To the best of our knowledge, funding contracts generally require arbitration to resolve disputes. While arbitration has significant appeal, it may not always be the optimal arrangement for reasons laid out below. Therefore, the model contract defaults to New York courts as the forum for dispute resolution. Arbitration’s Appeal and Downsides Arbitration has one significant advantage over courts: secrecy (confidentiality). Even the fact of the dispute can be kept secret, which preserves the secrecy of the underlying financing if that funding is secret. Moreover, the documents involved … Continue reading →

I agree with the authors’ assertion that “New York judges are extremely unlikely to find a common legal interest between potential funders and plaintiffs or between investors in litigation-backed securities and plaintiffs.”  The common interest exception to waiver of the attorney client privilege typically extends to information disclosed to co-parties.  A potential funder has not developed a significant enough interest in the outcome of the underlying claim to enjoy the same protection from waiver as a co-party.  While a funder under contract with a funded … Continue reading →

For the reasons in our essay on securitizing claims, the model contract draft prohibits securitization. However, as pointed out by Edward Reilly of Themis Capital in a comment to yesterday’s post, securitization poses unique issues not raised by arms length deals between funders and secondary investors. The model contract draft does not bar such secondary market deals the way it bars securitization. However, the model does restrict secondary financing. Specifically, the model restricts the transfer of Litigation Proceed Rights, and further requires plaintiff’s consent before the funder … Continue reading →

Securitization is not currently a topic of debate in the litigation funding field. Litigation funding is, in and of itself, new (in the United States) and controversial and it is still in the process of claiming a place for itself in the financial markets.  But a pre-cursor—selling investments in litigation to parties who are not parties to the original funding agreement—appears to be an existing practice. And, more important, a business model that involves developing and managing portfolios of assets seems like an invitation to … Continue reading →

A funded litigant may not always be happy to return to the financier the amount owed after securing a favorable settlement, judgment or arbitration award.  In such situations, the funded party may seek an order from a local court to invalidate the funding agreement. One approach the funded litigant may take is to argue that the financing constitutes a loan with an extremely high interest rate in violation of the laws against usury.  The rationale behind usury legislation is “to protect borrowers from the outrageous … Continue reading →

Once a funder has decided to invest, it is possible the parties will simply rely on the common interest doctrine and share attorney-client privileged information freely. The draft model contract does not take that approach largely because under New York law, which governs it, funders and plaintiffs may not have a privilege-protecting common legal interest. Here is how the contract intends keeping the funder informed, while protecting privilege: 3.1.3 Duty to Inform: Plaintiff agrees and undertakes to keep Funder fully informed about the progress of … Continue reading →

Attorney-client privilege is a thorny issue regardless of deal structure, since neither plaintiff nor funder wants the plaintiff to waive privilege, but the funder wants access to all material information before deciding to fund. In New York giving potential (instead of actual) funders attorney-client privileged information almost certainly creates a waiver. So how can a potential funder have comfort critical information isn’t being withheld as privileged? The securities structure of the model contract should provide some comfort. Specifically, if during due diligence a plaintiff withheld material information, … Continue reading →

It is well known that the main discussion on litigation finance is generally circumscribed to a handful of common law jurisdictions, chiefly the US, the UK, Australia, and –as we just learned last week from Professor Kalajdzic’s post in this blog- more recently Canada. These are countries where litigation finance has been regulated by statute, mainly in the context of the common law doctrines of maintenance and champerty; and where local courts have occasionally stepped in to redefine the contours of this activity. It is … Continue reading →

As discussed earlier, we believe New York courts may reject the idea that funders and plaintiffs share a common interest, and any other effort to protect privilege by styling the funder as a co-client or co-counsel is impractical. As a result, the plaintiff may waive the attorney-client privilege when disclosing such information to a funder, but it may not. The contract reflects this uncertain landscape in its provisions. Before a judge will analyze the nature of the common interest to determine if it prevents waiver, … Continue reading →

The attorney-client privilege is a significant issue in litigation finance. Does communicating with a potential funder waive the privilege? What about communicating with a funder? Does sharing privileged communication with a secondary funder–a person buying part of the funder’s claim, reinsurance-style–constitute waiver? The questions are key because neither plaintiff nor funder wants to inadvertently waive the privilege, but denying access to privileged information can hinder the funder’s ability to do due diligence pre-funding, and its ability to monitor the conduct of the claim post-funding. The … Continue reading →