The litigation industry in the UK will continue to grow, according to litigation funders. Some of the projections are set out in an April 28, 2016 post at CII.ClaimsMedia. The U.S. Chamber of Commerce is not pleased by the news, as it noted in a May 1, 2017 article flagging the other article. SCOTUS, the Chamber and others can take some of the credit for turning litigation into a global industry.
The economics of litigation continue to receive more attention. For example, an April, 29, 2016 post at CLS Blue Sky Blog brings news of a new litigation economics article by Albert H. Choi, the Albert C. BeVier Research Professor of Law at the University of Virginia Law School, and Kathryn E. Spier, the Domenico de Sole Professor of Law at Harvard Law School. The post builds on their recent paper, “Taking a Financial Position in Your Opponent in Litigation,” which is free on SSRN.
One part of the CLS article is pasted below; all parts deserve a read.
“We begin by analyzing a setting with symmetric information, where the plaintiff, the defendant, and capital market know all the relevant parameters, such as the size of the damages, cost of litigation, and the probability of plaintiff winning. By taking a short position in the defendant’s stock, the plaintiff can transform what would otherwise be a negative expected value claim into a positive expected value one. This, in turn, implies that more cases will be filed ex ante. While some of these claims may be meritorious and socially valuable, others may not be. Indeed, through a sufficiently short position, the plaintiff can credibly threaten to bring any suit to trial, even an entirely frivolous one where everyone agrees that the plaintiff’s chances of prevailing in litigation are (near) zero. Short selling improves the plaintiff’s bargaining power for positive expected value claims as well, leading to larger settlement payments by the defendant. Conversely, when taking a long position in the defendant’s stock, the plaintiff’s threat to go to trial and bargaining position are compromised. After presenting the basic results, we consider five extensions of the symmetric information analysis: (1) a less efficient financial market that is initially unaware of the lawsuit; (2) differential litigation stakes in which the damages that the defendant pays are larger than the plaintiff’s recovery; (3) the loser-pays-the-costs rule; (4) endogenous litigation cost, where the amount of resources spent on litigation depend on the stake; and (5) plaintiff risk aversion. We show, in particular, that the loser-pays-the-costs rule can function as an effective screening device that keeps plaintiffs from accumulating financial positions to file frivolous claims.”
John Biesner (of Skadden Arps) and the US Chamber of Commerce should be cheering today. Why? Because a litigation funding firm is backing a securities class action against Slater & Gordon, the publicly traded plaintiff’s firm which recently announced massive losses, apparently from lousy due diligence before purchasing a UK firm. The newest story is in a March 3, 2016 article at Global Legal Post.
Some of the irony here is that Mr. Biesner and the US Chamber of Commerce have been whining for years about litigation funding. The whining is amusing because litigation funding plainly was inevitable to see many years ago, and many US businesses love to use litigation funding, as described in a press release by Gerchen Keller, a very large Chicago based litigation funder. See this mini-review of some of my many posts on litigation funding. It will be interesting to see if there is any public cheering by any of the spin groups that are part of the many branches of the US Chamber of Commerce.
P.S. Here’s a small news blurb from today by the ILR arm of the Chamber. All it did was pick up the same article I saw. No cheering.
The litigation funding industry continues to expand. The punchline is pasted below; for more specifics, see the full April 27, 2015 article at The Global Legal Post :
“UK SME litigation funder Augusta Ventures has spent a further £3m in cases in the first quarter of 2015. Unlike other funders which focus on a handful of multi-million pound investments in big cases, Augusta invests between £10,000 and £600,000 in a broad range of largely commercial litigation matters.”
Chicago is now home to the world’s largest litigation funding source. It is Gerchen Keller Capital LLC. which just announced raising a new fund of $475 million, and that it and adjuncts have an additional $800 million under management. The new press release is pasted below. For even more color on Gerchen Keller and its people, there is an ancillary story in the Chicago Daily Law Bulletin.
For more global color on the broader topic of litigation funding, here’s a quick look back at some of the many posts on GlobalTort about litigation funding.
Remember all the way back in 2009, when RAND sponsored a conference on litigation funding? Back then, I said:
“Litigation funding is a topic I’ve mentioned before in a Corporate Counsel “special section “article and on this blog. The existence of material amounts of capital available for litigation funding is in my opinion a huge development in and driver for litigation of all kinds, ranging from intellectual property to securities class actions to mass tort personal injury claiming. Moreover, this trend is only going to accelerate as the UK’s legal reforms will soon (not later than 2011) allow direct outside investment in UK law firms.”
