Litigation Funding Research Articles

Defense-Side Patent Litigation Financing: a Practical Solution for Inventors Harmed by the Patent System

Defense-Side Patent Litigation Financing: a Practical Solution for Inventors Harmed by the Patent System

Brave New World: Technology and Tort Practice

I am a civil procedure person, not an official torts person, but fairly often torts and civil procedure seem to be joined at the hip. And that seems particularly true with regard to the effects of technological change on tort litigation practice. I’ve been working on the Federal Rules of Civil Procedure for more than twenty years and find that it’s usually the torts cases that are the focus of the most intense disputes regarding procedure issues. For this Symposium, I intend to focus on five topics, but the last one is mainly an advertisement for the second panel at the Symposium: (1) E-Discovery (2) The more general impact of technology on torts practice (3) The growing importance of technology on manner of proof (4) The MDL “boom” (5) TPLF -- third party litigation funding

Nova EU direktiva o kolektivnim tužbama i finansiranje vođenja parničnog postupka sredstvima trećih lica - prilika za evropske potrošače

After years of compensatory collective redress being left to a sort of regulatory competition among Member States, Directive 1828/2020 finally introduced an EU wide representative action scheme, aimed at strengthening the position of European consumers vis-à-vis new market dynamics such as globalisation and digitalisation. The new system, which shall run in parallel with national tools, introduces some innovations such as a cross-border action mechanism, the possibility of adopting an opt-out model and a specific regulation of third-party litigation funding in the context of collective redress. This aspect, addressed already in the 2013 Recommendation, is of particular interest, because third party funding represents a particularly powerful complement to collective redress in easing citizens' access to justice. However, the provisions introduced with Directive 1828/2020 leave some issues open. In particular, the Court's role in managing the funding agreement, with special reference to the funder's fee, and the effect of the funding agreement in case an opt-out adhesion mechanism is adopted are of paramount importance and still need to be addressed interpretatively. In this task, the comparative method will be particularly helpful in analysing the solution which Countries more familiar with third party funding, like Australia, Canada or the United States have introduced or discussed.

The Funding of Collective Redress by Entrepreneurial Parties: The EU and Dutch Context

The development of collective redress in practice depends on the availability of adequate funding. In recent years third-party funding by entrepreneurial parties has become an important source of financing collective actions and settlements. Both at the EU level and in most of the Member States third-party litigation funding and related forms of entrepreneurial lawyering have generally been viewed with suspicion, though the new Representative Actions Directive (RAD) does enable third-party funding under certain conditions. The Netherlands is perhaps the Member State best known for its collective redress mechanisms, and the role of third-party funding has been important for its development. This paper discusses the financing of collective redress from a European and Dutch perspective. It assesses in how far EU law, and in particular the RAD, enables the third-party funding and how this has developed in the Netherlands. It concludes that the reluctance in Europe towards third-party funding is still visible, but the RAD and recent developments in the EU acknowledge its importance. As to the Netherlands, considering some restrictions in the latest legislative addition enabling collective action damage claims, it remains to be seen what role Dutch collective redress and developing funding mechanisms will play in Europe and beyond.

Implications of the Bluberi decision: An Affirmation of Broad Judicial Discretion in CCAAs and a ‘Green Light’ for Litigation Funding in Canada

On 8 May 2020, the Supreme Court of Canada (“SCC”) released its written reasons in 9254-9186 Quebec inc. v. Callidus Capital Corp. (“Bluberi”), after having issued its unanimous decision from the bench earlier in the year. The decision pertained to a proceeding under the Companies’ Creditors Arrangement Act (“CCAA”) in which substantially all of the debtor’s assets had been liquidated.

Research Paper #3 - Class Actions and Litigation Funding Reform: The Views of Class Action Practitioners

In this paper, we provide qualitative data on the class actions regime and commercial litigation funding in Australia, based on interviews with experienced legal practitioners from the Federal Court Class Action Users’ Committee and the Law Council Class Actions Sub-Committee. Participants discussed their views on the current operation of the class actions regime; the way in which commercial litigation funding is working; transaction costs and delays associated with class actions; the merits of claims and defences; and ethical issues arising out of the conduct of plaintiff and defence firms, funders and counsel. Practitioners identified various problems associated with class actions and litigation funding and outlined their thoughts on possible solutions to those problems.

