All posts by litigationfinance

Litigation Funding Company Hit With CFPB Complaint

The Consumer Financial Protection Bureau and the New York Attorney General filed a complaint against the litigation funding company RD Legal in the Southern District of New York this week.

At issue is RD’s practice of providing cash advances to people awaiting payments under statutory compensation funds and settlement funds. Cash advances are up-front payments which the consumer agrees to repay upon receipt of its settlement award. The CFPB claims in this case consumers were damaged by repaying amounts significantly larger than the advances they received.

The complaint alleges that RD markets the advance as an “assignment” which is really a loan that violates, among other laws, New York state usury laws and the Consumer Financial Protection Act. While there is still a question of the CFPB’s jurisdiction over RD’s cash advances, this case is significant. It suggests CFPB intentions to attempt to regulate the booming litigation finance industry, which has stayed relatively under the radar.

This is one of three cases CFPB has filed against companies providing cash advances to those awaiting settlement funds.

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Summarized by Meghan Hallinan

Financing Agreements Disclosure is required by Northern District of California in All Class Action Suits

Third-party litigation financing agreements are now required to be automatically disclosed in all proposed class actions in the Northern District of California. The automatic disclosure rule is the first of its kinds in the United States district courts.

The new rule, which states that “in any proposed class, collective or representative action, the required disclosure includes any person or entity that is funding the prosecution of any claim or counterclaim,” was adopted in a court-wide standing order for all judges in the Northern District of California. Although this is a huge step toward greater transparency in third party financing, the rule is unlikely to impact big players in litigation financing like Burford Capital and Bentham IMF, as they do not typically fund class action cases.

A Burford statement indicated that the new rule may even allow courts to see how common litigation financing in class action lawsuits has become.  The new rule is indeed limited—it was adopted after the court previously proposed an even broad requirement of automatic disclosure in all cases.

View full post at TheRecorder

Summarized by Meghan Hallinan

Burford Capital buys Gerchen for USD $160 Million

Burford Capital (LSE:BUR) buys Gerchen Keller Capital for USD $160 MillionOn December 14, litigation funding giant Burford Capital (LON: BUR) announced they were finalized the purchase of Gerchen Keller Capital (GKC) for USD $160 million in cash, shares and loan notes.  GKC also has an incentive to receive an additional $15 million based on performance.

Burford stock price saw a one day 18% rise in price from £480 GBP to £565 GPB per share.   Burford did add an additional ~3.7 million shares onto the LSE (GBP £1.7 Billion / USD $2.2 Billion in value)

Unlike most other companies that issue a single page press release, Burford’s release was a 10 page detailed document filled with facts,  business strategy, financials, and justified their purchase with 3 main reasons.

  • They view market demand for litigation finance having a voracious apetite, rising substantially.  Burford saw a limitation of its ability to scale further.
  • They required investment management arm, which GKC had.
  • GKC specialized in Intellectual Property, an area where Burford was lacking.

Burford Capital now claims to have over USD $1.2 Billion in current investments.  The company now has 86 employees, 40 of which are attorneys.   GKC had 20 employees.

The sale is about 10X earnings, with GKC reporting income of USD $15.4 million for the year of 2016.  Their profit margin ran at about 60%.  About USD $95 million of the $160 Million sale was cash. GKC’s principles remain at the company for the next 3 years.  Adam Gerchen is now the President at Burford.

GKC also has 4 active funds they use for investment.  They charge fees for those funds.  Revenue from those fees range from 1.4% to 20%, depending on the structure.

Burford Capital’s acquisition illustrates an industry with strong market growth and high profit margins.  The purchase also sets expectations among the industry for a 10X earnings valuation of existing litigation finance firms that show high profit margins.

Original Press Release: (PDF)

Summarized by Marc Lesnick

Big Data Suggest How Judges Rule

Big Data Suggests How Judges Rule (Litigation Funding News)Attorneys now can datamine millions of documents with a focus on comments and actions by judges to determine predictability.  Lex Machina, Ravel Law, Bloomberg Law and other new big data services are some of the providers of these tools.

Big data now provides lawyers statistics on average wait times before a trial or chances of a case being dismissed under a particular judge.   Since 2011 for example, motions by San Francisco based U.S. District Judge Susan Illston were examined.   48% of the time she dismissed in full.  Denials for motions in full were 24.5%.