It’s not quite the rock star niche Dr. Hook described when he sang about the status achieved from appearing on the cover of Rolling Stone, but litigation funders Selvyn Seidel and Rick Fields did make the cover of American Lawyers’ supplement magazine, Litigation 2010. The related article is titled “London Calling, (paywall)” a reference to Messrs. Seidel and Fields leading litigation funding businesses which are public companies registered on the UK’s AIM market.
The article, by Richard Lloyd, is preceded by this teaser: “Two publicly listed funds are investing in early-stage commercial litigation. Is this the start of a revolution, or a sideshow for a few former Am Law 100 lawyers?”
The answer, in my view, is pretty plain. Over time, litigation funding will cause as much of a revolution as can possibly occur in the already massive litigation industry that is tied up in hundreds of years of precedent and balkanized legal systems. In saying that, I’ll admit to some possible bias because my professional life brought me into contact with both gentlemen, and Selvyn Seidel was kind enough to accept an invitation to speak at a litigation seminar I chaired last year in London.
Meanwhile, as 2014 progressed and Gerchen raised more money, the US Chamber of Commerce and some of its friends once again complained about litigation funding, even though plenty of companies love litigation funding as a way to hedge risks and take on cases that might otherwise not start or succeed.
Now back to 2015. Pasted below is the press release from Gerchen Keller. Not so many words, but they speak volumes about the present state of the litigation financing industry as an adjunct to the litigation industry.
“CHICAGO, Feb. 10, 2015 /PRNewswire/ — Gerchen Keller Capital, LLC (“GKC”) today announced the close of its newest private investment fund, GKC Credit Opportunities, LP, with more than $475 million in commitments. Together with its two litigation finance funds and other pooled vehicles, GKC has invested or manages more than $800 million in assets. GKC is now the world’s largest investment firm focused exclusively on legal and regulatory risk.
“As we continue to expand the suite of products we offer, we are grateful for the support of the institutional investor community and pleased by the strong demand from companies and law firms,” Chief Executive Officer Adam Gerchen said.
Using capital from its latest fund, GKC purchases legal fee, judgment, and settlement receivables in connection with litigation matters that are largely resolved—providing liquidity to companies and law firms that seek to monetize litigation proceeds or legal fees and recognize revenue immediately.
GKC also helps structure litigation settlements where the parties have differing cash flow needs—for example, providing a lump-sum settlement payment to a plaintiff while allowing the defendant to spread its settlement payments over time.
GKC already has invested more than $100 million in these post-judgment and post-settlement opportunities, in transactions involving organizations ranging from Am Law 25 law firms to closely held corporations.
“This new pool of capital continues our commitment to constant innovation in serving the legal community,” Managing Director Ashley Keller said. “Our range of capital solutions now includes traditional financing for litigation, arbitration, and transactional matters, as well as products to reduce appellate risk, protect against outsized liability, guarantee payment of adverse fee awards, structure settlements, and accelerate receivables.”
With the launch of its latest fund, GKC now provides capital at any point in the litigation process, with differing investment terms that correspond to the relative level of legal risk.
“From the complaint phase to the settlement table, our products help companies and law firms manage risk and stabilize cash flows,” Managing Director Travis Lenkner said. “GKC’s unique approach goes well beyond traditional ‘litigation finance.’ We are the market leader in providing creative, non-recourse solutions in connection with legal and regulatory processes.”
About GKC: Gerchen Keller Capital, LLC is the largest investment firm focused exclusively on legal and regulatory risk. GKC provides capital and other financing solutions to companies, law firms, and investment funds involved with or invested in complex litigation, arbitration, and transactional matters. Through various private vehicles, the firm has invested or manages more than $800 million in assets for family offices, financial institutions, public pensions, endowments, and foundations.
Media contact: Travis Lenkner, Managing Director, (312) 757-6073, firstname.lastname@example.org.
GKC is registered as an investment adviser with the Securities and Exchange Commission. This release is for informational purposes only. Nothing herein should be construed as a solicitation to offer investment advice or services. Information about investing in GKC-managed funds is available only in the form of private placement memoranda and other offering documents.”
