Litigation Funders Call on Big Law to Collect Global Judgments

Jan. 30, 2020, 9:50 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at how litigation finance firms’ desire to collect judgments is helping to fuel that practice for at least one Big Law firm.

Litigation funders want to win cases, but sometimes the real battle is about getting paid. And that can create an urgent need for a particular type of Big Law service: executing strategies to extract payments from around the globe.

On that front, Gibson Dunn & Crutcher has been a go-to firm for at least one financier keen to take stakes in lawsuits, Tenor Capital Management. Since third-party funders are not required to disclose their interests in U.S. litigation and most international arbitrations, it’s rare that such relationships are even publicly revealed.

But Gibson Dunn’s work for Tenor has already made headlines in a case seeking to extract payments from Venezuela on behalf of a spurned Canadian mining company. A team led by Robert Weigel in that case has already obtained about $500 million from Venezuela and holds a lien against the shares of oil giant Citgo Petroleum Corp. After successfully arguing that Citgo was controlled by the Venezuelan government, Weigel’s team could ultimately force a sale of the company to satisfy a $1.4 billion arbitration award. The country’s leadership struggle is also a complicating factor.

Grabbing shares of a Venezuelan oil company is one thing. What about getting access to the bank accounts of hundreds of Chinese counterfeiters? Weigel and his team at Gibson Dunn haven’t yet cracked that for Tenor.
The team this month lost a round in its effort to collect a $1.8 billion default judgment originally awarded to Nike and Converse in 2015 after the sports apparel makers brought trademark infringement claims against nearly 650 alleged counterfeiters in China.

The judgment was assigned from Nike in early 2017 to Next Investments, an entity owned by Tenor Capital. It’s not known what Tenor paid for the judgment—U.S. District Judge Colleen McMahon opted to privately review the sale agreement after lawyers from Quinn Emanuel asked for its disclosure.

Tenor, which did not respond to a message seeking comment, likely did not pay much based on how difficult it would be to collect such a large figure from small retailers in China, two sources in the litigation finance industry said. The knock-off goods sellers hadn’t even shown up to defend themselves in U.S. court—hence the default judgment.

But Weigel’s team had its eyes on a deeper-pocketed source, the Chinese banks that allowed the defendants to transfer money from U.S. consumers back to accounts of the sellers in China. The plaintiffs argued the banks should pay about $150 million for failing to comply with a court order freezing the defendants’ bank accounts and also not responding to document production requests. Weigel sought an order requiring the banks to turn over the remaining funds in the defendants’ accounts.

Ruling in favor of the Chinese banks, Judge McMahon relied on a New York legal doctrine known as the “separate entity rule,” which protects foreign bank accounts from U.S. law.

“The writ of the Sheriff of New York County does not run to China,” McMahon wrote. She added: “Assignee is hardly the first judgment holder to encounter difficulty when attempting to collect from a foreign debtor. It happens all the time, and to parties with considerably fewer resources.”

Carey Ramos, the Quinn Emanuel partner representing the Chinese banks, said the ruling was beneficial for New York’s status as a banking center.

It won’t do much to help litigation funders extract payments internationally, though. Had the ruling gone the other way, it may have created “a roadmap for acquiring judgments around the globe,” Ramos said. The case may yet be appealed.

Weigel, who declined to comment, has a long history acquiring payments from far-flung defendants.

In 2014, a Gibson Dunn team including Weigel filed a lawsuit against the Republic of Croatia on behalf of UBS AG, seeking more than $45 million related to unpaid debt issued in 1988 by then National Bank of Yugoslavia. The two sides reached a settlement in 2015 with undisclosed financial terms.

Weigel and Gibson Dunn sought to recover more than $2 billion from Iraq’s Kurdistan region on behalf of Peal Petroleum, which said the government had interfered in its contract to develop natural gas fields. The two parties reached a settlement that included a $600 million payment to Pearl and another $400 million toward infrastructure to develop and work the gas fields.

Cases that involve enforcing investor-state arbitration awards are particularly attractive to litigation finance firms, said Victoria Shannon Sahani, a professor at Arizona State University Sandra Day O’Connor College of Law who has written about third-party funding in international arbitration.

It’s impossible to quantify the amount of money funders have put into arbitration cases due to lack of mandated disclosures, she said. Nonetheless, third-party investors are drawn to those cases because of the large sums involved and the flexibility that the arbitration system affords in seeking payments, Sahani said.

International treaties require that court systems in more than 160 countries enforce arbitration awards. Big Law firms, with their global scope, are among the best positioned to facilitate the payouts.

“That is a big deal,” Sahani said. “Because, in the end, if you are a funder it means nothing if you can’t collect.”

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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: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com

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