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Posts Tagged ‘litigation funding’

After becoming one of the hottest trends during the latter part of the last decade, developments in international class action law have waned a bit over the past couple of years, but a new case may be changing that trend.  An Austrian law student, Max Schrems, made news earlier this week (see examples here and here) when he announced a “class action” against Facebook Ireland, the subsidiary that offers the popular social networking service outside of North America.  Schrems has filed a lawsuit in Austria seeking to pursue, on behalf of himself and other non-North American claimants, a variety of legal claims relating to Facebook’s use of consumer data as well as alleged illegal tracking and surveillance activity.  As reported yesterday by Natasha Lomas at Tech Crunch, more than 25,000 individuals have “joined” the lawsuit so far, by signing up at a website set up for that purpose and assigning their claims to Schrems.

This is by no means the first data privacy lawsuit ever filed against Facebook, and it is difficult to say at this point whether the legal claims have any prospect of success.  However, the case is intriguing from a procedural point of view because it is a suit seeking collective redress on behalf of thousands of non-North American consumers in a jurisdiction that is not known as a hotbed of class action litigation.  Many features of the case serve to illustrate differences between US-style class actions and “class actions” as they are developing in other parts of the world.  I’ve highlighted a few of them below.

Opt In Versus Opt Out

Outside common law jurisdictions like the United States, Canada, Israel, and Australia, collective action procedures generally follow an opt-in model, where each individual litigant has to take affirmative steps to participate in the lawsuit. This is a major distinction with the Rule 23 model followed in the United States, where a certified class binds all class members unless they expressly opt out of the case, and it creates a major limitation to the leverage created by grouping claims together.

Class Action through Private Contract and Novel Application of Existing Procedures

Many civil law countries lack an express mechanism for grouping large numbers of similar claims together into a single case except in very limited circumstances.  Even when specific collective action procedures exist, they can often be pursued only by a consumer association or government regulator rather than by private litigants.  Private litigants have filled the gap by entering into private agreements in which they group together on their own by assigning their individual claims contractually to a single plaintiff who will pursue the claims as a group.  Aggregation of claims by assignment has become a popular practical vehicle for pursuing group litigation, especially in continental Europe.

In Austria, a July 12, 2005 decision by the Austrian Supreme Court set out a two factor test for deciding whether assigned claims can proceed in a single case.  loosely translated, the standard requires that there be some central or significant question common to all claims, and that the factual and legal issues arising out of the individual claims be homogenous in nature as they relate to the common questions.  The Commercial Court of Vienna has applied this standard in several cases to make an initial determination of whether to “admit” the action, or in other words allow the assigned claims to proceed in a single case.  This initial evaluation does bear a resemblance to the class certification procedure applied under Rule 23 of the Federal Rules of Civil Procedure, applicable to class actions in the U.S. courts.

For a more detailed description of the “Austrian-style class action” procedure, see Christian Klausegger‘s chapter on the subject in the World Class Actions book that I have shamelessly promoted on this blog since its publication in 2012.

Litigation Funding

In Austria, as in many other parts of the world, contingent fees are prohibited.  At the same time, however, court fees are often assessed based on the total amount in dispute, so the more money in dispute, the higher the fees are that have to be paid to the court, in addition to the hourly fees to be paid to counsel. These factors combined significantly limit the incentive to pursue collective litigation in these jurisdictions. They have also led litigants to have to look for alternative ways of funding litigation, the most prevalent of which is private litigation funding by a for-profit institution that is not itself a law firm.  The litigation funder finances the litigation, including payment of court fees and hourly attorney fees, in exchange for a contractual right to earn a profit if the litigation is successful.

Litigation funding is also available in the United States, but it has been slower to develop, primarily because contingent fees and agreements to advance litigation costs do not typically violate rules of ethics or public policy. In fact, the opposite is true: rules prohibiting fee-sharing with non-lawyers can make private litigation funding a tricky proposition in the United States.  As a result, private law firms have the financial means of funding litigation (either on their own or by associating with other firms) and are driven to pursue litigation without the need for financing through the promise of a percentage of the recovery if the case is successful.

The Impact of Morrison and Kiobel

The United States Supreme Court has issued two key recent decisions limiting foreign litigants’ access to the US Courts as a forum for pursuing class actions.  Limitations on access to the class action procedures available in the US courts may lead foreign litigants to experiment more frequently with alternatives  in foreign jurisdictions.  Whether the Facebook class action in Austria is part of a trend in this direction remains to be seen.

What Drives Claims for Collective Redress?