Supreme Court Orders First Opt-Out Class Action in New Zealand: Southern Response Earthquake Services Limited v Ross

2020 was a big year. From a socio-legal and political perspective, many legislatures and judiciaries around the world have dealt with issues arising from national elections, a global pandemic, and collective action reform. In Australia, the parliamentary enquiry into litigation funding for collective actions dominated the legal headlines. In New Zealand, the Law Commission’s review of class actions and litigation funding commenced. Against this background, it is no surprise that one of the most important decisions in New Zealand’s class action jurisprudence was released by the New Zealand Supreme Court in November 2020. In Southern Response Earthquake Services Limited v Ross, the New Zealand Supreme Court unanimously allowed an opt-out class action to proceed for the first time despite the lack of a specific statutory regime to govern the management of class action litigation. In layman’s terms, an opt-out class action occurs where the plaintiff class includes everyone who meets the class certification criteria unless those individuals expressly choose to opt-out. In contrast, an opt-in class action only includes individuals in a plaintiff class who expressly opt-in to a proceeding. The implications of Southern Response are immense.

Financing the Litigation Arms Race

Using a continuous-time model of litigation, we show that the increasingly popular practice of third-party litigation financing has ambiguous welfare implications. A defendant and a plaintiff bargain over a settlement payment. The defendant takes costly actions to avoid deadweight losses associated with large transfers to the plaintiff. Litigation financing bolsters the plaintiff, leading to larger deadweight losses. However, by endogenously deterring the defendant from taking costly actions, litigation financing can nonetheless improve the joint surplus of the plaintiff and the defendant. In contrast to popular opinion, litigation financing does not necessarily encourage high-risk frivolous lawsuits.

Litigation Financing: Balancing Access with Fairness

Abstract Litigation financing of plaintiffs by financiers other than the law firms representing the plaintiffs in the litigation is now a multi-billion-dollar industry. Contrary to assertions by advocates for such litigation financing, such litigation financing does not increase fairness and justice to poor and middle-class victims. Instead, it creates substantial problems beyond any associated with standard contingent-fee agreements between plaintiffs and the lawyers who represent them. This article describes the multiple ways in which the litigation-financing industry harms poor and middle-class tort plaintiffs and generates inefficient uses of judicial resources and jurors' time. It then recommends actions that courts can take to reduce those problems.

The Anatomy of Mass Tort and Post-Settlement Litigant Finance in the U.S.

Litigant Third-Party Funding (LTPF), where financial companies advance money on a non-recourse basis to individual plaintiffs, is a growing and increasingly controversial industry in the U.S. This funding made headlines during the NFL concussion litigation with more than 1,000 players reported to have received such advances and with class counsel raising concerns of “predatory lending” with the Court. Policymakers and scholars echo these concerns as they call for regulation of the industry to protect vulnerable consumers. Any regulations, however, should be based on systematic data rather than good intentions or isolated anecdotes. But to date there has been almost no empirical research on the actual practices of the industry. This Article begins to fill that void. Using a unique data set from one of the largest consumer litigation financing firms in the U.S. (“Funder”), we are the first to explore the anatomy of pre-settlement litigant finance in mass tort cases, such as the NFL class action. We are also the first to examine general post-settlement litigant finance in the U.S., which is the type of funding many NFL players were reported to have obtained. Our comprehensive data set includes approximately 225,593 requests for funding from 2001 throughout 2016. With respect to pre-settlement funding, we find that the Funder makes an annual median gross profit of 55% from Mass Tort claims (compared with 60% from Motor Vehicle claims, our control group). We also find that the Funder includes complicated terms in their contracts that make it extremely difficult for clients to understand the actual interest rate they will be eventually be charged. We believe lawmakers should regulate these contracts, banning any unnecessarily complicated provisions and requiring that the effective annual interest rate and total amount due be straightforwardly disclosed. With respect to post-settlement funding, we find that the effective annual interest rate charged and the profit to the Funder are even greater than for post-settlement fundings – 68% compared to 60% for Motor Vehicle claims. This is striking given that post-settlement fundings present virtually no risk to the Funder. Indeed we find that the rate of default in post-settlement cases is close to zero, which means that this category of advance is “non-recourse” on paper but not on the ground. We therefore recommend that funding in post-settlement cases should be subject to consumer protections similar to those usury laws provide for ordinary loans.

