Litigation funding is an increasingly-popular tool for attorneys and clients to share the risk and reward of litigation with third-party investors, and for investors to capitalize on the uncorrelated returns generated by legal-driven revenue. This webinar is intended to provide an overview of the topic generally, touching on the “who,” “what,” “where,” “when,” “why” and “how’s” behind litigation funding.
To view the accompanying webinar, go to:https://www.financialpoise.com/financial-poise-webinars/an-introduction-to-a-new-yet-old-funding-alternative-2021/
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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.
3. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Evan Fried - Greybridge Capital LLC
PANELISTS:
Dai Wai Chin Feman - Parabellum Capital
Christopher Freeman - Burford Capital
Jeffery Lula - GLS Capital, LLC
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6. About This Webinar
An Introduction to a New Yet Old Funding Alternative
Litigation funding is an increasingly-popular tool for attorneys and clients to share the risk and
reward of litigation with third-party investors, and for investors to capitalize on the
uncorrelated returns generated by legal-driven revenue. This webinar is intended to provide
an overview of the topic generally, touching on the “who,” “what,” “where,” “when,” “why” and
“how’s” behind litigation funding.
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7. About This Series
Commercial Litigation Funding 101
This webinar series discusses advanced topics in the field of litigation funding. Once a fledgling
industry predominantly used in the Commonwealth nations, litigation funding has over the past ten
years become a well-accepted and prevalent practice in the United States. As the industry has
evolved, so too have the menu of available products, strategic decisions made by funders and
practitioners, and types of investors. This three-part series is geared towards educating attorneys
and clients on legal/ethical, strategic, and business decisions when considering litigation funding,
and investors seeking to learn about an increasingly mainstream asset class. Panelists include
preeminent experts in the field of litigation funding, including academics who have written on the
topic, investment managers at preeminent litigation funders, litigators who have used funding
products, and independent litigation funding advisors.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: An Introduction to a New Yet Old Funding Alternative
Premiere date: 3/11/20
#2: A Menu of Products for Investors and Lawyers
Premiere date: 4/8/20
#3: Three Case Studies
Premiere date: 5/6/20
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10. Litigation Funding: A Broad Definition
Litigation or legal funding is the “funding of litigation activities by entities other than
the parties themselves, their counsel, or other entities with a pre-existing
contractual relationship with one of the parties.”
Source: American Bar Association Commission on Ethics 20/20, “White Paper on Alternative
Litigation Finance”
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11. Legal Doctrines Related to Litigation Finance
Maintenance
Champerty
Barratry
Usury
Attorney-client privilege
Work product immunity
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12. Maintenance, Champerty, and Barraty Defined
Maintenance: an arrangement where a party supports another to enable him or her to
further a legal claim.
Champerty: a type of maintenance, where an unrelated party strikes a bargain with a
litigant to financially support the litigation in return for a share of the proceeds from that
claim.
Barratry: the encouragement of another to bring or continue a claim.
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13. Maintenance, Champerty, and Barraty
In medieval England, maintenance and champerty was used by the elite as a means of
settling scores. Feudal lords and other privileged members of society would support
legal disputes of others against the funder’s personal or political enemy. Most colonies
that imported their laws from England passed laws designed to protect litigants from
“officious intermeddling” and profiteering from the sale of legal claims to third parties.
Today, the modern view is to permit maintenance, champerty and barratry as these
doctrines are predominantly viewed by the courts as obsolete since other effective
means of controlling abuses of the legal system exist.
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14. Maintenance, Champerty, and Barraty
The American civil justice system increasingly recognized that access to justice
depends upon the broad availability of legal representation for all socioeconomic levels.
The public policy for increasing access to the legal system for those that could least
afford it overrode the concerns underlying the medieval doctrines in many states.
According to the modern view, widespread exceptions to these doctrines recognize that
financial considerations often influence access to justice. Most states now permit
maintenance, champerty and barratry as they refuse to void contracts based on these
outdated doctrines.
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15. Usury
Historically, the lending of money with interest. Today, the charging of an illegal rate of
interest.
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16. Attorney-Client Privilege and Attorney Work
Product Immunity
The attorney-client privilege is a legal concept that protects certain types of
communications between attorney and client from disclosure to the opposition. Work-
product immunity protects materials prepared by attorneys and third parties in
anticipation of litigation from discovery.
Issues regarding the waiver of the attorney-client privilege apply to only a small class of
information. The privilege applies only to communications between a client and the
attorney, not any communication about the lawsuit. The client is free to tell a prospective
funder anything other than what the client communicated to the attorney, without
waiving the privilege. An investor can expect to receive substantial information from the
plaintiff about the claim without ever creating waiver problems.
