Litigation funding is a financial arrangement between third-party funders and the party to a case in which the former provides funding to support the latter to pursue meritorious claims irrespective of financial constraints, and the latter agrees to pay a specific percentage of the settlement amount.
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.