More attention to the growing use of litigation funding. Another WSJ piece with small bits of new information on fund raising in progress. Also, a new post from Kevin LaCroix at D&O Diary adds some analysis of a recent N.D. Ill. opinion on discovery about litigation funding, as well as some of his own thoughts that seem to reflect grudging acceptance of a growing reality.
A new post at On the Case covers a new federal court ruling sustaining privilege claims involving communications with litigation funders, and includes links to several of the underlying documents. The article also covers a couple of prior rulings that went the other way.
A May 25, 2011 conference in London will bring together true industry leaders and legal thought leaders, including Justice Jackson. The agenda and registration are here for Maximising Opportunities in Litigation Funding.
Justice Jackson authored the leading report for the UK on litigation costs and funding. Background materials are here, as are links to the paper. Panel members will include Selvyn Seidel, a leader in this field.
The conference agenda is pasted below.
09:20 – 09:25 Chair’s opening remarks
- Jackson review: recommendations on third party funding
- What is the interaction between access to justice and third party funding?
- Considerations when accessing funding
- What funding options are available?
- What provisions should you expect to find in funding agreements?
- How to make use of funding to maximise fee income for your practice
10:45 – 11:00 Coffee
- David v Goliath – access to justice for SMEs
- Risk sharing
- Aggregating claims
Christian Stuerwald, Head of Underwriting, Calunius Capital LLP
Leslie Perrin, Chairman, Calunius Capital LLP
- Current issues and major developments
- Assessing the impact of Campbell v MGN
- Implications of ending the recoverability of success fees
- What does the future hold?
12:30 – 13:30 Lunch
- Potential risks for solicitors
- Eligibility requirements
- Interaction with third party funders
- When can contingency fees be used?
- The Ontario model
- Contingency fees vs. third party funding
- What are the implications of contingency agreements as a funding option?
- Funding investor-state arbitration
- Differences in risk profiles between arbitration and litigation
- Overview of arbitration funding
- Contingency fees in arbitration
15:20 – 15:35 Afternoon Tea
- Litigation funding and forum selection in Europe
- The Dutch model
- The German model
- Future trends in Europe
Rob Murray, Partner, Crowell & Moring LLP
Pierre Bos, Partner, BarentsKrans
Till Schreiber, Legal Counsel, Cartel Damage Claims
- How is the market going forward?
- What are the investment opportunities?
- Can third party funding be extended to the high-street?
Ross Clark, Underwriting Director, Firstassist Legal Expenses Insurance Limited
Selvyn Seidel, Chairman and Co-Founder, FULBROOK MANAGEMENT LLC
17:00 – 17:10 Chair’s closing remarks
Private litigation funder Burford Capital has just raised another $ 175 million to become the world’s largest private investor in litigation. Prior funds were raised through an IPO on AIM, as described here. The new round of funding is described here. A successful prior Burford investment is described here.
The world of public and private litigation is fascinating. Any bets on how long will it be before we see IPOs for litigation funds raised to target specific companies or specific industries ? By 2020 seems like a good bet to me, and that may well be longer than it actually takes.
Lord Gill’s report on civil justice in Scotland was issued on 30 September. The full report and the synopsis are available here. See below for some key excerpts from the synopsis.
“Multi‐party actions (Chapter 13)
The Report recommends that there should be a special procedure for dealing with multiple claims which give rise to common or similar issues of fact or law, for example, litigation arising out of a mass disaster or liability for defective products. Detailed recommendations are made regarding the features that such a procedure would have, including special funding arrangements for multi‐party actions to be administered by the Scottish Legal Aid Board (see paragraphs 64‐119).
The cost and funding of litigation (Chapter 14)
Detailed recommendations are made on the recovery of expenses. The cost of litigation should form part of the remit of the proposed Civil Justice Council for Scotland (see below); pending which the Scottish Government should set up a Working Group to look at the issue of expenses (paragraphs 50‐67).
While no recommendations are made on speculative fee arrangements pending the outcome of a review in England and Wales, it is recommended that this issue should urgently be addressed by the proposed Working Group on Judicial Expenses (see paragraphs 125‐127).
The Scottish Government should explore with insurance providers the scope for improving public awareness and increasing voluntary uptake of legal expenses insurance (see paragraph 140).”