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18. Interest by Plaintiffs in Litigation Funding
Allows plaintiffs with financing issues to bring meritorious cases by financing litigation
expenses
Provides for capital injections for existing cases without sufficient funding
Reduces the risk of a settlement for less than cases are worth
Allows business plaintiffs to continue to use cash for working capital rather than litigation
expenses
Allows individuals to not divert personal funds
Permits companies to maintain performance on balance sheets by excluding litigation
costs
Permits greater access to top legal representation
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19. Interest by Attorneys and Law Firms in Litigation
Funding
Expands scope of potential clients who otherwise could not afford their fees
Allows third party (rather than law firm) capital for litigation expenses, including expert
witness fees
Provides funding source so clients will not run out of money during litigation
Allows attorneys to offer different types of flexible payment arrangements to
prospective clients
Provides funding for plaintiffs’ working capital and personal expenses, potentially
resulting in other types of legal work
Permits recoveries that are more in line with case merits and damage
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20. Interest by Investors in Litigation Funding
Access to new type of investment and asset class
Investment is uncorrelated to capital markets
Historical returns tend to be outsized compared with other alternative asset classes
Liquidity timeframe is typically more moderate as opposed to other alternative
investments
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21. Litigation Funding: Demand Among Attorneys
Two typical justifications:
Solves pressures of high cost of litigation:
“Protracted discovery is expensive and is a drain on the parties’ resources. Where a
defendant enjoys substantial economic superiority, it can, if it chooses, embark on a
scorched earth policy and overwhelm its opponent.” Miller v. Caterpillar 17 F.Supp.3d
711 (N.D. Ill. 2014).
Provides access to justice:
“There is a proliferation of alternative litigation financing in the United States, partly due to
the recognition that litigation funding allows lawsuits to be decided on their merits, and
not based on which party has deeper pockets or stronger appetite for protracted
litigation.” Lawsuit Funding LLC v. Lessoff, 2013 NY Slip Op 33066(U) (Sup. Ct. N.Y.
County December 4, 2013).
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22. Litigation Funding: Demand Among Attorneys
Less obvious, more practical considerations:
Heightened scrutiny of outside legal bills and price competition by law firms
Increased prevalence of alternative fee arrangements among BigLaw firms
Post-recession proliferation of new litigation boutiques who require capital
Increasing curiosity about tax benefits of litigation funding
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23. Litigation Funding: Supply Among Investors
As the legal funding market has matured, investors have flooded the market:
Attracted to returns that are uncorrelated to the debt and equity markets
Asset manager have generated outsized returns, often in excess of 25% IRR
Growing deal size and asset pools has attracted major institutional investors
Increased deal flow means opportunity for diversification
Entrance of institutional investors means more competitive cost of capital
Opportunity to allocate that fits particular risk-reward parameter of investor
Increased deal flow means opportunity for diversification
Entrance of institutional investors means more competitive cost of capital
Opportunity to allocate that fits particular risk-reward parameter of investor
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24. Litigation Funding: Segmentation
Consumer vs. Commercial Funding
Early vs. Late Stage Funding
Domestic vs. International Funding
Funder Structures
Attorney Characteristics
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25. Risk to Industry Generally
Oversaturation of parties chasing returns
Availability of “good” investments
Change of tax laws
Mandatory disclosure of litigation funding arrangements
Legislation
e.g. Ethics Opinions (e.g. NY City Bar Association 2018 opinion) becoming
binding law
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26. Metrics for Analysis: Risk
“Risk” is the probability of occurrence of losses relative to the expected return on any
particular investment
Litigation is an inherently risky underlying investment
Risk varies dramatically based on type of litigation -- e.g., contract, intellectual
property, antitrust
Litigation risk is not constant, but rather fluctuates based on litigation
developments
Sellers may own diversified litigation risk, depending on the circumstances
Risk also includes headline and regulatory risk
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27. Metrics for Analysis: Use of Proceeds
“Use of Proceeds” -- will refer to how the funded party (the plaintiff or the attorney)
intends to use the legal funding
Proceeds may be used for direct litigation costs, i.e., attorneys’ fees and/or costs
“Hard costs” includes discovery costs, experts’ fees, filing costs; basically
anything other than attorneys fees
Funding arrangements may be used for non-litigation needs, such as operational
needs of plaintiff or so that plaintiff can recognize revenue
In other situations, attorneys may seek funding for use across firm-wide activity,
not just one specific litigation
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28. Metrics for Analysis: Alignment
“Alignment” is the extent to which investor and investee have parallel incentives:
Popular new “buzzword” in investing world
Investors’ desire to protect downside by not dis-incentivizing funded party
Protection against information asymmetry between buyer and seller
Preserve upside in high-end, best-case scenarios
Create opportunity for recurring or repeated business
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29. Metrics for Analysis: Cost of Capital
“Cost of Capital” is the required rate of return on a portfolio’s existing securities
Used to evaluate new projects of an investor
Minimum return investors expect for providing capital--thereby setting a
benchmark
Impacts the types of investments palatable to institutional investors
Impacts the “pricing” of individual funding products offered by funder to clients
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30. Metrics for Analysis: Fee-Splitting Doctrine
• Model Rule 5.4(a) (“Professional Independence of Lawyer”):
“A lawyer or law firm shall not share legal fees with a nonlawyer …”
New York Courts have interpreted such prohibition as permitting attorneys to share
with a “percentage of … gross revenue” to the law firm, so long as (i) it is tied to more
than one case and (ii) ultimately signifies a capped multiple of investment, and not an
equity percentage of any given case. See Hamilton Capital VII, LLC, I v. Khorrami
LLP, 48 Misc.32 1223(A) (Sup. Ct. N.Y. County Aug. 17, 2015).
