Although litigation funding is a billion-dollar industry, it is a comparatively new form of arrangement in the legal sector. This sector is not regulated in most states, and the courts of law have also favored the arrangement for its contribution to easy access to justice. 

However, unlike other courts, the Chief Judge of Delaware, Colm F. Connolly, has passed a directive to regulate the litigation funding industry and held that the parties involved in litigation funding arrangements would have to disclose the terms and conditions of the contract. 

In a recent development, the Delaware Chief Judge has summoned personal injury attorney Jimmy Chong, William P. Ramsey of Texas IP litigation firm Ramey LLP, Andrew Curfman of Ohio IP law firm Sand, Sebolt, and Wernow LPA to appear before the court, to investigate whether the parties involved in the concerned cases have disclosed the required information as mandated by the Delaware Chief Judge in its April judgment regarding the litigation funding arrangements.

The honorable Judge has ordered lawyers to disclose all documents, including contracts, term sheets, correspondence, emails, notes, and other agreements signed between the parties to obtain funding. 

Other Funding Disclosures

In the court proceeding, a lawyer told the court that he represents clients Missed Call LLC and Safe IP LLC on a recourse basis; in this arrangement, the borrower is bound to repay the loan irrespective of the outcome of the case in the court. Similarly, Ramey LLP submitted details of non-recourse funding, which have to be repaid only if the case is decided in favor of the borrower.

After taking into consideration the submissions of both parties, Connolly expressed his apprehensions and stated that the plaintiffs had violated the court’s standing order on third-party litigation funding arrangements. In furtherance, the Delaware court will summon the clients of Chong, including Mellaconic IP LLC and Lamplight Licensing LLC, which have filed infringement of patents against Ingram Micro, ABB, and timesheet management companies Timeclock Plus LLC.

Reasons behind the litigation funding investigation in Delaware

Joshua Landau, patent counsel at the Computer and Communications Industry Association, believes that the respected Judge is invested in litigation funding because Plaintiff, who has entered into a financial arrangement with third-party funders, may behave differently in the court.

However, it has not been witnessed that third-party lenders undue influence the plaintiff and make substantial decisions regarding the case, and the plaintiff has to abide by the dictates of these companies as they receive funding from the same. Funding companies have no interest in telling law firms how to do their job due to the high risks of losing the case and not getting paid.

Delaware is one of the few states that mandated the disclosure of funding arrangements. Along with Delaware, the Northern District of California, and the District of New Jersey, have also mandated the disclosure of financial arrangements between relevant parties and litigation funding companies. 

But in most cases, such as in a patent case, East Texas Judge Rodney Gilstrap was presented with the request for disclosure, but the respected Judge refused to allow the discovery into litigation funding arrangement and declared it irrelevant to the case. 

It is hoped that the court of law will adopt a practical approach and recognize the important contribution of litigation finance for ensuring easy access to justice.

Legalizing third-party funding in Ireland

The government of Ireland has introduced a bill in the parliament to give legal cover to third-party funding in international arbitrations. The proponents of the bill argue that allowing funding for international arbitration will positively contribute to the country’s economy, and it will help Ireland remain competitive and emerge as a hub for international arbitration. 

Although Ireland is making positive developments, it has yet to catch up if we compare Ireland to other common-law countries. For instance, in the United Kingdom, the courts of law have made an essential contribution in this regard, as case laws have recognized lawsuit funding for arbitration and litigation specifically. 

A restrictive approach toward third-party funding

The analysis of the precedents of courts of law in Ireland indicates, however, that they have adopted a restrictive approach towards third-party funding. For example, in a case back in 2019, unfortunately, the Supreme Court held that the doctrines of champerty and maintenance prohibit any third-party funding in Ireland. However, later on, the court decided that if the legislative assembly enacted any law and changed the provisions related to champerty and maintenance, they would follow the enactment.

