An Introduction to a New Yet Old Funding Alternative (Series: Commercial Litigation Funding 101)

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Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
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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 the information it
publishes is accurate, Financial Poise™ makes no guaranty in this
regard.
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MEET THE FACULTY
Moderator:
Jeremy Waitzman – Sugar Felsenthal Grais & Helsinger LLP
Panelists:
David Spiegel – GLS Capital, LLC
Ken Epstein – Bentham IMF
Evan Fried – Greybridge Capital LLC
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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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ABOUT THIS SERIES:
Commercial Litigation Funding
The Litigation Funding 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 becomes 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.
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EPISODES IN THIS SERIES
3/13/19 Episode #1:
An Introduction to a New Yet Old Funding Alternative
4/10/19 Episode #2:
A Menu of Products for Investors and Lawyers
5/8/19 Episode #3:
Three Case Studies
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #1:
An Introduction to a New Yet Old
Funding Alternative
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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”

LEGAL DOCTRINES RELATING TO LITIGATION
FINANCE
⚫ Maintenance
⚫ Champerty
⚫ Barratry
⚫ Usury
⚫ Attorney-client privilege
⚫ Work product immunity

MAINTENANCE, CHAMPERTY AND BARRATRY
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.

⚫ 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.

(cont'd)
⚫ 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.

USURY
⚫ Historically, the lending of money with interest. Today, the
charging of an illegal rate of interest.

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.

ATTORNEY-CLIENT PRIVILEGE AND
ATTORNEY WORK PRODUCT IMMUNITY (cont'd)
⚫ 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.

TYPICAL LITIGATION FUNDING “PARTIES”
⚫ Plaintiffs
⚫ Attorneys and Law Firms
⚫ Investors

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

INTEREST BY PLAINTIFFS IN LITIGATION FUNDING
(cont’d)
⚫ 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

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

INTEREST BY ATTORNEYS AND LAW FIRMS IN
LITIGATION FUNDING (cont’d)
⚫ 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

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

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).

ATTORNEYS (cont'd)
➔ 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).

ATTORNEYS (cont'd)
⚫ 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

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

LITIGATION FUNDING: SUPPLY AMONG
INVESTORS (cont’d)
➔ 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

LITIGATION FUNDING: SEGMENTATION
⚫ Consumer vs. Commercial Funding
⚫ Early vs. Late Stage Funding
⚫ Domestic vs. International Funding
⚫ Funder Structures
⚫ Attorney Characteristics

RISKS 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

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

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

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

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

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).

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

POTENTIAL RISKS 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

INVESTMENT STRUCTURE TYPES
⚫ Single case
⚫ Portfolio
⚫ Others- Loans, “insurance like” products, factoring

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

ABOUT THE FACULTY
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JEREMY WAITZMAN – jwaitzman@sfgh.com
Jeremy Waitzman advises his clients on significant transactions and operational issues in their
businesses. Described by clients as “an essential business advisor” and “a partner in the success of
my business,” Jeremy has substantial experience representing businesses of all types and sizes from
inception, guiding them through significant growth, and often through ownership’s exit. His clients
include privately-held middle market and emerging growth companies, family offices/funds,
investors, C-level executives, boards of directors, family-owned businesses and entrepreneurs.
Jeremy counsels clients in the areas of corporate law, mergers & acquisitions, private placements,
general contract law and often acts as outside general counsel for his clients. Jeremy represents
individuals, closely held businesses, start-up companies and serves as outside counsel to several
large corporations. His work with companies often includes strategies for creation of enterprise
value.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/jeremy-waitzman/
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DAVID SPIEGEL – dspiegel@glscap.com
David Spiegel is co-founder and Managing Director of GLS Capital, LLC. At GLS, David leads
commercial litigation and arbitration-related investing, where is responsible for originating,
underwriting, and structuring litigation finance investments. He focuses on claims relating to
breach of contract, fraudulent conveyance, antitrust, judgment enforcement, and investor-state
arbitration, among others. David is a former Principal at Gerchen Keller Capital, LLC, where built a
team that underwrote investments at all stages of litigation and arbitration, from pre-complaint to
post-settlement. David held the same position at Burford Capital after its acquisition of GKC. He
also has been retained as a testifying expert in high-profile disputes regarding the valuation of
litigation assets. Prior to GKC, David was a litigation associate in the Chicago office of Kirkland &
Ellis LLP. David holds a J.D. from the University of Pennsylvania, an MSc from the London School
of Economics, and a B.A. from Northwestern.
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KEN EPSTEIN – kepstein@benthamimf.com
Ken Epstein is an investment manager and legal counsel at Bentham IMF, responsible for leading
the company’s investments in bankruptcy and insolvency-related matters. He serves as a resource
for debtors, creditors (including hedge funds, private equity funds and alternative asset managers),
bankruptcy estate representatives and other stakeholders seeking to maximize the value of litigation
claims.
Ken has extensive experience advising and managing debtors-in-possession, individual creditors
and creditor groups (ad hoc and UCC’s) and financial institutions in insolvency and bankruptcy-
related litigation matters nationally and internationally. He began his career as a lawyer in the
financial restructuring group of Cadwalader, Wickersham & Taft. Prior to joining Bentham IMF, he
was managing director in the restructuring and remediation group at MBIA, a publicly listed
financial institution.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/ken-epstein/
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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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QUESTIONS OR COMMENTS?
If you have any questions about this webinar that you did not get to ask during
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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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