Dai Wai Chin Feman - ILFA

Hinzugefügt: 2026-06-07

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[00:00:46]Um, we have a terrific guest today. Um his name is Dwy and he's just known as Dwy in the business. Dy uh a brief introduction. Tell us who you are. Tell us what you do and uh we will get into it. Thanks Ted. My name is Daiw Chin Feeman. There's no correct way to pronounce it. I'm the US chapter chair of ILA which is the commercial funding industries trade association. Most recently I'm managing director with Parabellum Capital. And uh I remember when we met back early days, you were with Vannon. We were at a conference.

[00:01:24]They weren't as glitzy back then as they are now. And uh >> that one was not glitzy. I can promise you that lacked all glitz. I remember that conference room. Yeah. Yeah.

[00:01:33]>> Yeah. But it did go down in history because um there was apparently a fight that broke out between Tom Gerardi and I forget who else it was in the audience.

[00:01:43]>> Oh, well there you go. That's pretty good. That's very exciting. will die.

[00:01:46]Thank you for um thank you for being here. Thank you for jumping on. Um so really quickly before we get into your work in the field and what you're doing at ILA and the other stuff we have today, um I kind of ask everybody who comes on about this because I think this is sort of a interesting how you kind of jumped in the business. Um, what was the first funding deal you were either involved with or aware of and kind of figured out that um, you know, this industry exists and how it works?

[00:02:15]>> I can't remember the deal. I I guess I would say Danziger, but this really goes back to over 10 years ago. Lee Ducker from Lake Willings. Uh, they were posting on Above the Law about litigation funding.

[00:02:27]>> I remember those. Yeah. Yeah.

[00:02:28]>> Yeah. Yeah. And it was it was super interesting. You know, it's like when you go to your first litigation funding conference, it's everything is very eye openening, eye openening and illuminating. So, I started reading his post and thinking these guys do the good part of the cases. They don't have to fight all day long with lawyers. They just kind of focus on the merits and move on. And uh that was it.

[00:02:47]>> Yeah. Interesting. Okay. And then you uh you went on um you did some work I know uh for many years as a um investment professional in the business. I know you have the title of half your title there is free agent but um you also were doing something and I think this is really what is you know made you you know as visible as you are in the business. Um tell us uh tell us about um what is going on and what you are doing at just give us a couple couple bars on that.

[00:03:20]Yeah. So, I'm the US chapter chair. So, we're handling everything domestic. That involves the like kind of three and a half federal bills we've been dealing with this year. We've had action in I think over 25 states. And then you've got other kind of state level submissions like in Pennsylvania on the disclosure rule, bar associations, um lots of networking with judges and academics. We're kind of covering the whole field here. We have a number of committees within ILA that generate content that cover IP, cover government affairs, and then we're also coordinating, managing a large staff of lobbyists federally on the state level.

[00:03:53]So, it's a it's a big undertaking. We've got a strong team with a lot of our members stepping up. Uh, it wasn't a big change for me to come into the role.

[00:03:59]Just kind of formalized a lot of what I was doing before. And it's busy. I would say it was unprecedented this year. We all felt it. And this was kind of in the aftermath of of Tillis, which we all felt, which, you know, brought the industry together a lot. Now we're, you know, a lot more organized and ready for what's coming.

[00:04:15]>> Interesting. Okay. Um, so I think, you know, look, from from what I see, the um the easy um the easy attack on um litigation in general, right, tort reform in general and then litigation finance um is this idea that it it drives costs. Um but what I think you know people miss is you know when you look at what something costs you have to talk about what are sort of the benefits right and so you know when you're thinking about the kind of cases that um litigation funders are involved in um you know can you give people just like a little bit of a flavor of you know the kind of like accountability the recovery of the treasury from false claims act cases like what is the you know what is the the upshot of this uh of this money.

[00:05:10]>> So I think we heard the costs a lot in the in the tillis debate obviously there's all these positive externalities court. Um what I like to say you know when I'm on the hill which I was yesterday or otherwise you know in legislatores is you know you're coming at this viewing it as a lens of you know we're controlled by the foreigners or something like that. There's no evidence of that. But what I can tell you is that I have personally funded cases against hostile sovereigns for stealing American technology. We're the good guys here and and and and that's our story. Um and it's true obviously all the case studies that you see and at a minimum you know we're we're we're doing a lot for companies and their creditors. Uh we are helping recover assets and and that's a huge thing and something that needs to happen otherwise there's no accountability. Um I would say that you know what's what's underappreciated is the private enforcement mechanism of what we do. So Ted you're a plaintiff antitrust lawyer you know AI the plane of spar private enforcements it's a huge thing in this country especially given kind of how our antitrust case origination works versus what happens in Europe with the followon cases.