This decision indicates that the court of law is ready to accept any change in the law concerning third-party funding in Ireland, as long as it is via parliament and not through a court precedent.

How will Ireland move forward with third-party financing?

If the legislative assembly of Ireland legalizes third-party funding, the court could remain relevant. While considering the question of third-party funding, though, the courts of Ireland can look up to the court cases of other common law countries. Some countries have made changes recently, concluding that lawsuit funding applies not only to international arbitration but also to domestic arbitration.

The UK is one example of this change, which has adopted a positive attitude towards third-party funding. 

Regulations on Third-Party Funding

If Ireland’s legislative assembly passes the bill and gives legal recognition to third-party funding, the question of regulation of the funding companies will arise. While formulating regulations, Ireland can look up to different approaches adopted by different countries, such as the UK.

Overall, rules made by some other countries indicate that the presence of specific legislative instruments that won’t hurt the investors can give the ability to control the growth of the funding industry while protecting those behind the scenes. While in the US and the UK, there is no specific legislation to regulate third-party funding, with time, things will unfold, and we can witness the approach of Ireland concerning third-party funding, including more growth nationally and internationally.

Oasis Financial is a recognized litigation funding firm that enters into financial arrangements with clients (mainly plaintiffs) by providing financing during the pendency of the case to cover their medical bills and financial liabilities. In return, the parties to the case agree to repay a specific percentage of the settlement amount. 

Previously, there was a disagreement between Mississippi and the funding company, and the state believed that settlement funding contradicted the Mississippi statutes covering worker’s compensation claims.

In the public statement, the attorney general acknowledges the important role lawsuit funding companies play in ensuring access to justice. The statement quoted, “We do not dispute that the type of services Oasis and similar companies offer can be a big help to a family awaiting a legal settlement while medical or other bills pile up.” As part of the settlement, 1 million USD will be put into a settlement fund, of which approximately 2,225 Oasis’ Mississippi workers’ compensation clients will receive payments. In order to distribute payments, the eligible individuals will be contacted and receive a Notice of Settlement and Claim Election Form via USPS at their addresses notified to the Oasis records. 

The individuals receiving the notice of payment will have six months to respond and opt into the settlement fund. Additionally, the funding company will forego collection of any amounts currently owned by 529 Mississippi clients with a claim for the benefits under the Mississippi Worker’s Compensation Act. The relevant worker’s comp individuals will be informed by sending a notice of the forgiveness of their obligation in the mail. 

As part of the settlement with the Attorney General, the company has agreed to refrain from providing legal funding to individuals having claims under the Mississippi Worker’s Compensation Act in the future.

Although it is a positive development, the concentration of power in one company can have negative consequences. The legislative instruments of all countries provide freedom of trade and business and encourage competition in each sector so that consumers can choose from multiple options.

In order to protect their interest, the economic giants’ employed different means to restrict the growth of their competitors and prevent fair play. Due to the enormous supply of funds, it is next to impossible for a consumer or small corporate entity to challenge the monopoly of these economic giants. 

The litigation funding agreement with a consumer rights advocate

In these bleak circumstances, litigation funding companies have emerged as the light at the end of the tunnel. These companies provide financing to consumers and small corporate entities to pursue their meritorious disputes against the economic giants and ensure fair play for all. 

In a recent development, Litigation Capital Management Ltd, a litigation funding company that specializes in dispute financing solutions internationally, has decided to enter into an agreement with a consumer, Julie Hunte, who has filed a claim against Amazon for engaging in anticompetitive conduct in the UK market.

Julie Hunter is a consumer rights advocate and proposed class representative. She claims that Amazon and some entities within the Amazon Group have engaged in anticompetitive conduct and misused its power in the online market to consolidate its monopoly and create hurdles for others. Furthermore, she states that the alleged conduct of Amazon violated section 18 of the Competition Act of 1998 and Article 102 of the Treaty on the Functioning of the European Union.

