Litigation funders get a boost in budget bill drama, court wins
The U.S. litigation funding industry is basking in a string of favorable developments this week, including a major legislative reprieve in Washington and courtroom victories for its most prominent player, Burford Capital.
On Capitol Hill, the U.S. Senate's parliamentarian struck a hefty proposed tax on litigation financiers from the massive pending budget bill before Senate Republicans approved the legislation on Tuesday.
The provision, championed by retiring Republican Senator Thom Tillis, would have initially imposed a 40.8% tax rate on all "qualified litigation proceeds" received by any third party through a litigation financing agreement.
Senate parliamentarian Elizabeth MacDonough on Monday ruled the measure violated budget reconciliation rules, forcing Republicans to drop it from the final text. Democrats had objected to the proposed tax, Sen. Jeff Merkley, the ranking member on the Senate Budget committee, said in a statement last week.
The move was praised by litigation funders and their backers, who warned the tax would chill investment and undermine access to justice.
"The only thing this provision would have done is discourage investment in justice by burdening funders," said Paul Kong, executive director of the International Legal Finance Association, a trade group for the industry.
The Senate bill, which nonpartisan analysts say will add $3.4 trillion to the nation's debt over the next decade, is now back before the House, which advanced the bill toward a final yes-or-no vote early on Thursday morning.
Burford, meanwhile, is another step closer to collecting its massive share of a $16.1 billion court judgment against Argentina, after the South American country seized a majority stake in oil and gas company YPF in 2012.
U.S. District Judge Loretta Preska on Monday ordered Argentina to give up its 51% stake in YPF to partially satisfy a $14.39 billion award to Petersen Energia Inversora and a $1.71 billion award to Eton Park Capital Management, both of whom were minority investors in YPF.
Burford is poised to receive around 35% of Petersen's award and 82% of Eton Park's award, a spokesperson for the litigation-financing firm said. That comes out to a potential payday of more than $6 billion, not including interest, which Petersen and Eton Park said is accruing at more than $2.5 million a day.
Argentina is appealing Preska's September 2023 decision to award the $16.1 billion to the investors.
Burford also scored a litigation win in Chicago, where a judge ruled that a subsidiary of the company can retain control over one of its former clients' claims in a price-fixing lawsuit against leading turkey producers. Burford had acquired rights to the claims from food distributor Sysco.
The turkey producers had argued it was against public policy to allow a Burford subsidiary to serve as the named plaintiff when it never bought products from the defendants.
Burford CEO Christopher Bogart, whose company is the largest publicly traded litigation funder, with a $7.2 billion portfolio as of March 31, said the "basic recurring theme" of the week is that large institutions "have long enjoyed a structural advantage in the litigation system, and they're very unhappy about losing it."
There are now more than 42 active funders managing a total of $16.1 billion in assets, litigation finance firm Westfleet Advisors said in an annual report in March.
The funding industry still faces regulatory headwinds. Business groups have pushed for mandatory disclosures of litigation funding agreements, arguing litigants require greater transparency about the interests that may be guiding settlements and other courtroom tactics.
Indiana, Louisiana and West Virginia have enacted laws regulating litigation financing in recent years. In Washington, Republican U.S. Rep. Darrell Issa earlier this year introduced legislation that would require civil litigants to disclose any litigation funding agreements.
Issa's bill is backed by the U.S. Chamber of Commerce's Institute for Legal Reform, whose president in February said the legislation "will help protect the integrity of our judicial system by ensuring that outside financiers are not secretly directing or profiting from litigation they are funding."
The International Legal Finance Association opposes the bill, arguing it would hurt small businesses and erect a "financial barrier to entry to civil litigation."
-- Litigator Roberta Kaplan is giving the New York Metropolitan Transportation Authority and the Triborough Bridge and Tunnel Authority a discount on her customary $2,000 hourly rate as she helps them defend New York's congestion pricing program, according to a contract obtained by Reuters.
Kaplan, co-founder of the small law firm Kaplan Martin, is billing at $1,450 an hour, a 27.5% discount from her normal hourly fee, the contract records showed.
It's common for lawyers to reduce rates for government clients. Kaplan's firm declined to comment.
Kaplan, who represented writer E. Jean Carroll in defamation lawsuits against Trump, formed Kaplan Martin last year with Tim Martin, Steven Cohen and Mitra Hormozi.
The congestion pricing program, which the Trump administration has moved to kill, generated $48.6 million in revenue for New York City in its first month, MTA said in February.
-- Legal technology company Clio on Monday said that it has agreed to acquire legal AI and research company vLex in a deal valued at $1 billion.
British private equity firm Oakley Capital agreed to sell Barcelona-founded vLex to Clio, a Vancouver, Canada-based company that said the deal marks a 'new era for AI-powered legal technology.'
Clio, founded in 2008, offers a platform for law firms to manage clients and cases and process payments, among other capabilities. The company last July raised $900 million at a $3 billion valuation.
In other recent legal tech news, AI company Harvey said last week that it raised $300 million at a $5 billion valuation.
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