Bloomberg Law
Sept. 8, 2022, 9:30 AM

Litigation Fund Fight Shows Trap Lurking in Win-Win Deals

Roy Strom
Roy Strom

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we dive into a dispute between a litigation funder and a law firm it says owes it nearly $2 million. Sign up to receive this column in your inbox on Thursday mornings.

Litigation finance has grown into a multibillion-dollar industry in the US, typically offering law firms a win-win proposition: Take the money upfront and only repay it if your case ends up a winner.

But a dispute before a federal judge in Delaware shows that the proposition can be more complex in practice. In fact, the case highlights how litigation finance deals—marketed to help law firms grow their business—can turn into an albatross for law firms and funders alike.

Woodsford Group Ltd., a major litigation funder, is trying to collect a nearly $2 million arbitration award against a San Francisco law firm.

The firm, Hosie Rice, has shirked its debts, Woodsford claims. But Hosie Rice tells a different story: Woodsford is going after fees that were never part of the deal.

The dispute kicked off after a Hosie Rice client refused to pay a contingency fee after reaching a settlement in a case funded by Woodsford.

An arbitrator ruled the law firm was owed some hourly fees in the case but not a contingent fee award. That set up the question Hosie Rice says is at the heart of its battle with Woodsford: Does the funder’s contract allow it to recover hourly fees or just the contingency fees that come with a win?

A panel of three arbitrators found the contract gave Woodsford the right to collect from the case, granting the funder a $1.8 million judgment.

Steven Friel, chief executive officer of Woodsford, called the case a “straightforward debt collection matter” that’s only been complicated “by the delay tactics of recalcitrant debtors.”

“Woodsford provided significant funding to a law firm and repayment to us is now long overdue,” Friel said in a statement. “All arguments raised by the law firm and its two principal partners in an effort to avoid payment were roundly rejected by a panel of three highly experienced and well-respected arbitrators.”

But Hosie Rice partner Spencer Hosie says giving Woodsford a cut of its hourly fees—which were owed regardless of the case’s outcome—belies the very nature of the risky, high-interest financing agreement.

“Woodsford transformed a high-risk but high-return contingency financing into a high-return but no risk fully secured loan,” Hosie Rice’s lawyers wrote in a court filing.

The fierce dispute has even included an attempt to repossess the law firm owners’ California home.

Striking a Deal

Hosie Rice is run by a husband-and-wife team, Spencer Hosie and Diane Rice, who represent patent owners in disputes with Big Tech companies. They’ve taken on the likes of Google Inc., eBay Inc., Microsoft Corp., and MasterCard, and their website says they’ve obtained verdicts or settlements worth over $2 billion.

The duo turned to Woodsford in early 2018, seeking financing for a group of cases they were handling on a “hybrid” basis—they’d receive discounted hourly fees from their clients but also have a contingency agreement giving them a stake in any settlement or verdict.

Hosie Rice says the agreement signed with Woodsford later that year gave the funder the right to collect only when the firm received contingent fees from settlements or verdicts. It would pay an annual interest rate of 26% and owe Woodsford the first $250,000 it collected.

The agreement seems to have worked fine for the first tranche of money Hosie Rice took, totaling $550,000. The firm repaid Woodsford $800,000 within months of receiving that money, leaving it with a prepaid interest credit of more than $235,000, according to court documents.

The second tranche, totaling $800,000 in early 2019, is what led to the dispute.

Hosie Rice v. Space Data

Hosie Rice used the money toward a case against Google brought by Space Data Corp., which sets up Wi-Fi systems using balloons. Hosie Rice’s relationship with Space Data Corp.’s CEO deteriorated as the two fought over the potential value of a settlement with Google, according to court documents.

The law firm reached a partial settlement over claims Google violated a non-disclosure agreement, and then was fired by a client who refused to pay its bills.

In an arbitration proceeding, Hosie Rice pursued $5.2 million in unpaid hourly fees from Space Data. The law firm also sought a contingency payment, roughly $1.3 million, resulting from an $8 million settlement, according to an arbitrator’s ruling filed in court.

An arbitrator in January 2020 ruled that Space Data owed Hosie Rice up to $4 million of its fees and costs but denied “any additional contingency award” from the NDA settlement.

Hosie Rice has clung to this language in its dispute with Woodsford. The firm takes the position that it never won a contingency award, so it shouldn’t have to pay Woodsford.

While the funding agreement between Hosie Rice and Woodsford remains confidential, a term sheet drafted during the negotiations says repayment is triggered “when contingent fee income is received.”

“The Arbitrator’s decision was entirely clear: the Firm received most of its hourly fees, but not all. The Firm recovered no contingency fees whatsoever,” Hosie Rice lawyers wrote in a court filing.

Hosie Rice is far from the first law firm to claim a litigation funder is seeking payment from fees outside its agreement.

Bloomberg Law reported last year that litigation funder Pravati Capital had a track record of suing lawyers for fees the lawyers often argued were came from cases outside of their agreement. The funder was largely successful in those arbitration cases.

Woodsford Wins

Founded in England in 2010, Woodsford is one of the largest litigation funders today and a founding member of a British trade association that self-regulates the growing industry.

Litigation funding companies in the U.S. committed $2.8 billion toward new deals in 2021, an 11% increase from the prior year, according to a survey by brokerage and consulting firm Westfleet Advisors. The survey found 47 funders controlled $12.4 billion in assets, up 10% from 2020.

Woodsford says Hosie Rice’s $4 million arbitration award triggered its obligation to repay the funder. About eight months after that award was handed down, Woodsford sought to foreclose on a family home owned by Hosie and Rice that was put up as a collateral in the deal (Hosie Rice says a separate arbitration ruled in its favor to stop the foreclosure.)

Woodsford went to arbitration in September 2020 seeking payment and won its award for $1.8 million in July last year. A three-arbitrator panel ruled the arbitration met the contract’s definition of “gross revenue” and a “revenue event” that triggered repayment.

“Hosie Rice’s legal and factual arguments for why they should not have to repay their debt to Woodsford are bad,” Woodsford’s Friel said in an email. “They failed to convince a panel of three highly experienced and well-respected arbitrators. All of this has been resolved entirely in Woodsford’s favor.”

Hosie Rice argues the arbitration award should be vacated because the panel improperly ruled in Woodsford’s favor without allowing discovery into the dispute over whether the arbitration award was an hourly or contingent fee.

The Delaware judge will now decide whether to grant Woodsford the arbitration award or side with Hosie Rice and toss it.

Federal judges rarely overturn arbitration awards, making Hosie Rice’s bid unlikely to prevail.

But regardless of how the judge rules, it will likely be the last deal between Woodsford and Hosie Rice. The funder terminated its contract with the law firm in June 2020.

Worth Your Time

On Big Law Associates: The competition for associate hiring is cooling off, Meghan Tribe reports, as Big Law firms suffer a decline from record levels of M&A deals and other transactions that drove huge profits amid a tight labor market the past two years.

On Miami and Big Law: The rush of Big Law firms to Miami is putting a strain on the local real estate market, with lawyers looking to work in the same office buildings as the new financial institutions that have flocked to town, Tiana Headley reports.

On Gibson Dunn: Gibson Dunn hired Gregg Costa, who left the U.S. Court of Appeals for the Fifth Circuit last month, Seth Stern reports.

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

To contact the editors responsible for this story: Chris Opfer at; John Hughes at

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