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Editor’s note: Guest contributor David Williamson authored the following commentary on recent developments in the availability of legal aid in the UK.  Mr. Williamson is an experienced legal content writer and works for Coles Solicitors.  Although the article does not touch on litigation funding in representative actions specifically, the availability of legal aid and other sources of litigation funding is an important topic related to ongoing debate on the need for development of class actions and other representative and multi-party dispute resolution mechanisms in jurisdictions outside of the US.  Many thanks to Mr. Williamson for his contribution.

Post Legal Aid Reform: Observations since its Passing

As of the beginning of April this year, the UK ushered in sweeping changes to the sixty-year-old Legal Aid legislation; implementing heavy cut-backs and making eligibility stricter. However, how has the UK legal climate changed since its passing?  Heated dialogue seemed to circulate the issue for many months, with many claiming the changes will cripple the courts, and others arguing that they will do wonders for the British economic deficit. However, now the issue has settled down it is prime time to look at what exactly has occurred and what legacy this may leave on the broader UK legal climate.

Legal Aid Reform: In a Nutshell:

If you’re not from the UK, the chances are you are not entirely familiar the Legal Aid reforms that are holding the spotlight during this discussion. The reforms, which cut public spending by up to £350m, meant that to be eligible to claim Legal Aid, one had to prove a disposable income of around £1,000, whereas before the figure stood at a much more generous £8,000. Therefore, with such a massive decrease in the amount one needs to have saved to be eligible, the reforms are sure to have affected thousands of claimants. In fact, the government’s own figures stated up to 623,000 people could miss out on financial assistance in court, with the less well-off, working class families being the hardest hit. The areas of law targeted by the reforms were mainly clinical negligence claims, educational and employment law, immigration, private family law, divorce and custody battles and debt/housing issues.

Increase in Self Representation?

Now, though – 2 or so weeks after the cuts, what seems to have occurred as a result? Well, recently a report into legal trends and how the court process is operating since the reforms found out a curiously novel result. The answer: an increase in people representing themselves in court.

In fact, this study comes hand in hand with a release of an ‘idiots guide’ to legal representation, issued by the Bar Council. Within, the guide stipulates when one should speak, when one should stand, correct salutations and a rough guide to how to address the court. In fact, in the rather tongue in cheek guide, specific attention was paid on people not behaving like court-room lawyers they may have seen on TV. Perhaps it’s a little early to analyse the statistics thus far as to whether there has been any real rise in this sort of self-representation, however, it is certainly something to keep an eye on as it is a very real (and for many people – the only real) alternative to Legal Aid.

Pro Bono:

An alternative model of the British Legal Aid bill has been in effect in the USA for a long time now, and it is proving to be highly successful. Pro Bono legal help, especially in places like New York, ensure that solicitors pledge at least 50 hours per year to Pro Bono legal cases. With this in mind, could it not be obvious to apply this same model to the UK legal climate now there exists this apparent vacuum for Legal Aid? 

Of course, this seems like the most sensible solution but, unfortunately, it doesn’t seem like the UK legal climate has properly taken hold on this front as of yet. It is only early days so perhaps this will soon change, but thus far there have been little developments on this front. However, that being said, there is – and have been for some time – many highly qualified solicitors in the UK willing to carry out Pro Bono work, but it would seem they are greatly understaffed and rather poorly spread out across the country. A quick poll revealed that London benefits from a reassuring 59 free legal advice clinics, where as there are only 29 in the whole of the North of England, and only 3 in all of Wales.

A rather novel argument has recently been made for the case of law students and those currently in training or entry-level positions. This argument lays an obligation on these young solicitors to carry out an as-yet undetermined amount of Pro Bono work in their spare time, giving help to the reported 650,000 cases that the current system cannot support. This also raises moral questions, though; such as is it fair to make it compulsory for student who are perhaps under qualified and inexperienced take on cases which can have dire consequences on those in party to the case? And, is it fair to force these already pressured individuals to give up their free time to work for no money?

