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Litigation Finance’s ‘David v. Goliath’ Problem: Disclosure

Aug. 27, 2020, 8:42 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at a recent court order that may dampen litigation funders’ enthusiasm for a commonly employed narrative about helping the “impecunious.” Sign up to receive this column in your inbox on Thursday mornings.

Litigation funders have long pointed to their backing of “David v. Goliath” type cases as evidence that their capital can help level the playing field in the courtroom.

Earlier this week, I wrote about a famous artist whose lawsuit against her former art dealer is backed by $500,000 from litigation finance firm Legalist. The story highlights the artist, Akiane Kramarik, and her use of a third party to pay her claim’s way through the expensive U.S. court system. The defendant in the case, though, appears different than the typical “Goliath” that cries foul about litigation finance.

The art dealer on the receiving end of that lawsuit isn’t a blue chip company like General Electric, Allstate Corp., AT&T Inc., BP America Inc. The top lawyers for those household names, and about 25 others, signed a letter last year arguing that plaintiffs should be forced to disclose when they’re backed by litigation finance, a position long held by the U.S. Chamber of Commerce.

The legal department leaders said defendants “need to know who is sitting on the other side of the table.”

“Is it an impecunious individual seeking recourse based on the merits of his/her case or is there also a multi-million dollar litigation funder driven by the need to satisfy investor expectations?” the corporate lawyers said.

It’s a curious argument for a group of executives largely representing publicly traded companies. Shouldn’t those legal departments also be driven by the need to satisfy investor expectations? Or do fiduciary duties to shareholders somehow go out the window when facing down an “impecunious individual?” But I digress!

Litigation funders have been fairly successful arguing against rules that would mandate disclosure. Congressional reform efforts have so far stalled, and a number of courts, dating back to a well-known 2014 case involving Caterpillar, have rejected defendants’ requests that parties turn over funding contracts.

But a more recent case bucked that trend—after a judge found a plaintiff may have been angling to invoke the “David v. Goliath” argument.

The ruling came earlier this month in a case in Los Angeles federal court, where digital advertising company Impact Engine sued Google over alleged infringement of its patents.

Represented by lawyers at Kirkland & Ellis, Impact Engine argued it should not be forced to disclose any litigation financing agreements or related documents. That intel isn’t relevant to the legal question in the case—whether Google violated Impact Engine’s patent rights—the attorneys argued.

Google’s lawyers at Quinn, Emanuel, Urquhart & Sullivan argued that a jury deserved to hear who was benefiting financially from any verdict. They pointed to one line from Impact Engine’s complaint: “Google’s actions left the dedicated and hardworking employees of Impact Engine with no options other than litigation.”

“The jury deserves to know that, if Impact Engine focuses on the harm to its business and employees in a plea to the jury’s emotions, any damages awarded would not solely go to Impact Engine,” the lawyers continued.

U.S. Magistrate Judge Daniel Butcher ruled in favor of Google, saying patent disputes represented a special case where funding agreements have been ruled relevant. He said all non-privileged contracts and documents related to third-party financing should be turned over. Butcher cited a January ruling by Judge David Campbell in the same federal court in which Campbell said information about the funding behind a different suit could “refute any David v. Goliath narrative at trial.”

Lawyers at Kirkland and Quinn Emanuel did not respond to a request for comment.

The litigation finance industry has long employed the David v. Goliath narrative, but it may be suffering a black eye for patent litigators in at least one portion of the country.

Worth Your Time

On Narrowing the Field: Honeywell International Inc. general counsel Anne Madden told Bloomberg Law’s Ruiqi Chen about how she cut down her company’s law firm relationships from around 100 to a strategic panel of just 13, including a number of medium-sized firms.

On Money Back: Crowell & Moring, Holland & Knight, and Loeb & Loeb were among firms that reversed coronavirus-related salary reductions as Big Law firms continue to outperform their worst-case scenarios from earlier in the year.

On In-House Hiring: Mobile investing and financial technology companies Robinhood Markets Inc. and Stripe Inc. have recruited dozens of lawyers in 2020, Brian Baxter reports. The companies could be pursuing initial public offerings that would increase their need for in-house legal experts.

On Bar Exams: The Florida Supreme Court is allowing a supervised practice program, Sam Skolnik reports, in the latest twist in a saga that’s involved a thrice-delayed bar exam for the Sunshine State’s soon-to-be-attorneys.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editors responsible for this story: Rebekah Mintzer at rmintzer@bloomberglaw.com; Chris Opfer at copfer@bloomberglaw.com

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