In a public statement, the CEO of LCM, Patrick Moloney, commented, “We are pleased to enter into this new litigation finance agreement, which represents another important step as we grow our position as a leader in disputes funding in the UK market.”

What does this all mean?

 According to Julie Hunter, Amazon used its power in the online market in a way that made it harder for other companies to compete. She thinks that Amazon did this to become even more powerful and have control over the market. Furthermore, Hunter believes that Amazon went against the law where companies shouldn’t use their power to harm competition.

The importance of litigation finance

This announcement of funding by the litigator funder to the Consumer Right advocate against Amazon has received positive responses from different sectors. 

This announcement reflects the critical role litigation finance can play in the future to support consumers and small entities to pursue their claims against dominant companies. Without funding from litigation funders, these companies may not be able to pursue their claims and highlight the violations committed by dominant companies in the marketplace.

After looking into the party’s arguments, the honorable district Judge pronounced that the disclosure of information by the lawyer about his relationship with a judge violated the principle of conflict of interest, which amounts to a severe breach of duty. 

Considering the severity of the violation, the Honorable Court has imposed a penalty on the lawyer, and he will have to pay 1.2 million dollars to the litigation funding company as an award.

The case

In litigation funding arrangements, third-party funding companies provide capital to claimants and law firms during the pendency of a trial or claim in exchange for a specific percentage in the settlement or the jury award. 

According to reports, Law Funder LLC V Munoz was a case of malpractice. Law Funder LLC, the victim, was a client of Texas-based attorney Sergio Munoz Jr., owner of “The Law Offices of Sergio Munoz Jr., P.C., located in Edinburg, Texas. 

The funding company invested in a case that Munoz was litigating. However, Munoz did not disclose that he had a business relationship with Judge Jesse Contreras presiding in the case in which Contreras was a co-principle in professional cooperation with Munoz. As part of a litigation finance agreement between the funder and the attorney, the lawyer is bound to disclose any information which may fall in the ambit of a conflict of interest in the case invested. Nevertheless, the attorney failed to disclose this information and deliberately concealed that he had a working relationship with a Judge who was presiding over the claim they invested in.

During the proceeding, when the relationship between the attorney and the concerned judges surfaced, the Judge was removed from the case, and another judge was appointed as his replacement. 

Similarly, the litigation funder also withdrew from the proceedings because they could not pay to start over again. After the relationship information was revealed, the funders filed a suit against Munoz. 

After hearing both sides, The District Judge imposed heavy penalties on Munoz and held that Munoz’s law firm must return over a million dollars to the litigation funder plus over $21,000 as fee forfeiture.

Military combat is going on for months now, and the innocent citizens of Ukraine are facing the brunt of the crisis. Hundreds of thousands of individuals are forced to flee from their homes and take refuge in neighboring countries to ensure the security of their lives. 

In response to the attack, the Western alliance has imposed sanctions on Russian banks, Oligarchs, and Russian business entities. Due to this, billions of Russian assets have been frozen in the western economies. In this context, lawyers led by McCue Jury & Partners and Mishcon de Reya LLP are seeking funding from third-party litigation finance companies and hedge funds to file a lawsuit against these sanctioned Russian individuals and companies.

The group of lawyers leading this initiative called themselves “the Ukraine Justice Alliance”. They are approaching Hedge funds, family offices, and litigation finance firms to seek funding to file legal claims against the sanctioned Russians. They intend to use the proceeds of the lawsuit to compensate Ukrainians for the losses incurred in the war, and the investors will receive a share of any successful claims. The initiative has the potential to release as much as 1 trillion dollars, but it will be a very complex and lengthy process.

The initiative is also unprecedented, due to which many investors are reluctant to provide these loans and undertake the extremely high risk. Around 20 sanctioned Russians have approached the European court to overturn government sanctions adding complexity to the matter.