Overall, it would seem the UK legal climate has not crippled under the changes to Legal Aid legislation. The assumptions of many nay-Sayers seem to have been premature and instead of the poorest being denied all forms of legal representation, a new dialogue has emerged prompting creative changes to age-old problems. Of course, those who can afford pricey legal representation still win a much greater number of cases than those who can only afford cheaper or subsidised help. This has always been the case and the results thus far seem to suggest the Legal Aid reform in the UK hasn’t altered this as drastically as once thought.

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This is part II of a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation.  For the introduction, see part I posted yesterday.

Who’s Paying? New Developments in Funding

Professor Christopher Hodges, Centre for Socio-Legal Studies, University of Oxford/Erasmus University (and a co-sponsor and co-founder of the conference) chaired this panel.  Professor Camille Cameron, University of Windsor/University of Melbourne presented the case study.  The other panelists were The Honorable Vaughn Walker, Chief Judge (ret.) U.S. District Court for the Northern District of California, Dr. Gerrit Meincke, Foris AG, Mr. Till Schreiber, Cartel Damage Claims, and Mr. Wieger Wielinga, Omni Bridgeway.

This session examined an intriguing issue in international class and mass litigation: the emergence of private litigation funders who finance litigation in exchange for a share of the recovery. This is a development that may be unfamiliar to many U.S. practitioners, who are used to a system where class actions are mainly funded by well-financed law firms who can recover a contingent fee in a successful case.  In other parts of the world, however, ethical prohibitions on contingent fees, loser pays fee-shifting rules, and the lack of an organized plaintiffs’ bar have led to the emergence of alternative methods of funding litigation.

Professor Cameron opened the session by introducing three themes relevant to the study of litigation funding: 1) access to justice; 2) the impact of private litigation funding on public regulation; and 3) ethics.  Litigation funders do provide access to justice for litigants who would otherwise not be able to afford to bring their claims.  In Australia, for example, most law firms do not have the resources necessary to fund class action litigation, so the existence of private litigation funders expands access to justice.  On the other hand, Cameron pointed out, the existence of litigation funding institutions has turned law firms away from funding cases that they used to take, and the pool of cases that litigation funders will take on is very small and includes most only securities cases, so cases that used to be brought are now falling through the cracks.  On the regulatory front, the question arises whether the cases that are being brought by private litigation funders would be better left to government regulators.  On the one hand, remedying or deterring wrongful conduct is traditionally a public rather than private function in many parts of the world.  On the other hand, increasing globalization is causing cases involving mass wrongs to become larger and more common, and government regulators are becoming increasingly underfunded and ill-equipped to keep up.  The ethical issues implicated by private litigation funding are somewhat apparent.  Because they have a financial stake in the outcome, there is a strong incentive for funders to take on an active role in the management and strategic decision making in a case.  This can, although it does not necessarily have to, lead to potential conflicts of interest and questions about improper influence over the professional judgment of counsel.  These concerns may be decreased in jurisdictions where the funder can receive outright assignments of claims than in jurisdictions where they merely assist other litigants with financing in exchange for a fee.

The case study for this presentation was an examination two private litigation funders that had funded securities class actions.  The two funders, IMF and ILF used different models.  IMF took a hands-on approach in which it was actively involved both with the selection of counsel and the day-to-day management of the litigation itself.  ILF’s approach was to choose its counsel carefully and let the attorneys handle the management of the lawsuit.  Several litigation funders were asked to compare and contrast their firms’ approach with these two models.