The Effectiveness of Disclosure Law Enforcement in Australia

This article examines the empirical incidence of the private and public enforcement of disclosure laws in Australia. Disclosure laws aim to ensure the reduction of information asymmetries and the accuracy of share prices, but their success is predicated on enforcement. In order to assess the enforcement landscape, this article presents two new datasets comprising both private class actions and public enforcement for further examination. The analysis indicates that 41% of all Federal Court actions filed within the dataset included allegations relating to continuous disclosure failures. Further, regarding in-court actions, private enforcement predominates. This is consistent with theory, which suggests that coordination costs may be expected to affect the likelihood of private enforcement by shareholders. Regarding public enforcement, the action types predominantly consist of administrative sanctions as opposed to litigation. There were 22 actions initiated by the Australian Securities and Investments Commission (ASIC) over the study period, which included civil and criminal penalties, infringement notices, and enforceable undertakings. This article additionally provides an outlook on enforcement since the judicial approval of litigation funders, which removed numerous procedural barriers to class actions. This allows for an analysis of the impact of these procedural changes, which occurred in parallel to ASIC resource decreases. Perhaps surprisingly, 100% of the cases in the dataset are supported by commercial litigation funding agreements. Moreover, the empirical analysis of settlement findings in the dataset indicates that the degree of investor loss coverage is tiny. Where settlement data and stock decline information is available, taking into account legal costs and litigation funder commissions, the mean net recovery amount is less than 4% of the market decline. This level of compensation can be compared with US figures, indicating a median settlement to investor loss coverage of 2.6% in 2017 and 2018. In light of the findings, this article addresses the question of whether the Australian system of enforcement is effective, by reference to whether the enforcement actions compensate, deter, and signal. The empirical analysis confirms the signalling function of enforcement, shows that there is likely to be a reasonable degree of deterrence where directors are targeted, however, that the compensation rationale is not met. This results in a moderately effective enforcement framework with notable room for improvement across both modalities of enforcement. Overall, the significance of both modalities of disclosure law enforcement implies that inferences about a system drawn solely from either public or private enforcement are likely to be misleading.

Investment Management and Corporate Structuring Considerations for Third-Party Litigation Funders in Luxembourg

Investment Management and Corporate Structuring Considerations for Third-Party Litigation Funders in Luxembourg

Third-Party Funding in International Arbitration: Ownership of the Claim, Consequences for Costs Orders, and Regulation

Abstract The increasing use of third-party funding in international arbitration has given rise to a myriad of challenges. Many of these remain unaddressed. Even though some jurisdictions have sought to regulate the sphere of third-party funding in international arbitration, it remains largely unregulated. The result is that a third-party funder is not held accountable. This article examines the issue of ownership of a funded international arbitration claim, and the consequences of that finding on an arbitral tribunal’s ability to impose costs order on a funder. The objective is to ensure that a funder is playing a role in the arbitral process merely to facilitate access to justice, and nothing more. The examination in this article comprises a review of case law, primarily of English courts, in the context of litigation funding, and then determining whether it is possible to transpose the learnings therefrom to the arbitration context. A brief discussion on the applicability of the doctrine of res judicata, in the context of the issues raised in this article, is undertaken. Finally, the article also considers the best way to regulate the specific question of imposing costs on a third-party funder in international arbitration.

Do’s and Dont’s of Regulating Third-Party Litigation Funding: Singapore Vs. France

Opting for international arbitration no longer ensures a quicker and cheaper access to justice. By reason of the exponential increase of the costs incurred in arbitration proceedings, a claim constitutes both a financial asset and a burden. A number of products offered by disputes funding firms allows litigants to externalize these costs. Funding cases puts equity capital at risk on a non-recourse basis. Naturally, this follows a well-structured decision-making process involving a budget plan and a deep dive due diligence conducted by experienced litigation and finance teams. Different approaches to regulating the funding activity have emerged. While France adopted a hands-off approach which led to the development of ethical and professional standards by concerned stakeholders, Singapore successfully legislated and developed an inspiring model, allowing the activity to thrive in the litigants’ best interests, in record time.