In the United States, the promise of a large contingent fee can incentivize an entrepreneurial lawyer with a creative legal theory to pursue class action litigation even in the absence of widespread public awareness of a perceived wrong.  The procedural and financial barriers to pursuing claims for collective redress largely prevent this phenomenon from occurring outside the United States, Canada, and a few other jurisdictions.  Instead, “class actions” can be pursued as a practical matter only when there is enough public outrage or concern over a particular event or business practice that large numbers of individuals are willing to take the time to participate (or when there is a sufficient number of institutional plaintiffs with the financial resources and incentive to pursue the suit, such as in certain securities fraud and competition/antitrust cases).  This means that both mainstream media and–somewhat ironically in the case of Facebook–social media have a necessary role in the success or failure of collective litigation abroad.

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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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From time to time we will troll the class action blogosphere for news and information about our favorite class action topics.  Here are just a few of the recent headlines from around the web.

Complex litigation as a commodity investment? 

Hedge funds have traditionally been willing to explore new territory in the non-traditional investment sphere.  At least some appear to be finding potentially attractive opportunities in so-called Litigation Funding Companies.  LFC’s are often run by former lawyers–some with an investment or hedge fund background.  They identify potentially profitable lawsuits and agree to fund the litigation (to a point) in exchange for a percentage of the settlement.  Three Geeks and a Law Blog has an interesting multi-part series on this new trend.  Read it here.

http://www.geeklawblog.com/2012/03/rise-of-third-party-litigation-funding.html

10 ways to defend class actions using Walmart v. Dukes

Andrew Trask, class action attorney at McGuire Woods and co-author of the Class Action Playbook recently put together a list of takeaways explaining how class action defense attorneys can use Wal-mart v. Dukes.  His post links to a power point presentation he recently gave at DePaul University.  It’s a quick read and worth checking out.

http://www.classactioncountermeasures.com/uploads/file/DePaul%20-%20Defense.pdf

BP Settlement

The BP litigation in the Deepwater Horizon Oil Spill off the Gulf Coast has settled for all claimants except the federal government.  The Mass Tort Litigation Blog has been providing regular updates including this post discussing what’s known about the settlement.  It appears the settlement will consist of two separate agreements. One will resolve economic claims while the other will resolve medical claims.  The Blog cites news reports explaining that “either the settlement will be paid by the $20 billion fund BP created to compensate victims or the fund will close and be replaced by a court overseen claims facility.”

http://lawprofessors.typepad.com/mass_tort_litigation/

Irregular transaction was not enough to show a Bank had actual knowledge of an alleged Ponzi scheme.

Race to the Bottom contributor Susan Beblavi unpacks the Eleventh Circuit’s semi-recent opinion in Lawrence v. Bank of America, D.C. Docket No. 8:09-cv-02162-VMC-TGW, 2012 LEXIS 777 (11th Cir. Jan. 11, 2012).  In that case, putative class action plaintiffs alleged the Bank of America substantially assisted in a Ponzi scheme operated by one of its account holders.  The Eleventh Circuit upheld the District court’s dismissal of the case reasoning that even though BOA authorized numerous large transactions by the account holder, the bank wasn’t required to investigate them under Florida law.  Moreover, the court found the purported red flags were too weak to infer that it was plausible that the bank had actual knowledge of the alleged scheme.  Read more at the link below.

http://www.theracetothebottom.org/home/2012/3/8/lawrence-v-bank-of-america-allegations-of-actual-knowledge-o.html

Parens Patriae actions, class actions?

The 9th Circuit holds that parens patriae actions under Nevada law are not class actions removable to federal court under CAFA, adding to a circuit split on the issue.  For a succinct explanation, see Katherine Heckert’s post at the Carlton Fields Class Action Blog:

http://www.carltonfields.com/classactionblog/blog.aspx?entry=521

Walmart v. Dukes reasoning reverses class certification again

Skaddon’s Russell Jackson posts that the Louisiana Supreme Court has again reversed class certification due to problems of commonality and causation.  Previously, the Louisiana high court adopted the U.S. Supreme Court’s common question analysis in Walmart v. Dukes to reverse class certification in Price v. Martin.  In a recent per curiam opinion in Alexander v. Norfolk So. Corp., No. 11-C-2793, Slip op. (La. Mar. 9, 2012), the Louisiana Supreme Court cited Price for the proposition that class certification requires a rigorous analysis and significant proof of a common question. The case involved a chemical spill involving train cars. Hundreds complained of a bad smell and irritation to their eyes, throat and nose.  This led to a class action that was certified by the trial court and affirmed by an appellate court.  It turned out, each putative class member would need individual toxicology testing to determine whether they are among the minority of people who are susceptible to very low levels of the released chemical.  The Louisiana Supreme Court ultimately reversed class certification based on the lack of predominance of common issues, and the need for individualized trials.  Read more here.

http://www.consumerclassactionsmasstorts.com/2012/03/articles/predominance-1/once-again-the-louisiana-supremes-reverse-class-certification-citing-causation-as-a-problem/

