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Legal finance market focus: The US and Canada

  • Andrew Cohen

Legal finance continues to grow in use and acceptance throughout the Americas. Decisions and legislative proposals in the US and Canada relating to disclosure of litigation finance have generated coverage, but are unlikely to impact the kinds of legal finance investments Burford makes. Looking ahead to 2018, the overall trend remains one of growth.

Disclosure rules in the US unlikely to change…

In the US, in a letter to the Judicial Conference’s Committee on Rules of Practice and Procedure, the US Chamber of Commerce proposed amending the Federal Rules of Civil Procedure to require litigants in every civil case to disclose all outside financing arrangements. The proposal was identical to one the Chamber had submitted in 2014 and again in 2015, and on which the Committee both times voted to table discussion.

Burford submitted a detailed response to the Chamber’s proposal in 2017, which was heavily cited in the official report to the Advisory Committee on Civil Rules. The Committee met in early November and, as in previous years, declined to take any action in response to the proposal. (A separate subcommittee will gather information on litigation funding in connection with a review of MDL rules.) Our expectation, as in previous years, is that the status quo will remain: Disclosure of litigation funding is generally not required in commercial litigation.

Recent caselaw, too, supports this conclusion. In Viamedia v. Comcast Corp., Judge St. Eve of the Northern District of Illinois ruled in June that the work-product doctrine protected documents provided to litigation funders in the course of diligence, following a long line of similar cases, including Miller UK v. Caterpillar.

…Except (potentially) in the class action space

Also in the US, there has been some legislative movement around funding of class actions, most notably H.R. 985, the Fairness in Class Action Litigation Act of 2017. Following at least one federal district court initiative, the proposed bill would require disclosure of the identity of outside finance providers in class actions. So far, the bill has passed the House but has stalled in the Senate.

Class actions are not an area of focus for Burford, and the impact on our business from this bill, if it passed, would be negligible. Nevertheless, we are continuing to monitor this and similar legislation, as the Chamber continues to lobby for unnecessary and burdensome disclosure.

Increased caution around funding Canadian class actions

In August, the Ontario Superior Court called for significant changes to a litigation finance agreement in a medical malpractice suit, stating that an open-ended termination provision would allow the funder too much control over the litigation.[1]

In light of the decision, litigation finance providers will need to exercise caution when entering into agreements to fund class actions in Canada, particularly in light of the existence of public funds in several provinces to support these suits.

While the decision indicates that prospective finance providers will need to distinguish between different types of collective suits, we still see funding opportunities in the Canadian class action space, including cases that would not otherwise qualify for public funds (e.g., if they’re too large).

Courts reject regulation of litigation finance

In Cherokee Funding v. Ruth, the Georgia Court of Appeals found that consumer litigation funding contracts did not constitute loans under Georgia state law. Thus, the contracts did not fall under Georgia’s Payday Lending Act. While this case related to consumer litigation funding, which is distinct from the commercial litigation funding that Burford does, similar logic would apply to exempt commercial litigation funding contracts from regulation as “loans”.

Litigation finance will be used in more contexts

Acceptance of litigation finance continues to grow in the US. As a result, in 2018 we anticipate adoption not just by one-off litigants and law firms, but more broadly by corporate legal departments and private equity firms.

GCs will continue to proactively embrace litigation finance as a go-to tool to manage risk and cost, and to reduce the uncertainty around litigation budgets. We also expect companies increasingly to finance defense matters, especially as part of a portfolio arrangement.

Meanwhile, private equity firms can use litigation finance to optimize the value of their deals. Litigation represents a potentially valuable asset, and can be unlocked at virtually any stage of the of the process in the form of acquisition financing, litigation cost management and exiting a business.

[1] Houle v. St. Jude Medical Inc., in Ontario Superior Court of Justice.