[00:06:17]>> Um and so you know that's all that's all needed. Um, >> yeah, and I for I forget the name of the I forget the name of the Supreme Court case, but you know, the Sherman Act was to create private attorneys general, and that's why there's treble damages, and that's why there's fees because, you know, not every antitrust violation can be policed by, you know, the state AGS or not everything can be policed by um, you know, DOJ and FTC. And you know, I think about competition cases because you know what you always come back to is like in antitrust, which is obviously a big part of funding, right? Like the antitrust laws protect competition, not competitors. Um why do people enter into a price fixing cartel? Because it is profitable. What is something that takes away that profit motive? private antitrust litigation, which of course, as you know, is where, you know, a material amount of the money in our industry um has supported just given the, you know, massive cost to bring in those cases.

[00:07:26]>> Yeah, very cost intensive.

[00:07:28]Definitely definitely need our capital.

[00:07:31]I mean, there's there's a division kind of of of how capital's provided for these cases. You have self-unding, you have debt finance, right?

[00:07:38]lines, you have third party capital. I think >> we're there to make sure lawyers have have options to finance these cases, to make sure the meritorious ones go through. Again, we're the good guys here. Um, I am Chinese, but Trump went to China last week. It looks like everything was cool. So, the the foreign influence narrative uh hopefully is well Putin went there this week. But anyway, I I digress. Okay. Um All right. So, um, let's do let's do one more litigation because I'm just going to go for the battle of stats. So, I read something last week that, um, these guys claim that litigation funding costs um, $54 billion a year to consumers. Um, I also read that the opioid litigation cost um, in the trillions. Um, we know that litigation funding was used, obviously, it was a big part of stemming that time. So, um, can we safely say that, uh, if you look at it that way, the benefit, you know, far outweighs the cost? Because that's what all this comes down to, right? Like cost benefit, at least in some level.

[00:08:41]>> It's kind of like saying, oh, well, like that environmental cleanup was really expensive for the community. I mean, the cost is driven by the by the wrongdoer, you know, by the bad actor here.

[00:08:53]>> We we should outlaw truck repairs because it's really expensive for the trucking industry. And it's like that's true, but you know, if the trucks repaired, maybe we can have an industry.

[00:09:01]Okay, now let's do um Okay, so we've had our stick. It was very good. It was just how we practiced it. Great job. Okay, so um now that we've gotten that out of the way, um there's been a lot of talk about um different ways to structure um both the form of the firm and then the um sort of the capitalization of the firm. term and there's sort of two buzzwords. We have the ABS, the alternative business structure, and we have the MSO, the master service organization. So, I guess, you know, I would just throw it out to you. Um, what are sort of Ilf's thoughts on this?

[00:09:42]Where's the discussion going? I'm kind of interested.

[00:09:45]>> So, the discussion has so far come up in three state specific contexts, which are California, Illinois, and Colorado. Uh in all three of those states, the trial lawyers are pushing the bill and uh they're >> pushing when you say pushing the bill.

[00:10:00]They're against it. They're for it.

[00:10:01]What's >> Sorry. The trial lawyers are the sponsors of the bill. So trial lawyers um have a trial lawyers association in every state and nationally there's an there's an organization called AHA, the American Association for Justice. And in three states so far, the state trial lawyer associations have sponsored legislation that would limit fee sharing with ABS's or MSOs or even prohibit them from operating in case certain cases in Colorado. Um so far we've been in a position where you know fully opposing the bill um was largely feudal given the trajectory of those bills in the states where they are and the strength of the sponsors. Our focus has been on making sure that the language of the bill is not so broad that it inadvertently clips law firm portfolio funding. And so we've been working with the trial lawyers in those states. In Colorado most recently there's a carveout that we obtained for portfolio funding. You can look at it in the Colorado bill which I believe has been signed into law. So we've been working to compromise in those areas but we're expecting a number more states to pop up. There's another trade association called NALA which represents the ABS community. They've been active and I believe there's another trade association that'll be forming soon as well.

[00:11:14]>> All right. So, so that's kind Yeah. So, let me unpack because that's kind of interesting. So normally the um the you know organized opposition to funding and things around funding come from you know big companies that don't like losing their asymmetric advantage and litigation and insurance companies who have the same issues. They want to settle your traumatic brain injury for $1,100.