The Perils of Electronically Stored Information

Todd Dawson’s post on Baker Hostetler’s Employment Class Action Blog illustrates just how badly things can go when a key “smoking Howitzer” document slips through defense counsel’s ESI review and ends up in the plaintiffs’ hands.  In an FLSA Collective Action, the employer produced two million documents. Prior to the production, the employer’s attorneys used various search terms to identify privileged documents.  Inevitably, one got through – a bad one. Even worse, the court concluded that the employer had waived privilege.  Thus, not only did the plaintiffs’ counsel get to see the document, they got to use it as well.  To see how this disaster could have been avoided, read more here.

http://www.employmentclassactionreport.com/flsa/inadvertent-esi-disclosure-of-attorney-client-communication-waives-privilege-in-flsa-collective-acti/

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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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Third party litigation funding has become intriguing development in the expansion of global class and collective action litigation over the past several years, particularly in Australia.  (For various previous CAB articles addressing third party litigation funding, click here).  The concept of third party litigation funding generally refers to financing of litigation by a private party or corporation that is not a party to the dispute, in exchange for a right to a portion of the recovery if the litigation is successful. 

In the U.S., the ethical rules prohibiting fee-splitting with nonlawyers made most types of third party litigation funding improper (see Model Rules of Prof’l Conduct, R. 5.4(a)), while the existence of law firm funding through contingent fee arrangements (Model Rules of Prof’l Conduct, R. 1.5(c)) made nonlawyer sources of funding unnecessary for the development of class action litigation.

However, in other parts of the world, where contingent fees are prohibited, third party litigation funding has developed as an alternative to provide a means for plaintiffs to pay for class action litigation and to avoid the risks associated with the English rule, or “loser-pays” rule, which requires the loser of a case to pay the other side’s costs and attorneys’ fees.

Sue Lannin, financial reporter for ABC (Australia Broadcasting Corporation) News, published this article on Wednesday discussing the impact that private litigation funding may be having on class action litigation in Australia.  The article quotes one Australian attorney who believes that private litigation funding is responsible for a recent increase in shareholder class actions and will likely continue to generate an explosion of class action litigation in that country.  However, the article also quotes an attorney with a contrary view, that the recent increase in shareholder class actions is simply the result of the financial crisis in the latter part of the last decade.

The combination of deep pockets and the legal ability to pursue class action litigation for profit would appear to be a good recipe for expanding class action litigation anywhere, but whether litigation funding in Australia actually creates a “US-style litigation culture with unregulated legal financiers shopping around for cases” remains to be seen.

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According to this article by Anindita Dey of the Business Standard yesterday, an Indian securities regulator has announced plans to fund a program to reimburse litigation expenses actions brought on behalf of investors for alleged illegal securities practices.  The fund would be available to a group of registered investor associations who could apply for reimbursement for legal expenses from the fund, but only after those expenses have been incurred and only after a showing that at least 1,000 investors are affected by the alleged practices. 

The representative securities litigation described in the article is characterized as similar to class action litigation in the U.S., but it appears to differ in at least two important respects.  The first difference is the use of litigation fundingto support group litigation.  In the U.S., the funding of a lawsuit is usually accomplished by law firms who pursue the case and often advance costs in the hopes of recovering a portion of the judgment through a contingent fee or a fee award.  In other parts of the world, such as in Australia, private litigation funding firms provide funding for class actions in exchange for a portion of any recovery.  The funding scheme described in the article appears to differ slightly from that prevalent in Australia in that it is state-funded rather than private. 

The second difference is the method in which the representation is being achieved.  In the U.S., an individual investor or small group of investors typically seek appointment as class representatives to represent a larger class of investors.  By contrast, the type of litigation being described in the article contemplates that an association would bring the action on behalf of its members.  Associational representation is a procedural vehicle that has been used in the U.S., but is far less common in securities litigation than true class actions.

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As we welcome in the first full business week of 2009, two news sources have recent stories discussing trends in securities class action litigation from 2008. 

First, the Wall Street Journal Blog reports that 2008 saw an increase in securities class action filings.   However, the article also notes that suits actually dipped in the second half of the year, despite the drastic worsening of the credit crisis.  A possible explanation offered for this trend is the impact of market volatility and the more general market decline following the credit crisis in obscuring or watering down the effects of individual acts of alleged securities fraud.  The article also touches on the prospect of a decline in securities class actions as the pool of potential defendants in the financial-services sector is exhausted.

Meanwhile, this article from The Australian published this report on a surge in class action filings Down Under during the past year.  The article includes an intersting discussion about the role of litigation funders in class action litigation Down Under and predicts a possible showdown  over licensing requirements between the country’s only licensed litigation funder and potential overseas competitors.

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