UK Litigation Funder Eyes Untapped Parts of US Market

As the market for litigation funding continues to mature, more and more investors view the U.S. as the logical place to expand.

On Monday, U.K.-based Woodsford Litigation announced it plans to open an office in Philadelphia, and has tapped former U.S. District Judge Shira Scheindlin, who is currently retired from the bench, as an advisor to its investment panel. It plans to invest $150 million in the next two years, and put 75 percent of that, or $112.5 million, into domestic U.S. litigation, according to its CEO Steven Friel.

[caption id="attachment_3407" align="aligncenter” width="387"][Image “Judge Shira A. Scheindlin at Big Law Business Summit” (src=https://bol.bna.com/wp-content/uploads/2015/07/IMG_8972-e1462191340417.jpg)]Former U.S. District Judge Shira Scheindlin. Jamie Watts for Big Law Business.[/caption]

“I think the U.S. is a key growth area for the entire litigation funding industry,” said Friel, who described the U.K. litigation finance market as already “saturated.”

Friel said his investment thesis is that large parts of the U.S. litigation market have not been penetrated by third-party funders: This means lawyers located in geographic areas outside of California, New York and Chicago have generally been overlooked by third-party funders. It also includes lawsuits with damages under $100 million, he said.

“Our peers are focused on the $200 million-plus cases,” said Friel. “There aren’t that many of those cases around.”

Woodsford will target litigation boutiques with around 20 to 30 lawyers. It funds individual cases and also portfolios, and will invest capital to pick up hard costs, such as expert witness fees, e-discovery, or for travel and translation, he said.

As far as returns, Friel said the firm is looking for a multiple of what it invested or a percentage of the judgment, and generally aims to obtain a return within 12 to 18 months of its investment.

Founded in 2010, Woodsford is chaired by Yves Bonavero, a businessman who has been involved in mortgages, homebuilding, logistics and other industries. Friel characterized Bonavero as the patriarch of a family trust, which is the main shareholder in Woodsford, although there are other shareholders too, he said.

Woodsford is in “active discussions” with a hedge fund and an investment bank to make group investments, according to Friel, who added that they often speak to Fortune 500 companies about litigation finance although none of the discussions have been fruitful.

“We’ve had plenty of discussions, but haven’t had any of those deals go over the line,” said Friel.

In Philadelphia, the firm has tapped Josh Meltzer as its U.S. managing director. Previously, he worked for Rembrandt IP Management, which acquires, manages and helps owners “monetize” intellectual property. Meltzer said he helped launch the company’s litigation funding business.

Prior to that, he worked as director of business development at Intellectual Ventures, the company founded by Microsoft’s former chief technology officer Nathan Myrvhold, which has raised billions of dollars buying patents, which it licenses to major companies, according to its website.

In January, Woodsford recruited Zachary Krug, a senior associate at Quinn Emanuel in Los Angeles, to be an investment officer. Krug clerked for former U.S. District Judge Shira Scheindlin in 2006 and 2007, and suggested the firm ask her to sit on one of its investment advisory boards, which make recommendations about cases to invest in, Friel said.

Scheindlin, who retired in April 2016 from the bench, is currently of counsel at Stroock & Stroock & Lavan, and an arbitrator and mediator for JAMS. A Woodsford spokesman said she would not be available to comment for this article.

Asked if her multiple roles could create conflicts, wherein, she could arbitrate or mediate a case that the firm simultaneously invested in, Friel said there was no way. Although parties that accept third-party financing for litigation are not currently required to disclose it, he said that Scheindlin would be required to disclose any conflicts as an arbitrator.

Still, there has been a growing push for greater transparency in the litigation finance industry.The International Association of Defense Counsel recently endorsed a petition put forward in June by the U.S. Chamber of Commerce, which proposes an amendment to Rule 26(a)(1)(A) of the Federal Rules of Civil Procedure to require disclosure of third-party litigation funding at the outset of a lawsuit.

Mark Behrens, a partner at Shook Hardy & Bacon, who chairs the IADC, said his group is not opposed to third-party funding, but its presence can affect settlement discussions. Sometimes, third-party funders will persuade a litigant to accept or reject an offer.

“The defense lawyer concern is to know when they go to the settlement table, are they dealing with a person who’s actually able to settle the case,” said Behrens.

Write to the reporter at gabefriedman@outlook.com.

Write to the editor at csullivan@bloomberglaw.com.