The lawyers associated with Ukraine Justice Alliance have identified $200 billion in assets to go after, and they are optimistic about the outcome. McCue Jury and Partners claim that the initiative is for ordinary people and to help the Ukrainians affected by the war. Filling a civil claim to secure financial compensation for these victims is not without precedent.

The coalition of lawyers pursuing this case is adopting different means to collect funds. After approaching litigation funding firms and hedge funds, they are also working on a crowdfunding platform to raise capital from individuals who could receive a return if the claims are successful.

However, their primary target is still litigation funding companies, and they are hopeful of receiving funding from these lenders to pursue claims against the sanctioned Russian individuals and companies.

Ryval brings a new concept to the judicial system that aims to ensure access to justice in a more convenient way by providing capital to claimants with meritorious claims, irrespective of their financial status. According to this concept, the members of the general public may buy an interest in a lawsuit, just like individuals can buy shares in any company.

Kyle Roche was interviewed by Vice author Maxwell Strachan and explained the purpose of launching the startup. He explained that litigation is a costly business, and clients have to pay court fees and attorney fees, collect evidence and pay for expert witness testimonies. Due to high costs, claimants with meritorious claims are unable to pursue their cases and back off, which is detrimental to the justice system. In order to encourage claimants to pursue their claims, it is imperative to ensure access to justice affordable. Hence, Ryval was conceptualized to fill the gap and remove the hurdles in the administration of justice.

Kyle Roche also explained the business model. According to him, the law firm will examine the merits of lawsuits and tell the stories of the claimants to the general public. 

If people are convinced by the facts of any lawsuit, they can invest and provide funding to the claimant to pursue their case. All investors funding these lawsuits will get an interest or share of the proceeding of the respective case. Hence, if a lawsuit is successful, the individual who invested in the case will get their shares. 

According to the company, this method will be beneficial for both the funders as well as the claimants. They say it will enable the claimants with convincing claims to pursue their case without worrying about financial restraints, and it will enable the general public to have a share in a lawsuit and contribute to the administration of justice within their jurisdictions. 

Kyle Roche’s law firm has been involved in a multi-billion-dollar lawsuit against different crypto and other digital currency exchanges and issuers of certain initial coin offerings (ICO) tokens. His law firm has also successfully won $100M against Craig Wright. With such a tremendously successful track record, he is optimistic about the success of his initiative. Furthermore, Roche has experience handling very expensive lawsuits and has been successful in many, which may likely contribute to his success in the new launch.

In the interview, Roche explained that Ryval will be selective in terms of claims and will only offer shares in potential claims with merits. He also explained the ongoing lawsuit of Apothio, LLC v. Kern County. In this case, hemp producer Apothio has filed a case against Kern County, California, and alleged that the state officials were involved in the wholesale destruction of crops, which are estimated to be worth between $500M to $1B. But the County destroyed the crop without providing any justification or warning to the claimant. All of these plaintiffs were not given the opportunity to be heard, which is a basic fundamental right. Hence, Apothio has filed a case against the County.

Baker Street Funding is not involved in any of the mentioned above investments. This news article is for informational purposes only.

In these financing arrangements, litigation funding companies provide upfront capital to plaintiffs and law firms against the proceeds of their legal claims. In turn, law firms and plaintiffs offer the funding company a particular percentage of the settlement award only if the case is won. 

In recent times, many law firms have entered into agreements with the funding companies, and it was considered a win-win proposition for the legal fraternity, as they were entitled to receive money during the pendency of the case and liable to pay it if the case is successful and the court pronounce monetary recovery. 

However, a recent dispute between Woodsford Group Ltd., a prominent litigation funder, and Hosie Rice, a law firm, indicates that the arrangement is more complex and ambiguous.

Hosie Rice is a San Francisco-based law firm run by a husband and wife, Spencer Hosie and Diane Rice, respectively. They have represented patent owners in disputes with big tech giants, including Google Inc., eBay Inc., Microsoft Corp., and Mastercard. The data published on their website indicates that the law firm has obtained verdicts worth over 2 billion dollars. Whereas Woodsford was founded in 2010, and with time, it has emerged as a respected litigation funding company.