[00:11:39]um and you think, "No, I'm going to need lifetime care." And they're like annoyed that you can litigate it and then they lose and then they say that the um lawyers use reptile lizard brain tactics when in fact they should have just, you know, paid you the policy limits. So, but here you have trial lawyers against this form of funding. So, what do you think is kind of, you know, what do you what do you see the thought behind that and where that's going to shake out? I I think it's like a preservation of mode largely and I think there's a lot of buzz about private equity and other Wall Street capital entering the legal market which is previously untapped and with these new structures or newest structures or ideas of applying these structures they think there's access to what's probably >> an inefficient market in a lot of ways because there hasn't been professional non-awyer management of these of these organizations. Um, I think you're seeing this mostly on the injury and tort side where there are examples of private equity capital going into one of these organizations with the intent of acquiring other law practices. Uh, many of which are in the referral game only and and really their value is, you know, you could think of it a lot like trademark value or trade name value given given how a lot of these uh a lot of these law firms originate clients and that's where the value is. So, I think I think that's what's going on. you have an unlikely alliance at least in Colorado we saw between the trial lawyers and the and the uh and the Colorado Chamber of Commerce just like kind of how litigation funding access to justice historically you'd think of as more democratically aligned now has bipartisan support from from the conservatives as well >> right and I guess that um you know the the way I've always sort of thought about and I keep I keep waiting to hear it and I haven't seen it yet but um are you aware of any examples where a client's legal rights um were harmed or they weren't sufficiently um you know sufficiently vindicated because of the capital structure of the law firm.

[00:13:41]Um, I guess I'm aware of the Dentons verse case, but apart from that, no, >> I don't know. Right. So, because I, you know, the way I kind of think about this stuff is, um, law firm success is largely driven by doing highc caliber work and driving the best result. By the best result, I mean not every case will win, right? There's a winner and a loser. But, you know, there is the best result and I I haven't seen now in fairness, the MSO model, um, there's not that many of them. The ABS model has only been around for a couple years, but, you know, you know, I keep waiting for someone to show me the horror stories of, oh, that private equity firm said, don't file that motion, right? Or that private equity firm, you know, only did this. I don't I sort of don't see it going that way. And you know, I think what we're all going to have to face is the reason you would have an MSO or the reason you would have um an ABS structure is because the people who own and operate the law firm, they find that to be a superior level of financing than self- financing or recourse bank debt or traditional litigation funding. What do you think about that? I think it's important to preserve especially because as we saw with the tillis tax there are things that can come that are unanticipated angles and to the extent flexibility is needed to continue our business because remember litigation funders are managers we have LPs many of many of whom hold interest in funds that are in harvest periods that are mature we need to protect those and if there need to be pivots in investment or harvest periods I think it's beneficial for the industry to have the ability to do that the issue though is that I think there's kind of the the perception amongst the trial lawyers that ABS MSO this is all the way to either actually in the case of ABS or in the case of MSO synthetically obtain equity in a law practice when really that's not allowed and they see that as just a straight up 54 violation and and so there's going to be a division between those types of MSOs that are set up for true efficiencies and volume practices versus those that are set up you know as corporate structuring. The thing about the legislation that gets put forth so far in these states is each first draft is broad enough to hit both. It needs to go through a negotiation process. U but generally you know there's going to be a lot more favor amongst the proponents of the legislation for the you know true MSO economies of scale um versus you know the MSO that's there you know to synthetically replicate um an equity interest.

[00:16:25]>> All right so let's talk a little bit more. So, you know, I know that in your prior life before your free agency, um you were spending a good deal of your time on um commercial disputes, you know, businessto business uh disputes. I don't get the sense that you all were doing a lot of, you know, mass tor cases or weren't doing a lot of personal injury cases. But I think what's lost on people is, you know, to get um to get paid in your mass case after the 8 or 10 years of litigation, you need to provide detailed medical records. And in fact, if it's a medical device, you might need to produce an X-ray that shows the skew number because of the eight different versions of the device, you know, the settlement only covers four. And that is wildly capital intensive, but that is not work that is done by lawyers. So I think that when you unpack the idea of outside capital coming into those kind of law firms, it kind of makes sense because a lot of the work that deres the value and the value is proving up the case is not billable hour, you know, legal work that needs to be done by a lawyer. It's really more frankly investigative and documenting things.

[00:17:47]>> The the issue is that if you're a law firm in that situation, you could be presented with two types of MSO structures. One is economies of scale.

[00:17:56]Spin it out, get it off the balance sheet, but but overall save money. The other is use it as a way as an infusion of capital where the return is something where the payment would be far above market for what it is, but it enables the injection of capital. So I think those are the two models that at least in the eyes of the proponents they're they're kind of faced with before them.

[00:18:17]>> But the thing that will kill the ABS or kill the MSO is if they're poorly managed and they don't get the legal results and they won't have the client. Right. I think ultimately that is you know law law firms survive based on providing the best outcome. Um okay you're talking about that hasn't happened though. I mean that it hasn't right. They're worried it's going to happen. And once someone's worried about that, you know, it's hard to get the ideas out. They want the idea out of that. They want to prevent it.

