount of interest. The cost to the client is the entire loan amount, along with the interest amount. The loan is considered a cost, because there is no guarantee that the client will have future earnings equal to or greater than the loan amount.

So the next time you hear someone saying that “legal funding” is the same thing as a “lawsuit loan”, you can put them in their place.

Traditional Loans Are More Intensive Than Legal Funding. TRUE!

While traditional loans may be less expensive than legal funding, they’re also more intensive for attorneys.

It’s true, for example, that a personal loan might have an interest rate between 6-8%. And it’s true that legal funding firms generally have higher rates, which vary depending on the type of funding being offered.

However, higher premiums aside, legal funding firms make life much easier for attorneys who often don’t qualify for traditional funding like bank lines of credit and personal loans. That’s because loan companies often want something that most plaintiff’s attorneys don’t have: physical collateral. The majority of the time, plaintiffs’ attorneys who apply for loans will be rejected because of insufficient collateral.

Contingency fee attorneys more often than not rent their office space and other accommodations that they need to run a successful practice, leaving them without physical collateral. Their most valuable assets are not physical objects, but thoughts and documents: their case portfolio and their law practice. Banks don’t accept these as collateral.

Legal funding firms, on the other hand, do.

Legal funding companies were developed specifically to take legal assets as collateral to help attorneys struggling with cash flow issues get back on their feet and reinvest in their own practices. The industry expanded to helping the clients of these attorneys, as well, and today offers multiple types of customized funding options to contingency fee attorneys and plaintiffs.

Did you win the game? Were you able to guess which facts were indeed facts, and which was a fib? Do you have any other funding fictions that you’d like to see turned upside down? Do you know any other fun legal cartoons I can read?

Let me know by leaving a comment!

Photo Credit: image by smlp.co.uk

Shayna Keyles has been keeping the world informed on the latest in law and litigation financing with RD Legal Funding, LLC since 2012. She offers writing and content marketing tips at her website, www.contentliaison.com, and tweets at @SKLiaison.

Champerty, Canada, and Change

canadian leafThe legal concepts of champerty and maintenance have always lingered in the minds of attorneys and litigation funding firms alike. Defined loosely, maintenance occurs when one person encourages another to enter into litigation; champerty is an extreme form of maintenance, when the one who encourages the other to enter into litigation also expects to receive a profit from the lawsuit. These practices, along with barratry – litigation solely intended to harass an opposing party – are today considered unethical, and lawsuits based on these practices rarely see completion.

In the United States, accusations of champerty and maintenance were originally deterrents to the widespread acceptance of litigation funding. However, as the litigation funding field matured and regulations were created, it became more apparent that one could not enter into a lawsuit simply to seek legal funding. Furthermore, it became apparent that one could not frivolously seek funding for any lawsuit; the specific nature of each individual case is considered before one can qualify for funding. The United Kingdom and Australia have taken similar approaches, as far as commercial litigation funding is concerned.

The Canadian judicial system has a much more conflicted relationship with the litigation funding industry, partially because of the ideas of champerty and maintenance. One of the first class action cases to be funded in Canada, for example, was dismissed from court on the basis of champerty, because the case was funded by individual investors. Presently, to avoid any ethical confusion, plaintiffs must make both the defendant and the presiding judge aware of the decision to enter into a funding agreement. Attorneys, justices, and financiers are still debating at what point of litigation it is necessary to disclose this information. Moreover, the presiding judge must approve of the funding agreement before any trial can proceed. Canadian attorneys who were interviewed for a 2012 study on commercial litigation funding overwhelmingly supported these requirements.

The judicial regulations imposed by the Canadian courts have instilled a level of transparency that has been previously missing from the legal funding industry. This transparency has led to Canadian courts recognizing how litigation funding can significantly assist plaintiffs and plaintiffs’ attorneys. Furthermore, courts in other countries have noticed the positive improvements in Canada, and the Australian judicial system is now considering adopting a similar approval system for litigation funding.

It is unclear how significant the implications of the Canadian model may be. If more countries adopt the judicial approval method, like Australia is considering, the litigation funding industry may eventually merge into a public-private partnership. This idea may seem far-fetched for the United States, though twenty years ago, litigation financing itself was a far-fetched idea! As the industry continues to grow, it is inevitable that the industry will continue to change.

Written by Shayna Keyles.

Australian Attorney Seeks Litigation Funding Within a Legal Grey Area

koala bear in australiaMaurice Blackburn is an Australian plaintiff’s law firm that is currently leading an equine influenza class action against the Commonwealth Government. As with many class action cases, this one requires an extraordinary amount of capital to call in experts, cover discovery costs, and accommodate witnesses. As many class action attorneys are wont to do, Maurice Blackburn decided to turn to a litigation funding company to ask for assistance. There is only one issue: Maurice Blackburn seems to be very cozy with Claims Funding Australia Pty Limited (CFA), the litigation funding company from which he is seeking funding. The chairman of Maurice Blackburn is a Director of CFA; the CEO, head of employment, and head of industrial law practice at Maurice Blackburn are CFA shareholders; and, significantly, all of the principals at Maurice Blackburn are beneficiaries of the trust that was formed to create CFA.