The issue at hand

Hosie Rice entered into a contract with Woodsford in early 2018. They accepted funding for a group of cases they were handling on a hybrid basis—according to which the law firm will receive discounted hourly fees from their clients but also have a contingency agreement giving them a stake in any settlement or verdict. 

Hosie Rice argues that the financial arrangement with Woodsford provided that the funder would be entitled to receive contingent fees from the settlement along with an interest rate of 26 percent.

The contract worked for the first tranche, but the issue arose in 2019 when Hosie Rice had a conflict with their client Space Data, in which the law firm filed a case against Google on behalf of the client. In arbitration, the law firm pursued 5.2 million dollars in unpaid hourly fees from Space Data along with contingency payments of $1.3 million. In January 2020, the arbitrator held that Space Data owed Hosie Rice up to 4 million dollars of its fees, but it refused to grant any additional contingency award. 

The law firm won its case while defaulting on the litigation loan

Moreover, Woodsford claimed a share in the settlement, but the law firm insisted that they were not entitled to repayment as the contractual arrangement provides that the funder will be entitled to share in contingency payment and not the hourly fees. As the arbitration award has not granted any contingency amount, Woodsform would not get repaid for its loan.

The conflict between Woodsford and Hosie Rice landed with a panel of three arbitrators, in which the representatives of Woodsford argued that they had provided significant funding to the law firm and were entitled to repayment. Whereas the law firm argued that the funder is entitled to contingency fees only and not the hourly fees, and the arbitration award with the client has refused to grant any contingency fees; hence they are not liable to pay any amount to the funder. 

The decision

The panel of three arbitrators decided the case in favor of the litigation funder. It rejected the law firm’s arguments and passed an award that held that the funder was entitled to receive 1.8 million from the law firm. The law firm has challenged the arbitration award in the Delaware court.

This is not the first time a dispute has arisen between litigation funding companies and law firms over defaulting on non-recourse advances. Courts respect arbitration and, in most cases, uphold and enforce the award pronounced by the arbitrator. Therefore, it is very unlikely that the Delaware judge will overturn the arbitration award passed in favor of the litigation funder.

He is reported to have the ownership of a shooting estate in the Lake District, a ski hotel, and a motor boat, which is a manifestation of his excessive and extravagant lifestyle. 

The facts of the case, reported by different news outlets, indicate that Schools set up Axiom Legal Financing company in the year 2009 to provide loans to law firms pursuing no-win-no-fee cases, and using this strategy, he built about £100 million (or 121 million dollars) from 500 investors. 

($1 = 0.8249 pounds)

When the irregularities in the business became eminent, the fund was suspended, and Schools were struck off in the year 2014. Law enforcement agencies and other relevant stakeholders had proved allegations framed against Schools, and he was convicted in August in the fraud case.

According to an SFO update, the investors who provided funding were told that their loans would be used to provide funding to a portfolio of cases that have greater probabilities of success across several firms. Later on, it was found that 40 million pounds were paid to just three firms, which were either owned by School or he held an undisclosed interest in them. 

These loans were then siphoned off to Schools, who paid himself more than 1 million pounds in salary in addition to other benefits accrued from the money. The former litigation funding solicitor earned around 19.6 million pounds from the scam, including more than 5.7 million pounds from audit and management fees he had dishonestly added to the law firm’s loan. He used this money to acquire a shooting estate in Cumbria for 5 million pounds through an offshore company and also take ownership of a luxury French ski resort.

In this case, Schools was charged and convicted on the grounds of fraudulent trading, fraud by abuse of position, and money laundering. Along with him, two other individuals, 69 years old David Kennedy from Tyne and Wear and 49 years old Richard Emmett from Lancashire, a financial advisor and solicitor, respectively, were also subjected to charges of fraud and money laundering. The jury acquitted Emmett of all charges but failed to reach any verdict for Kennedy.