Garrit Meincke is a litigation funder with Foris AG, a small firm that has been involved in litigation funding in Germany for more than 13 years.  It is the oldest and leading litigation funding firm in Germany and has historically had very few competitors.  Recently, three new companies have formed and have generally copied Foris’s approach.  Foris has modified its fee structure over time.  Initially, it charged a 50% fee, but its average fee has been adjusted over time and is now between 20 to 30%.  The firm is very selective about the cases it will fund, funding only about 5% of the total cases it reviews.  Foris is more of a passive rather than an active funder.  It leaves it to the lawyers to run the case.  However, it remains involved in monitoring a case throughout all proceedings.  Litigation funding is not regulated in Germany.  Germans are distrustful of U.S.-style class action litigation and do not have a representative action procedure.  Claims can be bundled by assignment, but there is a risk that bundled claims will be unbundled because German judges are evaluated in part based on the number of cases, which creates a disincentive to allow claims to be joined together.  Litigation costs are relatively low in Germany, attorney’s fees are regulated by a structure of tariffs which increase based on the amount at stake, and private litigation insurance is prevalent.  Hodges commented that these factors make litigation funding a natural development there.

Till Schreiber’s firm, Cartel Damage Claims, funds cartel litigation in Belgium.  It is an active litigation funder that buys assignments in cases rather than financing litigation for a fee.  Obtaining an outright assignment allows the firm to actively manage the litigation and outside counsel without creating conflicts of interest.  Buying cases and aggregating them for litigation also creates economies of scale that allows the firm to be profitable despite the risks of loss and having to pay an opponent’s litigation expenses in unsuccessful litigation.  Schreiber pointed out that aggregating cartel litigation in Belgium has a benefit for defendants as well as plaintiffs.  Because defendants who commit anti-competitive violations can be held jointly and severally liable for damages, aggregation of claims decreases the risk of inconsistent rulings and duplicate recoveries.  Schreiber also pointed out that firms are looking at the possibility of funding end-consumer claims, but the viability of funding mass consumer claims is dependent on the technology available in the judicial system, such as the ability to handle electronic access to files and signatures.

Weiger Weilinga’s firm, Omni Bridgeway, started in the litigation funding business as a recovery specialist in the mid-1980s.  It did not become involved in funding litigation on the merits until recently.  As a recovery agent, the firm handles the recovery of money judgments from defendants in high-risk jurisdictions, such as in war zones or countries with unfriendly or unstable governments.  The firm still handles mostly political risk claims, but has recently branched out into providing litigation funding for cartel cases.  It has not yet taken on any consumer cases.  Omni Bridgway is active in both hiring lawyers and in managing the litigation.  Case management is usually a cooperative effort between the firm, the client, and outside counsel, but Omni Bridgeway gets a full power of attorney from the client and therefore has ultimate decisionmaking authority.  The firm takes only cases with a minimum value and is selective about what it will fund.  The percentage fee ranges from case to case.  It is typically around 30% but has been as high as 60% in a case involving recovery from a North Korean defendant.

Retired U.S. District Court Judge Vaughn Walker talked about the primary method of class action litigation funding in the United States, namely contingent fees.  In particular, he discussed the problem of deciding between competing groups of lawyers vying to represent a class of plaintiffs in order to earn the contingent fees that can be recovered in the event of a settlement or favorable judgment.  During the first 25 years of the modern class action era in the United States, the decision was made using two approaches: 1) the first group to file a class action; or 2) nomination of lead counsel from a group of plaintiffs.  Fees themselves were historically determined by the lodestar method, which involved the court determining an appropriate hourly rate, multiplied by the reasonable number of hours expended by the firm on behalf of the class.  However, the lodestar method had drawn criticisms, including that 1) it encourages firms to churn hours that might not be reasonably necessary for the prosecution of the claim; 2) it created an incentive to generate sub-optimal recoveries because it gave the firm an incentive to wait until late in the case to engage in settlement discussions; and 3) there was no adversarial presentation of the fees requested, as fees were usually requested by agreement in the context of a settlement.  In 1985, the Third Circuit Court of Appeals created a task force on attorney’s fees, which recommended that a percentage fee be used rather than the lodestar method, and many courts adopted this approach in the years that followed.  However, percentage fee awards created other problems, including that the optimal recovery for the client or class occurs after the marginal cost of litigation meets the marginal recovery for the lawyer, which it the point at which the lawyer is incentivized to settle.  Judge Walker was one of several judges to adopt an innovative approach to selecting lead counsel in class actions that both resolved the dispute over who should be lead counsel and encouraged more favorable fee structures.  He asked competing class action firms to submit competing proposals on the fee that they would request in the event of a successful outcome.  Ultimately, this resulted in the winning firm agreeing to a fee that was half the customary rate.

