business

Litigation Finance Communications Protected: Business of Law

Litigation finance is growing in the U.S., but its substantive role in a case has always been a bit murky until now.

A decision from the Delaware Chancery Court makes clear that documents relating to funding provided by third parties to finance a lawsuit are entitled to the confidentiality protections afforded to more traditional lawyer work product.

“Many courts have given this issue short shrift,” Michele DeStefano, a professor at the University of Miami School of Law, said Tuesday in an interview. “It was time for a court to take a stand and analyze work product doctrine.”

The litigation-finance market exceeded $1 billion in 2011, DeStefano said, citing the most recent statistics she’s reviewed. Most of that money comes from the “four or five companies that have a stranglehold and are very active in litigation funding,” she said, adding that there are others trying to get into the business.

The firms lending funds typically take a percentage of money won, which can be “upwards of 20 percent” of a verdict or settlement, DeStefano added.

The Delaware court’s Feb. 24 ruling came in a protracted dispute involving the Carlyle Group’s mortgage bond fund, which collapsed during the financial crisis. The fund’s liquidators sued Carlyle and its management. As part of the litigation, Carlyle sought information from one of its investors to determine whether that investor had helped to finance the liquidators’ lawsuit.

Litigation funding is sometimes the only way a case can proceed, Vice Chancellor Donald Parsons said in the ruling. He wasn’t convinced that parties “should lose work product protection simply because they lack the financial means to press their claims on their own dime.”

“Allowing work product protection for documents and communications relating to third-party funding places those parties that require outside funding on the same footing as those who do not and maintains a level playing field among adversaries in litigation,” Parsons said.

DeStefano, whose 2014 article was cited in a footnote in the opinion, described litigation funding as a “double-edged wonder.”

In the consumer context, there can be concerns because the plaintiff isn’t always sophisticated and might not understand the implications of a third-party financier, she said. On the commercial end, “both sides are savvy and it’s just part of doing business.”

The case is Carlyle Investment Management LLC v. Moonmouth Company SA, CA7841, Delaware Chancery Court (Wilmington).

Firm News

Winston & Strawn Hires Structured-Finance Partner in New York

Jeffrey Stern has joined Winston & Strawn LLP as a partner in the firm’s structured-finance practice in New York. Previously a partner at Pillsbury Winthrop Shaw Pittman LLP, Stern has advised on new and emerging forms of domestic and cross-border structured financings, credit derivative structures and structured funds, as well as crowdfunding platforms. He also has represented clients in Latin America, the firm said in a statement.

Crowell & Moring Hires Lawyer From FTC in Washington

Lisa Kimmel has joined Crowell & Moring LLP as senior counsel in the antitrust group in Washington. She comes to the firm from the U.S. Federal Trade Commission, where she worked for almost five years as an attorney adviser on antitrust and competition policy matters for Chairwoman Edith Ramirez. At Crowell & Moring, she will focus on government merger and civil and criminal non-merger antitrust investigations, as well as antitrust counseling.

Schiff Hardin Adds Former Prosecutor to New York Ranks

Schiff Hardin LLP has hired Ryan Poscablo as a litigation partner in New York. He will focus on civil litigation, corporate internal investigations, white-collar criminal defense and cybersecurity. Before joining Schiff Hardin, Poscablo served for almost six years as an assistant U.S. attorney in the Southern District of New York.

Deals

Skadden and Davis Polk Advise on Springleaf-Citigroup Deal

Skadden, Arps, Slate, Meagher & Flom LLP advised Springleaf Holdings Inc., the U.S. consumer lender that sold stock to the public in 2013, in its purchase of Citigroup Inc.’s subprime lender OneMain Financial. Davis Polk & Wardwell LLP represented Citigroup in the $4.25 billion cash deal.

The Skadden team includes partners Joseph Coco and Thomas Greenberg, M&A; David Ingles, financial institutions M&A; Jose Esteves, intellectual property and technology; David Polster, tax; and Regina Olshan, executive compensation and benefits.

Davis Polk partner Louis Goldberg led a team that included partners Neil Barr, tax; Ronan Harty and Michael Sohn, antitrust and competition advice; and Kyoko Takahashi Lin and counsel John Wright, executive compensation. In addition, partners Richard Truesdell Jr. and Sophia Hudson provided capital markets advice to OneMain in connection with a potential initial public offering filed with the U.S. Securities and Exchange Commission, since the company was exploring both a deal and IPO, Davis Polk said in a statement.

Springleaf, majority owned by Fortress Investment Group LLC, plans to complete the transaction during the third quarter, according to statements from both companies on Tuesday.

Springleaf and OneMain are two of the biggest U.S. providers of installment loans, a type of high-interest credit repaid over time.

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