Talking about the success of SFO in this case, director Lisa Osofsky is reported to have said, “Schools deliberately abused his position of trust to enrich himself. Through a complex web of lies, he attempted to hide his fraudulent activity while spending other people’s hard-earned money.” This case is the second successful prosecution concluded by SFO in two weeks. 

Formerly, the agency had also secured a conviction against David Ames, who deceived more than 8000 investors in a 226 million pounds scam. He was also held guilty on charges of fraud by abuse of position. He reportedly took funding from investors to invest in Caribbean properties which were never built, and he used the money to enrich himself. 

The successful conclusion of the fraud cases by SFO has triggered a wave in the market about possible scams and the need for comprehensive research and caution by investors before investing in any possible company. 

Litigation funding is emerging as one of the most successful marketplaces, but at the same time, some individuals may use unlawful means to enrich themselves at the expense of their hard-earned money. Therefore, it is imperative for investors to ensure transparency and legitimacy before making any decision regarding their investment.

Jaeson Birnbaum pleaded guilty to his involvement in the fraud and accepted the allegations against him, after which the New York court disbarred him from practice, and the federal court will pronounce the sentence in July 2022.

Lawyers associated with bar associations are obligated to act in compliance with the ethical code of conduct and follow the rules and regulations of their respective bar associations. 

In this case, Birnbaum violated the ethical code of conduct, and his actions were repugnant to these rules. Given the allegations of involvement in a fraud scheme, the state Attorney Grievance Committee brought disciplinary proceedings against him. However, he refused to contest the disciplinary proceeding.

The litigation funding scheme case

In September 2021, Birnbaum pleaded guilty and submitted his confession for his involvement in the securities fraud scheme and the allegation brought against his litigation funding company Cash4Case Inc. 

After pleading guilty to the charges made against him and his company, the New York Appeals Court provided that the conviction required automatic disbarment. Hence, his membership in the New York State Bar has been removed, and he has been disbarred from practicing law. 

Attempts were made to reach Birnbaum for comments, but he was not available. His lawyer, representing him in the criminal case, Sam Braverman of Fasulo Braverman and Di Maggio, told news media that his client accepted responsibility at the first opportunity. The representatives from the Attorney Grievance Committee also refused to give any statement to the media regarding the matter.

A good industry used by some bad players

Litigation financing companies not only operate in New York, but they offer their services to almost every state in the United States. These funding companies provide pre-settlement funding to the claimants with meritorious claims to assist them in paying their medical bills and other financial liabilities. The funding provided by them helps claimants to pursue their cases and stand against businesses and corporations for the wrongs done to them. 

In litigation finance arrangements, the claimants promise to pay a particular percentage of the settlement after successfully defending a case in a court of law. Alternatively, these funders have been gaining traction in the judicial system of the United States. However, like all industries, some individuals have been using their legal funding companies to make profits unlawfully, as the founder of Cash4Cases Inc. 

Bottom line

According to the Manhattan prosecutors, Birnbaum has used his company to take cash for himself, despite telling investors that he was using funds to back the litigants. He allegedly obtained 3 million dollars in investments from 2017 to 2019. Due to these factors, the U.S. Securities and Exchange Commission filed a civil action against him. He agreed to a consent judgment to settle the issue. 

The appeal court held that Birnbaum instructed his employee to falsify books and other records, so it looks like pending lawsuit settlements would be collateral to a new potential investing team. Whereas, in reality, these claims had already been settled and paid. Essentially, he provided false information with the intention to acquire money through deceiving means.

After his confession to the financial crime, his membership in the bar was revoked by the appeal court, and on July 7th, 2022, the federal court will pronounce the sentence for his involvement in the fraud scheme. 

Burbaum’s case is before U.S. District Judge Paul Crotty in Manhattan. The court record shows that he may face imprisonment between 41 to 51 months in prison.