[00:18:46]Everyone's aware of the rules of professional conduct, you know, and that's um something paramount for these folks. But yeah, I think it's interesting. It's going to be a lot more of what's happening and what we do and what we talk about and obviously it's going to affect the capital markets on the MSO given where some of these firms are are located.

[00:19:05]>> Okay. So, um, because this is a buzzy podcast and we're right on the pulse, um, you've heard of AI?

[00:19:15]>> Yeah.

[00:19:16]>> Okay. Um so in your view I mean what is what do you think this does to big law um over the next three or four years as to how matters are staffed and how you know first level work is done.

[00:19:37]>> I think the big big law model we've been saying it's under pressure for a long time but that hasn't been borne out in the PPP. They're they're doing very well. I think it's foolish to think that the cost of legal services is going to go down. Um it's >> Oh, I I agree with that. It'll be Oh, yeah. It's It's not going down. I agree.

[00:19:53]>> It's not going down. In terms of staffing, um I'm not sure. Um and I think that part of that is in clients hands is how do they direct the staffing and make sure the clients are being efficient using AI? Um and I'm a law firm today as you can probably see. Um some of the lawyers here are not at using AI, some are enthusiasts, but it it hasn't fully caught on yet. There's still a lot of stigma. We'll get past that pretty quickly. Um, I think you're going to get into, you know, as AI becomes more competitive and there's more throttling, there's going to be a lot more costs to pass on to clients and you're going to be back to Westlaw Lexus kind of phase one and pass on. That's going to be interesting about how those costs are born. Then of course um with AI enabled discovery um you know if if you speak to a to an expert firm right I speak to econometrician two weeks ago and I said um is this going to bring down the costs of of expert work in antitrust cases because that's obviously a tremendous line item at least with the data cleaning or whatever else you >> oh the data I mean the it's it's unbelievable the spend on this stuff it's unbelievable >> yeah it's typically like uh 60 to 100% of the fee budget is costs and they're they're a lot less negotiable, but the expert firms are built a lot like law firms.

[00:21:05]>> So, you're going to see issues there.

[00:21:06]But then with with AI enhanced discovery, >> uh the answer of this economatrician was well, we're going to have a lot more discovery disputes, a lot more indepth analysis of a lot of things and it's just all going to get a lot more expensive. On the other hand, you know, will it be more efficient?

[00:21:22]Will there be more tools to enable defendants to more, you know, rationally settle cases? Will the judiciary and the arbitrators really adopt it to to speed things up because that's ultimately going to affect the tenor of investments which is a huge issue issue for the asset class.

[00:21:36]>> Well, I think you um you hit on something there. It's a little it's sort of a sneaky point but I think it sort of makes sense is you know if you are a defendant in one of these mega cases and like let's face it there are injuries that you caused, right? I'm not saying that every claim and not every claimant will bear out, but you know, one of the use cases and you know there's a there's a company in the space that sort of says this like we help defendants figure out what their exposure is in these cases which I think is very um which I sort of think is very interesting. I think that >> well there's a whole defendant liability transfer industry out there and that was at the heart of the the DQ motion in tal with Beasley Allen.

[00:22:22]>> Part of the story was how the information was allegedly on both sides.

[00:22:26]>> Right. Um, where I think AI is really gonna put pressure on law firms is I think the in look look it was funny you were talking about um how interesting you thought it was Lake Willins talking about funding where it's like you do the highle stuff and don't have to do the stupid fights and as most people who litigate and I litigated for you know I guess I don't know 10 12 years whatever it was um so much of the motion practice does not affect the outcome of the case right like so in other words How many times have you said we object to interrogatory 25 because interrogatory 16 was three subp parts and blah blah blah and all that kind of BS? And I get the sense that for those motions that really don't matter. I think in-house people are happy to have Claude barf up something and then maybe send it to lawyers, you know. Um you would hope they site check it. You know, it's hilarious when you read these things about AI hallucinations as if like a junior associate never hallucinated anything either. But I think that's where there's going to be a lot of pressure is on the non-dispositive work. I think people are just happy for AI to just be like, hey, write write broad write broad stupid objections and responses and claude will spit that out in 30 seconds or what you whatever your tool is. You know, I like Grock, my guy Grock. You could spend 50 grand preparing for the depo or we'll give you this AI earpiece during the depo that will guide you.

[00:23:57]>> Alle allegedly.

[00:23:59]>> Allegedly.

[00:24:00]>> Is that another Is that another podcast?

[00:24:01]>> It's another podcast. Um another podcast I can tell you about the legal tech product I've vi >> I I I had a one where this this um the case fell on whether this person had knowledge of something and it took us two years to get his depo. And he goes, "Never heard of it. don't know what you're talking about. Blah blah blah.