Judge Walker offered a framework for identifying cases in which a reverse-auction selection process works in assigning lead counsel in U.S. class action litigation, which he observed also provides lessens to litigation funders in assessing cases to fund: 1) there has to be a clear identification of both the claims and the defendants (securities and certain employment cases are good candidates); 2) the relief has to be quantifiable in monetary terms; 3) the selection methodology should be simple.  One example of a simple methodology that U.S. courts have adopted is the “X factor” methodology, where counsel is asked to propose an amount X that it will agree to recover for the class at no cost, and the percentage recovery at which the firm will do all additional work.

The Q&A portion of the presentation generated a list of interesting observations from both the panelists and members of the audience.  (Unfortunately, my notes do not allow me to give proper acknowledgement for the specific source for each of these comments.)

  • In Australia, litigation funding has had the practical effect of turning an opt-out regime into an opt-in regime, as litigation funders are reluctant to represent the interests of litigants who do not share in the cost and risk of an unsuccessful lawsuit.  One issue currently being tested in Australia is whether a litigation funder can collect a percentage of all funds recovered on behalf of a class, including those claimants who have not contracted with the funder.  The answer to this question could impact whether class actions are brought as opt-in cases or opt-out cases in the future.
  • The lack of contingency fees in Europe is an important factor in litigation funding, as is the loser-pays cost-shifting rule.
  • There is a common mythology in Europe that litigation funding will lead to U.S.-style class action litigation, which is commonly perceived as synonymous with “ambulance chasing.”  Perhaps Europeans can learn a lot from U.S. litigation rather than being afraid of it.
  • The European civil law system can be criticized for encouraging “book building” activity, because litigation funders and consumer associations are required to sign up claimants in order to create economies of scale that make pursuing mass claims worthwhile.
  • Expect a ruling early next year from the Amsterdam Court of Appeal in a case involving objections to a collective settlement on the grounds that U.S. lawyers would be paid out of the settlement fund, something that would not be allowed for Dutch lawyers under Dutch law.

Finally, an observation of my own.  After listening to this panel presentation, it struck how much corporate, rather than consumer, interests have driven reforms and innovations in procedures allowing access to mass litigation in Europe.  Many of the parties seeking funding from third parties, and many of the parties pushing for access to collective action procedures, are institutional investors who are looking for an inexpensive vehicle for recovering funds on behalf of their clients.  This is a theme that came up in a later presentation titled Who Has Jurisdiction in a Global Market?  Stay tuned for a summary of that presentation…

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According to SCOTUS Blog, the ABA Journal, and other sources (see the citations within Debra Cassens Weiss’s ABA Journal article), the U.S. Supreme Court has accepted certiorari in Perdue v. Kenny A., et al., Case No. 08-970.  The appeal involves an attorneys fee award to attorneys who successfully prosecuted a class action on behalf of thousands of foster children in Georgia’s two most populous counties, Fulton and DeKalb.  The lawsuit resulted in consent decrees that require significant reforms to the State’s and counties’ foster care systems.  Although the case involves an action brought by attorneys for a non-profit public interest organization and their cooperating counsel, the outcome of the Supreme Court case could have broad repercussions on the attorneys fees awardable in a variety of cases in federal court, including run-of-the-mill class actions.   The Court accepted review of the following question:

Can a reasonable attorney’s fee award under a federal fee-shifting statute ever be enhanced based solely on qualify of performance and results obtained when these factors already are included in the lodestar calculation?

For more information on the history of the case with links to key documents, see childwelfare.net:

http://childwelfare.net/activities/kennya/kenny_a_case_overview_20060718.html

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