The Siren Song of Litigation Funding

For an investor, litigation funding is too tempting to resist. Litigation funding promises that most elusive of investment returns: those uncorrelated with an investor’s other investment returns. Litigation funding also invests in a world that seems fraught with possible pricing inefficiencies. It seems plausible—even likely—that a team of smart lawyer-underwriters can identify high-value litigation investments to generate superior returns for litigation funding investors. But more than a decade of experience suggests the promise of litigation funding is a siren song. The promise draws investors into the water, but the payoffs may be meager and rare. While litigation funding has always been controversial with defendants and business trade associations, the real problem is that the investment class is a poor one. First, high-stakes civil litigation is far more complex and random than most investors understand. There are an overwhelming number of ways that litigants can lose and far fewer paths to significant victories. Second, few good cases—from an investment perspective—are likely to find their way to funders. Third, litigation funding is probably prone to optimism bias, causing litigation funders to overestimate the probability of victory in their cases. Finally, litigation funding is fungible with little value added by the funder, suggesting that competition will drive down any significant previously-existing profits. While litigation funding serves a valuable social purpose when it finances meritorious cases that otherwise would not be pursued, we can expect investor success in the field to be rare and likely limited to those funders with the most litigation savvy and the best luck. Nevertheless, investors are unlikely to give up on the space despite the large prospect of poor returns.

Attorney-Client Privilege and Litigation Funders - A Comparative Overview Among the United States, France, and Portugal

Attorney-Client Privilege and Litigation Funders - A Comparative Overview Among the United States, France, and Portugal

Research Papers #1 and #2 - Class Actions and Litigation Funding Reform: The Rhetoric and the Reality

In this paper, we provide an overview of recent law reform inquiries and reports on class actions and litigation funding in Australia and in North American jurisdictions. We then summarise and examine the written and oral submissions to the most recent inquiry into class actions and litigation funding.

Research Paper #5: Costs and Funding Commissions in Class Actions

In this paper, we examine the problem of costs in class actions in Australia. We review factors giving rise to substantial costs; costs in civil litigation more generally; current methods for the regulation; review and control of costs and possible reforms; reasons for excessive costs in some class actions, including problematic or unethical practices; and costs in North American jurisdictions. Empirical data on litigation funding and legal fees in class action settlements is examined. We also discuss the intersection of legal costs with fiduciary duties and other ethical obligations which may exist in the context of class actions. In our view, in many class actions the legal and transaction costs are excessive. This is, of course, a matter of some significance, not only from the perspective of professional and commercial beneficiaries, class members and judicial officers presiding over applications for approval of settlements, but also in considering the price of access to justice and in evaluating the operation of the civil justice system. We recommend the imposition of more focused and specific affirmative statutory obligations on all participants in the conduct of class actions with broad ranging sanctions and penalties for noncompliance and the establishment of an independent statutory fund, in which funding is secured on the basis of access to justice considerations, rather than the pursuit of profit.

Research Paper #7: Class Actions: Commercial Funding, Regulation and Conflicts of Interest

In this paper, we discuss advantages of commercial litigation funding and methods for its regulation. We also examine conflicts of interest which can occur in class actions between funders, lawyers and members of the class, and the difficulties of managing those conflicts through self-regulation.

Financing Disputes: Third-Party Funding in Litigation and Arbitration

Third-party funding is an arrangement where an entity with no prior interest in the merits of a dispute provides funding to a party involved in the dispute. Traditionally, this funding was specifically to assist the party to the dispute by financing its legal fees and costs and could be obtained in a number of ways, such as through insurance or loans from financial institutions. Third-party funding has seen significant growth and an increase in sophistication in recent years, resulting in a departure from this traditional model concurrent with the rise of commercial litigation funders whose entire business is providing non-recourse investment in disputes. This article explores both the changes in models of third-party funding — which can include some or all of: (1) paying for legal fees and disbursements, (2) indemnifying against the risk of an adverse costs order, (3) stepping in to provide security for costs, (4) providing working capital or portfolio funding for bundles of claims, and (5) the rise of institutional third-party financing in Canada. In particular, this article will explore some of the specific applications of third-party funding to the energy industry, including “David and Goliath” claims, claims involving state asset expropriation, and the use of funding as a tool for risk allocation in asset sales.
 This article will also discuss the development and current state of the legal framework and case law in Canada with respect to third-party funding, along with third-party funding across different contexts and types of disputes. This includes the evolution of the law of maintenance and champerty and a discussion of key legal and ethical issues engaged by third-party funding arrangements including confidentiality, privilege, disclosure, conflicts of interest, and control of the dispute.