[00:24:19]And then the arata sheet came back 30 days later said change no to yes. Change no to yes. So it happens. All right. Let me I just want to touch on one more thing because I get the sense your podcast here.

[00:24:31]>> You like to say the the points that are supportive of our fine industry here. Um this is a point that I don't think it's made enough about costs.

[00:24:39]>> So there there used to be a more prominent attack on our industry that we encourage or enable frivolous litigation. basically comparing us to patent trolls, which doesn't work for any number of reasons. That's a whole podcast kind of on its own, right? But the notion of frivolous litigation on the pliff side needs to be met with the notion of frivolous defense on the defense side. So, wait, hang on, hang.

[00:25:03]You're telling me the motion to reconsider, the motion for reconsideration was just totally merits based. It wasn't to like or like mandamusing discovery disputes in state court. You're you're just saying that was just good oldfashioned American litigation. Yeah. It's a joke. It's a total >> I mean you're we've we've crossed paths a number of times over the past eight or so years in the industry and you've seen a fair amount of you're aware of a fair amount of the deals that I've done and you've seen kind of nothing. You know, you don't get a real settlement offer until you've won at trial often. And so >> literally. Yeah.

[00:25:36]>> Literally. And you not why would you?

[00:25:38]the cases are maybe you know so big to some of us but to the big defendant you know the Fortune 100 company it doesn't matter and they try doesn't matter of course obviously certain defendants have that reputation in the patent space maybe they're not wrong given the Fed circuit who knows but on the commercial side when you have an insurance company involved that's when there's duties of good faith at play and that's where settlement is more likely there's a misconception that we fund insuranceback litigation um and the commercial side, it's indeed a rarity. Um, and defendants behave very differently in those circumstances. And I think it's kind of one of those worlds where actually if if we had control of litigation, which everyone doesn't want, but if we did, things would settle very quickly, very rationally, just like if if insurance companies were actually on the defense of this stuff, which they're not, but if they were, again, it would reduce it.

[00:26:30]So, >> you mean in commercial, right? They're not. Right. Right. In like big Yeah. In a big antitrust litigation, you don't have criminal price fixing coverage, right?

[00:26:40]>> Limited if you Yeah. And then there's limited insurance for intellectual property and other intentional acts. You're not going to get it.

[00:26:48]>> Well, the whole thing is like, you know, if you're the defendant, every case is frivolous. I mean, that's just like a that is a me it's just like a totally meaningless it's just a totally meaningless thing to to make up. And look, litigation is wholly unpleasant, right? Um, you know, for most small businesses, they're going to be involved in zero or one litigations, but you know, when something important happens, and you think of it this way, like you gota you got to kind of pick, right? So, either litigation has these eyepopping returns or the cases are all frivolous, but if they're all frivolous, how could they deliver returns, right?

[00:27:28]just sort of doesn't like it doesn't logically make sense. Although I guess attacks that are political don't have to make logical set uh you know logical >> it depends it depends how much you get into offsets. So, just to get back to what you were talking about earlier with talking about private enforcement, antitrust, there's the false claims act, right? Fraud, waste, and abuse. We'll see what happens at the Supreme Court.

[00:27:46]But it's another area. We're generating tons of money. And not to mention, if Charles AG reports that, you know, two billion are going out the door each year to American law firms or American nexus disputes. That's all fully taxed as well. So, there's there's definitely offsets to think about. Um, but that's that's where rationality comes in. Um, you want to talk about class actions really quick? I know we're running out of time.

[00:28:08]>> Uh I guess you're running out of time. I have nothing else to do today, but there you go. Okay. Um there's this really smart guy um who has an idea uh for funding class actions. Obviously, I know there's a proposal now about class actions, but like let's, you know, let's get real. Like somebody, you know, anybody can do it. Google, you know, the last five or 10 big class action settlements and how much was spent on outofpocket costs for the experts because just so people know who aren't lawyers, you know, while a a lawyer can be on a contingent fee and the class action lawyers are contingent, you know, an expert cannot have uh a contingent interest in a case because an expert is there to guide the court. And so those costs sort of add up. And so, you know, D, you had >> they're either borrowed or they're paid with paid for with after tax dollars.

[00:29:04]>> Oh, yeah. Exactly. Yeah. I mean, the the lawyer the lawyers are either self-funding it, they're borrowing it from a bank, or they're doing it out of pocket. Exactly. Um so D you had sent this thing over which I think is really interesting is you know it's like hey let's let's just like be realistic and let's talk about how are we going to fund these things because one of the things you know the rule 23 has adequacy of council and so you had some ideas about kind of you know let's just get all this out on the table and so just give me a little bit some sort of like the high notes on what you think might really work going forward given the fact that someone's got to fund these things.