The economics of this are game changing.  It  eliminates hours of monotonous research given to junior lawyers or law librarians.  The tools now allow these individuals to do far more than was possible from their previous assignments.

View full post at Wall Street Journal

Summarized by Marc Lesnick

English Court of Appeals’ Decision Increases Litigation Funders’ Liability

Last week’s ruling of the English Court of Appeal upheld a High Court
judgment from 2013 forcing the litigation funding companies who
invested in the case of Excalibur Ventures v. Texas Keystone to pay
more than 20 million pounds to the prevailing defendants, two of which were U.S. companies represented by the U.S. counsel, pursuant to the English “loser pays” rule.

The decision serves as a cautionary tale for litigation funders, especially newcomers as was the case in Excalibur, likely requiring more in-depth analysis of claims viability and other due diligence.

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Summarized by Samantha Devotes

Pennsylvania Courts Deem a Complex Litigation Funding Agreement Void as Champertous

litigation funding agreement Polydyn Vs. Bayer caseA three judge panel has ruled a litigation funding agreement in WFIC LLC v. Labarre to be champertous, meaning to invest in litigation with interest in future proceeds, and, thus, void. The lawyer who represented the plaintiff in the original case obtained a $12.5 million jury verdict for his client, but received no money in contingency fees since the payment to the litigation funding investors was to come out of his fees. It is left to be seen what impact this decision will have on future litigation funding within Pennsylvania, as there is not much precedent on chemparty or litigation funding within the State’s jurisprudence.

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Summarized by Meghan Hallinan.

Australia’s Money Max Decision Allows Litigation Funders to Collect Fees from all Class Members

In Money Max Int Pty Ltd v QBE [2016] FCAFC 148, Australia’s Full Federal Court permitted a “common fund”, which allows a litigation funder to collect a “reasonable funding commission” (the exact amount of which would determined at a later time) from all members of a particular class, including members who did not sign up to a funding agreement.

The Court also stated that no class member be worse off under the order than had the order not been made, and that all class members be given notice of the order and an opportunity to opt out. In its order, the Court sought greater access to justice.  Although uncertainties remain, this decision will most likely make litigation funding more enticing for litigation funders in Australia.

View full post at Mondaq

Summarized by Francis Michigan.

UK’s Commercial Court permits Third Party Litigation Funding Costs in Arbitration Proceedings

essar-v-norscotIn CL-2016-000188 Essar Oilfield Services Limited v. Norscot Rig Management Pvt Limited, the United Kingdom’s Commercial Court upheld a decision to reward litigation funding costs to the victor of an arbitration proceeding. The Court’s decision to award litigation funding costs was based on the Arbitration Act 1996, which states that an Arbitrator “may determine by award the recoverable costs of the arbitration”, including “the legal or other costs of the parties.”

This is seen as a landmark decision that will draw third-party funded parties more towards arbitration  than litigation.

See full article at Lexology

Summarized by Jonathan Winsley


UK’s High Court Orders Litigation Funders be Revealed for Defendant’s Potential Security of Costs Application

The United Kingdom’s High Court recently ordered that Stuart Wall, the Claimant in a £700m swap misspelling, breach of contract, and LIBOR manipulation claim, must reveal litigation funders. The order’s purpose is to allow for Defendant RBS’s application against such litigation funders for security of costs, also known as legal fees in case of a successful defense. The High Court held that the Claimant’s right to privacy under the Human Rights Act of 1998 was not violated, because the Claimant pursued large stakes litigation in a system which allows th  e identity of such funders to become public. This is a notable decision because although litigation funders usually become revealed through the course of litigation, it is the first time that the High Court has ordered that their identities be revealed so early in the process.

Read full article at Lexology

Summarized by Antonis Tsenesidis

New York Court Revisits Litigation Funding and the Law of Champerty

The New York Court of Appeals, New York’s highest court, upheld in
Justinian Capital SPC v. WestLB AG the trial court’s summary judgment in defendant’s favor, holding that the lawsuit violated the State’s champerty statute. This is the first time in over a century that the Court found a suit to be champertous, meaning illegally funded by a third party that would also share the potential benefit if the funded party were to prevail. The noteworthy aspect of the Court’s holding is its expansive definition of champerty, which extends beyond fraudulent suits or suits that would not have been filed but for the third party’s funding. However, the decision confirms that the New York law does not apply to those investing over $500,000.

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Summarized by James Wright