The litigation funding industry has raised many ethical questions, among them the roles of champerty and barratry. While many areas with established legal funding firms have adopted legislation to accommodate for any potential legal or ethical complications, the nebulous nature of the field does occasionally create new challenges that pre-existing legal ordinances may not account for. This is one of those challenges, and it appears to be two-fold.

The first part of this challenge is of a legal nature. The Federal Court that is involved with this case questions whether or not Maurice Blackburn and CFA are breaching rule 10.1.2 of the Legal Profession Act of 2004, which reads:

“A practitioner must not, in any dealings with a client exercise any undue influence intended to dispose the client to benefit the practitioner in excess of the practitioner’s fair remuneration for the legal services provided to the client.”

Maurice Blackburn argues that the law firm is not being influenced in any manner by the CFA; however, this matter is now left to the discretion of the court.

The other issue at hand is whether or not the potential arrangement between CFA and Maurice Blackburn will create a conflict of interest. New regulations took effect July 12, 2013 regarding conflicts of interest in the legal funding industry, and it is now considered an offence not to avoid such conflicts. If the courts do allow CFA to fund Maurice Blackburn, CFA will have to ensure that it can maintain a professional separation from its contacts at the law firm.

The publicity that this case has garnered in Australia has gained Federal attention. The incoming Coalition government is being presented with a proposal to effectively limit the interactions between law firms and any litigation funding firm with which they are associated. The implications and breadth of this proposal are as yet unknown. However, the decisions made by both the Coalition government and the Federal Court will be sure to have a significant impact on the future of litigation funding in Australia, if not elsewhere.

Written by Shayna Keyles

Litigation Funding Companies Look to India for Investment Opportunities

flag of indiaLitigation finance is huge in places like Australia, New Zealand, the United Kingdom, South Africa, and the United States. An article in the Indian publication, PostNoon, located in the Hyderabad region, reveals an interest in the Indian market by some of the biggest litigation funding companies throughout the world.

Companies like Fulbrook Capital Management (based out of the US) and Harbour Litigation Funding (based out of the UK) are making inroads in the market, and it appears hopeful to expand as well. Litigation funding is still nascent in India but the opportunity for growth is tremendous. According to the article, the rising number of international legal disputes is presenting a substantial opportunity for litigation funders in the Indian market.

Written by Lulaine Compere.

Record Breaking Growth in Australian Litigation Funding Space; WSJ Covers the “Payday Lawsuit Lending” Industry

litigation funding in Australia experiences record growthAustralia has been one of the most accepting markets for litigation funding since its inception. It was one of the first territories to embrace the industry, and for those involved, it has been quite lucrative. An article in Bloomberg Businessweek recently stated that litigation funders in Australia have reported record profits. Yet even with this tremendous growth, many in the third party financing space feel they are just scratching the surface.

On April 28th, The Wall Street Journal did a story about possible state legislation that may impact what the author referred to as the “payday lawsuit lending” industry. According to the story, there are several states looking to cap the rates certain companies charge when they provide funding to plaintiffs (commonly referred to as pre-settlement plaintiff financing). *

In reading the article, it seems that many of the legislators quoted do not understand the basics of lawsuit funding. Legal finance companies take on significant risks, as the funding they provide is generally non-recourse. This means that if the plaintiff’s lawsuit does not result in a favorable outcome, the plaintiff owes the funding company nothing. Furthermore, pre-settlement funding is not a loan as the article describes, but an advance against future proceeds of a lawsuit.

In the past, there has been legislation against legal funding. The practice was even temporarily banned in certain states, including Ohio and North Carolina. Currently, lawsuit lending is legal in all 50 states. The United States Chamber of Commerce has been pushing for legislation to again ban the practice or cap the rates funding companies are allowed to charge. Supporters of legal finance say this would severely harm the industry.

*DISCLAIMER: RD Legal exclusively focuses on post-settlement funding and does not support nor endorse the pre-settlement finance industry.

Written by Lulaine Compere

Litigation Funding in the News

third-party litigation funding in the newsAs litigation funding continues to grow, many in the mainstream media are starting to cover the industry. These are just the latest examples of the increasing coverage the industry is receiving. There has been a constant and very active disinformation campaign against the industry to besmirch its reputation. Below are the latest stories of litigation funding in the news.

The National Law Journal reported the birth of a new litigation funding company, Gerchen Keller Capital LLC. According to the article, the Chicago-based company plans on financing both plaintiffs and defendants. This is a new occurrence because most legal funding companies fund only the plaintiffs. The Wall Street Journal also reported on this story.

The world-renowned magazine The Economist recently did a story about legal funding. The legal finance industry or what’s commonly known as the third-party funding industry is getting an increasing amount of press coverage. The profitability of certain companies, the emergence of new corporations, and the overview of what the industry is and where it may expand has been the subject of many stories. The Economist’s story focused on the definition of the industry.