[00:29:48]So give me some of your sort of high level thoughts on that.

[00:29:50]>> I think I think big picture if we look kind of the next couple years. So you asked me earlier about what ELF is doing there two big initiatives that I've had um kind of in addition to the blocking and tackling and and opposing legislation. The first one was the data initiative. So this was a project that started after Tillis um where the ULA team went and identified approximately 600 cases that we could find touching litigation funding in any way. We human coded them across about 12 fields. Um we had it AI verified summarized this data can be crunched, sliced and diced. And so um this summary I'll be putting out a paper in connection with the University of Missouri Kansas City law review uh which goes into that data and shows basically that empirically the rule the disclosure rule that saw it at the federal level doesn't exist anywhere to the extent there's a patchwork of of decisions it's because there's a patchwork of different facts in different cases of different types with different laws that apply. But the the the main principle holds which is that no one gets the the a copy of the funding agreement unless there's a special factor warranting its relevance.

[00:30:58]>> Right?

[00:30:59]>> So that's the data project. Tremendous undertaking. It's now been complete for a few months. It's updated. That's something we're going to be working with a lot to break the log jam with the advisory committee and just make sure they have all the data they need because again we're the good guys here. Open book. Next thing phase. I don't know what inning you think we're in of our industry or what game we're playing but next phase. So we started out single case kind of morphed to portfolio then it was like how does the industry scale and so one way to scale easily dollarswise is corporate monetizations that requires kind of advanced MDLs with lots of optouts for that to happen which is cyclical and as you you've seen kind of slowing down at least with the exception of healthcare perhaps >> and it's also wholly economically rational right you were overcharged for 14 years the MDL is in year 16, then you opt out and it's 20 years and you're a, you know, maybe you're a distressed restaurant chain, right, who bought >> proteins or you're a, you know, you're a health system that, you know, was overcharged in one of these many things going on and it's like, >> do you want the chance at $11 million in year 9 or someone will forward you X dollars today? um you know for these for these well-worn claims. I mean it it it all makes look these there's this misconception as if like our industry force this upon people. Why would a restaurant chain monetize its claim in the tuna price fixing litigation because it is economically superior than sitting around and waiting for it to see if they all go bankrupt.

[00:32:44]>> That's the answer. That is that is the answer.

[00:32:46]>> It's great. However, um in order for that money to be meaningful to real restaurant chains with claims, often the check size has to be out of the out of the range of a lot of litigation funders or they can maybe take one or two and then they've got to constitute >> and then they're done. Right. Right.

[00:33:02]Right.

[00:33:03]>> Right. And so scaling of corporate monetization is good but requires a number of factors. There's also the counterparty risk issue. So you saw what um Cisco did to Berford. You've seen other instances of of counterparties who um are not playing nice and and and create issues after they've received the funding. And and that's an issue in every case that's funded with a real life client. Every single case and even portfolios have some counterpart as with the >> Wait, wait, wait. You you say that people call you up and ask for a discount. If you say no, they maybe don't pay timely. You're you're saying that happens? Oh my gosh. Wait a second.

[00:33:41]>> We're breaking new ground. We're breaking new ground.

[00:33:43]>> Dumb will encumber the proceeds. Um, you know, various other things, but counterparty risk is a real thing. And and to to talk about your counterplane point earlier, I've been involved in a case where um you know, it resulted in a walk away settlement at trial even with an apology because the plaintiff was just, you know, they had a huge potential payday, but they couldn't live with the potential of a counter claim no matter how frivolous it was and the case got dropped mid.

[00:34:09]>> By the way, that one stings you man, you told me about that one a while. That one hurt, huh?

[00:34:14]>> I guess it I guess I guess it did.

[00:34:17]>> It totally did. That's all right.

[00:34:19]>> Counterparty risk.

[00:34:20]>> I've been there. I've been there, dude.

[00:34:21]I've been there. One of the most underappreciated forms of risk in the >> Oh, the counterparty is I I we tell it's so funny like we >> so we'll sometimes get on with a really like a like a top law firm and sometimes at the end they'll get sort of like the senior people on the investment committee on a call and they'll start asking questions that are so elementary and basic and you know my you know our clients will do it and they'll what do you think that was for? And I go, that was for them testing you. Like if you've been in a case for 3 years and the judge hasn't read anything, are you just going to have like a pleasant misde demeanor or you going to be like, you're wasting my time? So the counterparty is huge. And the underwriting of the counterparty because look, you know, underwriting the claim and the facts in the law, anyone can look up what the law is. They can look at the limited information. You could have a draft complaint the council, but you know, do we think that they're going to, you know, they're going to act rationally? Do we think they're going to bait and switch us? Do they, you know, like do we think that, for example, if a rational resolution came up early that they would consider like they would consider it or are they just going to be wild and off the handle? And that is a huge thing.

