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Commercial Deals

LF Dealmakers Panel: Ask the Experts: An Insider’s Approach to Getting the Best Deal

By John Freund |

Ted Farrell, Founder of Litigation Funding Advisors moderated a panel which included Fred Fabricant, Managing Partner of Fabricant LLP, Molly Pease, Managing Director of Curiam Capital, and Boris Ziser, Partner at Schulte Roth and Zabel.

The topics covered in this panel discussion were:

  • Getting up to speed on funding & insurance products
  • How to fast track diligence and deal with exclusivity
  • Negotiating key terms and spotting red flags
  • Benchmarking numbers & making the waterfall work for you

The topic of insurance came up first. Molly Pease began the discussion by noting that it isn’t always the case that funders are looking to lower risk in every situation. “It’s not always the case that we’re looking to minimize risk with insurance, because that comes with a cost,” Pease noted. “We don’t necessarily want to cut into our return, so there has to be a good fit for the insurance product.”

The moderator, Ted Farrell then pointed out that starting a litigation funder isn’t exactly about lowering risk.  So, risk mitigation is important, but not the primary driver of investment decision making. Boris Ziser agreed, yet noted how insurance opens the door to lot of other investors.  “More than half of our mass tort deals have insurance,” said Ziser, “with either the entire deal or a tranche of deals being insured.” Getting wrapped by a single A-rated carrier allows certain investors to participate in the investment.

On the issue of judgement preservation in the IP space, Fred Fabricant explains that in the patent space, he hasn’t seen a lot of insurance products in the pre-judgement section of the case. “There are too many uncertainties, and it is very hard to assess the risk in this phase of the case.”  Fabricant is looking forward to insurance products in this phase. “In post-judgement, much easier for insurance to assess the risk, because you’ve eliminated lots of uncertainties.”  For his part, Fabricant is interested in insurance products to mitigate risk, especially in portfolio funding cases, though he hasn’t had much experience with insurance products yet.

Further topics discussed included exclusivity (Fred Fabricant noted he doesn’t shop deals between funders, in order to maintain long term relationships), funder communication with clients (funders want to move just as quickly or even more quickly than lawyers and claimants—the process can be slow sometimes if claimants need to vet whether the terms are appropriate), and funder due diligence (it’s always better to be upfront about the risks of a case, since the funder will find those out eventually anyway—and every case has risks, no sense in pretending you have a panacea of a legal claim).

In the end, it was an expansive panel discussion that covered a range of topics pertinent to securing a litigation funding deal.

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Commercial Regulatory Issues

The Complex State of Third-Party Funding in China

By Harry Moran |

The latest Quarterly Focus from CDR looks at the topic of third-party funding in China, examining how the country’s legal system has continued to demonstrate an openness towards arbitration funding whilst taking a more cautious approach when it comes to litigation funding. The article gathers insights from legal professionals with experience in Chinese disputes, exploring how the country has created both opportunities and hurdles for funders looking to expand into this market.

The publication of the China International Economic and Trade Arbitration Commission (CIETAC) 2024 rules is highlighted as the latest development in China’s arbitration bodies explicitly addressing third-party funding, with the Beijing Arbitration Commission (BAC) and Shanghai Arbitration Commission (SHAC) having taken similar steps in recent years. Addressing how these developments in arbitration rules have evolved, Rachel Turner of Pinsent Masons explains that “China has a number of arbitration institutions that are relatively independent but follow each other quite closely.”

However, whilst commissions have created a structure for third-party funders to operate within, the details of these rules have raised some concerns for funders. Carolina Carlstedt from Litigation Capital Management (LCM) says that rules around disclosure of third-party funding are “rather broad” and could, depending on the interpretation, include a range of sensitive information around the funding arrangement. Carlstedt goes on to suggest that “this level of disclosure is likely to put off the international funders and may even end up detrimental to funded claimants as it would disclose the size of their war chest.”

When it comes to litigation, China’s courts have not shown the same openness that can be seen in the approach of the arbitration commissions, with a 2021 decision from the Shanghai Second Intermediate Court ruling that a funding arrangement was ‘invalid in domestic litigation proceedings.’ Omni Bridgeway’s Ruth Stackpool-Moore and Chee Chong Lau argue that this decision and the broader structural issues have made it “difficult for professional funders to consider the funding of domestic litigation in the PRC.”The full Quarterly Focus, which also analyses the state of third-party funding in Hong Kong and the future of the market in China, can be read here.

Commercial Deals

An Overview of Insurance-Backed Litigation Funding

By Harry Moran |

In a contributed article to Law360, Bob Koneck, Chris Le Neve Foster and Richard Butters from specialist insurance broker Atlantic Global Risk, discuss an innovative model for litigation finance. The authors explain that this new model, which they describe as ‘insurance-backed litigation funding’, is differentiated from traditional approaches to litigation funding through ‘the pricing and the parties’. 

Expounding upon this idea, the authors detail how the structure of insurance-backed funding arrangements differ, with the law firm or client first securing an insurance policy to cover a minimum amount of recovery before non-recourse capital is secured to finance the litigation itself. This funding arrangement means that the capital will be repaid by two separate sources: the damages from the case and the ‘the proceeds of the insurance policy that will pay out if the financed litigation yields a monetary recovery insufficient to repay the funder.’

The authors further explain that using this model in cases where the claimant is unsuccessful, ‘the loss triggers a payout under the insurance policy that repays the funders their deployed capital and, depending on the structure of the financing, some or all of the funders' accrued but unpaid interest.’

As for the relative pros and cons of adopting an insurance-backed approach, the authors argue that this model is ‘usually cheaper’, due to the fact that it allows ‘insurance-backed funders to price their capital using an interest rate, without any right to the remaining upside in the litigation.’ On the other hand, insurance-backed funding creates an ‘enhanced execution risk’, as the increase in the number of parties involved in closing any funding arrangement can ‘slow or complicated the process.’

The full article, which explains the different aspects of insurance-backed litigation funding and the process for acquiring it, can be read here.

Case Developments Commercial

Johnson & Johnson Settlement Puts Litigation Funders in the Spotlight

By Harry Moran |

The business of mass tort funding continues to be grow in the world of litigation finance, with the potential for large settlements being secured if the claims can attract a sufficiently high volume of claimants.

An opinion piece by Sujeet Indap in the Financial Times looks at the recent announcement of a settlement in the Johnson & Johnson talcum powder mass tort case, and the ways in which it has put the contentious role of litigation funders in the spotlight once more. Indap highlights that J&J used its press release announcing the settlement to take aim at “the unregulated and surreptitious financing of product litigation”, which it argued had created financial incentives for these large-scale mass tort cases.

Furthermore, Indap notes that J&J has since informed the federal court that it would be seeking details around the funders’ of the talc litigation, and would be serving Fortress Investment Group with a subpoena. J&J have argued that the involvement of litigation funders like Fortress have made the bargaining and settlement process more difficult, claiming that the priorities of the plaintiffs’ lawyers have been complicated by the need to ensure sufficient financial returns on the funders’ investments.

Speaking with Indap for the article, Samir Parikh, law professor at Wake Forest University, suggested that the most important factor in the success or failure of mass torts is the ability of lawyers and other third-parties to find and register huge numbers of claimants for these cases. Parikh argues that, rather than being focused on the merits of the claims being brought, “the name of the game is really marketing, or ‘building inventory’.”