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31. Metrics for Analysis: Funded Party Profile
“Funded Party” -- for purposes of this presentation -- will refer to the party, i.e., the
attorney or the plaintiff, who receives funds from the Litigation Funder
Decision is driven by a variety of factors
Volume and diversification of litigation risk owned by Funded Party
Appetite for risk-sharing by the Funded Party
Willingness to contribute additional collateral to funding arrangement
Legal/ethical considerations--including champerty and attorney fee-splitting
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32. Potential Risk for Funded Party
Change in perception of value of dispute given the need to split proceeds
Real or perceived pressure from third party funder (notwithstanding contractual
restrictions on interference)
Adequate representation in the context of non-law firm Funded Party
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34. Return Structure
Typically involves some kind of waterfall where capital outlays are returned followed by
some metric of additional return
Return metric could be tied to some kind of multiple or percentage or calculated based
on an internal rate of return
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36. About The Faculty
Evan Fried - efried@grbridge.com
Evan Fried is an attorney who has worked in litigation finance since 2007. He is currently a
Principal at Greybridge Capital LLC, a commercial litigation funding outfit, and Slarskey LLC,
a boutique commercial litigation firm. Mr. Fried was previously a partner at 1624 Capital, a
specialty finance company focused on investments in technology/intellectual property
litigation. He has written and spoken on ethical considerations of litigation finding. Mr. Fried
began his career in the New York office of Winston & Strawn LLP and a family office that was
an early player in litigation finance. Mr. Fried received his J.D. from New York University
School of Law and his B.S. in Industrial and Labor Relations from Cornell University.
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37. About The Faculty
Dai Wai Chin Feman - daiwai@parabellumcap.com
Dai Wai is responsible for the development and execution of Parabellum’s commercial litigation
investment strategies. Prior to joining Parabellum, Dai Wai was a litigation partner at Dorsey & Whitney
LLP, where he specialized in commercial and antitrust litigation. Dai Wai has broad experience in
complex disputes concerning breaches of contract, competition, tortious interference, trade secrets,
restrictive covenants, licensing, rights of first refusal, shareholder oppression, soft intellectual property,
and securities. He has advised and represented clients ranging from Fortune 100 companies to closely-
held family businesses through all phases of litigation, from case assessment through trial, appeal, and
enforcement proceedings. While in private practice, Dai Wai was named a Super Lawyers Rising Star in
Business Litigation for four consecutive years. Dai Wai received his A.B., cum laude, from Georgetown
University and his J.D. from New York University School of Law. He is active in the Asian American Bar
Association of New York, where he is a board member, Vice-Chair of the Judiciary Committee, and
former Co-Chair of the Litigation Committee. He is also a Fellow of the New York City Bar Association
Leadership Council on Legal Diversity, a member of the New York City Bar Association’s Litigation
Funding Working Group, and a member of the New York City Bar Association’s Professional Ethics
Committee.
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38. About The Faculty
Christopher Freeman - CFreeman@burfordcapital.com
Christopher Freeman is a Vice President with responsibility for assessing and underwriting
legal risk in patent matters. As part of Burford’s investment team, Christopher evaluates
intellectual property cases and patent monetization campaigns and crafts investment
structures that align incentives between funder, law firm and claimant. Prior to joining Burford,
Christopher was Vice President and Head of Litigation at Blackbird Technologies, a company
he co-founded in 2014. At Blackbird, Christopher oversaw all business operations and
successfully built and managed one of the most prominent patent acquisition and licensing
entities in the US, growing the firm to a dozen employees and a portfolio of over 100 patents
and applications. Earlier in his career, Christopher was an IP partner at Kirkland & Ellis and
practiced at Latham & Watkins and at Quinn Emanuel. Christopher graduated from the
Boston University School of Law and earned an undergraduate degree from Northwestern
University in Industrial Engineering and Economics.
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39. Jeffery Lula - jlula@glscap.com
Jeffery Lula serves as a Principal at GLS and is responsible for due diligence and monitoring of commercial
litigation and arbitration-related investments.
Prior to joining GLS, Jeff was a litigation partner at Kirkland & Ellis LLP in Chicago. During his nine years at
Kirkland, Jeff’s practice focused on a wide variety of complex commercial litigation, including contract
disputes, bankruptcy litigation, corporate mismanagement, fraudulent transfer litigation, and insurance
litigation. His experience extends to all stages of litigation and appeal, and he also counseled clients during
internal investigations prior to litigation or arbitration. He has represented clients in a variety of fields, including
private equity firms, insurance carriers, and large Chapter 11 debtors.
Jeff holds a J.D. from the University of Chicago Law School, where he served as an Articles’ Editor of the
University of Chicago Law Review, and a B.S. from University of Illinois.
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About The Faculty
40. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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41. About Financial Poise
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