[00:35:44]>> We've had change in control. We've had death of counterparty. We've had we in my former in my former life uh prior to the agency. Um >> yes.

[00:35:53]>> All of these things, they can all happen.

[00:35:55]>> Right. Right.

[00:35:56]>> Why am I telling you about this? Um >> because you know where it happens a lot less is in the class action space. These are largely lawyer driven.

[00:36:03]>> Um funders have exposure to class action, significant exposure, but typically only through law firm portfolios. And I'm I'm disregarding the credit business for now. So we're just going to talk about commercial funders.

[00:36:14]law firm portfolio business. You only get access though typically to the most intensive class actions and there's a significant adverse selection issue. So we have here is um a market of class actions which is enormous which is penetrated very lightly by litigation funding to date in the grand scheme of things and in many types of cases there's no funding at all. Um there's a lot of scrutiny or suspicion that there's litigation funding in class actions that's undisclosed. We've had instances come up in in the Gilbert case for example. We have the Northern District of California standing order and the revised rule there. We also have you've seen the beauty contest, a big case and there's contested lead and the judge says disclose all these things.

[00:36:57]Give us your firm CV and do you intend to use litigation funding.

[00:37:00]>> It's like a dirty, you know, dirty answer if you say yes. At least that's how it's perceived.

[00:37:05]>> Yeah. Which is sort of wild. It's like yeah, we have the money to pay the experts to win the case on behalf of this class at our risk.

[00:37:13]Right.

[00:37:14]>> It's like it like throws it on its head like yes, we are willing to lever our return in order to deliver by the way a settlement that you, your honor, will literally have to sign off on as being in the best interest of this class.

[00:37:30]>> Well, so here Yeah. Right. So, let me I'm going to layer on one thing and then I'll kind of come back. The other thing is disclosure. Listeners, if you're podcast, are well aware of the issue.

[00:37:38]Um, and the disclosure issue, is there a funer there, especially in a class action? You know, if this is something that we could have the court know about in a non-p prejuditial way, that would be great. Big picture, our industry exists on a number of different continents. And in pretty much everywhere else, including in Canada, our neighbors to the north, litigation funding is, I would say, over 80% directed at class and other collective actions. And that's the commercial funders, not the credit business. Right?

[00:38:09]So that's what everyone's doing elsewhere. We're not doing it here.

[00:38:13]What's the issue? The issue is we have no mechanism to approve a class action funding agreement. You need >> not yet. Not not yet. We don't. Hang on.

[00:38:21]Here we go.

[00:38:22]>> Here we're creating one. Um so the goal here is to create a mechanism where um I think the court the court has the ability to do this on its own anyways when approving council but we'll propose a rule change to make it crystal clear but also specify it's within the court's inherent authority but a mechanism to approve a litigation funding agreement thereby binding the class to the agreement just like the class is bound to be represented by the interim leave council and so without that you know obviously no funer is ever going to enter into an agreement with a class rep where the agreement may not be enforced.

[00:38:53]ible. Brian Fitzpatrick wrote an interesting short piece if any wants to read it on an unjust enrichment theory here, but it would probably be uh you know unwise to take that risk with an uninforcable agreement. And so we need the mechanism. We don't have it right now. We have in insertions to the to the market through cost intensive class actions and portfolios. We have adverse selection issues. Top of that, a lot of law firms, especially on the class side, don't don't like portfolios, don't like crossc collateralizing things.

[00:39:20]Meanwhile, funders are chomping at the bit to get at the good risk and also to get involved in things that have less counterparty risk because ultimately that that affects returns and affects pricing. So what what um we're looking to devise here in a paper also for UMKC this summer is a mechanism to do this.

[00:39:39]So at the time that there is the beauty contest and uh appointment of lead uh the court would approve lead appoint lead counsel and also have the ability to approve a litigation funding agreement for the class. That agreement would make sure under court oversight that it has all of the right language about lack of control. The court would have oversight over the funding relationship to the extent there's any issues or could appoint a special master or something like that. the defendant would know that there's funding, know that the court has oversight, and that everyone's playing ball. Um, at the end of the day, uh, there would be a formula that's approved in the funding agreement by which the common benefit proceeds that are awarded are divided amongst the attorneys and the funer depending on the risk share.

[00:40:21]That way, there's no net increase in cost to the class.

[00:40:24]>> Right. They're get if if a super fund case gets 25 points, >> gets how they're chopping up the 25 points. Yep.

[00:40:30]>> Right. and it gets hacked up, the pie's also likely going to be bigger. And I'm gonna get to now I'll get to the beauty contest. If you're in a situation for a cost intensive case and the question is lead slate, a no funding, here's our firm resumes, we fund all this stuff all the time. Bother slate of firms, we have this funding agreement. Now, it's one thing to say in a vacuum when everyone or when everyone else is saying it, our firm has been doing class actions for 60 years. We have the wherewithal the self fund. We don't need litigation fund. It's another thing when a litigation funded backed slate shows up and says yes but here's our budget judge and we're willing to invest this much through MTD this much through class this much through SJ these are hard numbers you should go to the other slate and ask for the executive committee approval to match or exceed these numbers because these numbers early investment are what's going to benefit the class and so if you're >> well I guess also do we want I mean do we also want because look you know do we also want a wider array of counsel especially and look and in some of these cases you know um the work you know like and I don't want to name any particular cases but like you know uncovering an antitrust conspiracy absent it being like tuna where they just gave the emails to DOJ or FTC in the merger review but like you know the the workup of these things um is is incredibly time inensive and sweat equity and money for experts and stuff like that and then it's like, "Yeah, but we can't self-und it, so we can't do it." Right? Like that that's sort of like that kind of doesn't like that sort of doesn't like jive with like fairness, you know what I mean?

[00:42:10]Like, well, you can't afford it. Too bad, get out of here.

[00:42:13]>> That's right. Funding helps level that playing field. Now, however, like good luck getting a lot of funding prior to be being appointed lead, right, in order for that incubation or development. But you can do that through portfolio. Yeah.

[00:42:27]sort but it's sitting there if Yeah, but it's sitting there if needed. I mean, I think that would sort of be the idea.

[00:42:31]Yeah, >> that's right. And it's it's kind of like we create a hybrid model between Canada or Ontario with the public funer and then kind of the best of both worlds from Europe and UK acknowledging that we have more flexibility here in the contingent fee than they do in the CAT.

[00:42:45]And that enables, you know, a lot more flexibility in whatever construct we come up with here. But if we're able to open that market, that's the next frontier for litigation funding. It's also, you know, I think the next frontier for plaintiffs lawyers, uh, who who will have a mechanism, should they choose to use it, they don't have to use it, and there's not always going to be a funbacked, you know, contested applicant for lead, you know, they can still do it the way they want. Um, but they'll have the option option to do this and it can mean a lot with the after tax dollars, especially in the big cases, but the small ones, too. It also opens up the possibility of since you'll have that formula paying some portion of loadar something like that you know whatever you can do to to make them the deal that makes the most sense for the class.

[00:43:29]>> Okay. So if this works do we think we'll have um it'll be more or less attractive to participate in a price fixing cartel in the United States if this goes through for real because that's why they do it right. I mean that's why they >> that's why price fixing exists right for profit. So if it's harder and it gets policed and the lawyers have the money >> to this podcast, which I >> huh, >> which if enough people listen to this podcast, which um I think they will, um you know, they'll they'll they'll understand that. Well, let's just go to AI really quickly. So just back to that um in the future, you know, AI case origination, we've all seen it with DAR and other folks, but this is something that's >> Dude, you're getting deep. You've you've you're naming particular companies.

[00:44:15]You're talking about the cat. This is like this is jargon heavy. This is like this is for the hardcores. This is going to be a big episode. Trust me. This is what it's a little niche. We might be a little niche, but you've done it. You've hit it all. You've hit it all. It's great. That's why you're here. It's right here.

[00:44:29]>> This is what we do. This is what we do.

[00:44:31]Um I only >> We have more time to do podcasts now.

[00:44:34]You know, you only have one job. It's pretty good, right? And the dogs.

[00:44:37]>> That's it. One job and the dogs. Don't forget about my my nonprofit where we find lost pets and reunite them with their families.

[00:44:44]>> Is that tunnel recovery? Two tunnels recover.

[00:44:46]>> Two. See, I did. That was my crack research staff, aka me looked at your LinkedIn 30 seconds before we got here to find your elf email address. So, that was that was good. All right. So, D the question that everyone I have to ask um I'm doing it. This is like um you know where you going next?

[00:45:05]>> Um yeah. So, I'm excited um to make the announcement. Um 6:04. I'm really late for a happy hour for the class action money and ethics conference at the Harmony Club. So, I'm gonna head right there.

[00:45:16]>> Uh, but Ted, this was a real pleasure and um, thank you very much and I'll have you on my podcast one day.

[00:45:22]>> You're the man. Thanks, brother. Bye.

[00:45:24]>> Thank you. Bye.

[00:45:25]>> Today's episode is brought to you by Level 7 NYC. If your firm is spending on marketing without knowing what's actually working, guess what you're paying for? You're paying for guesswork.

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