NEW YORK (Legal Newsline) - Julia Gewolb, legal counsel at Bentham IMF in New York, one of the largest litigation finance companies, says a California federal judge was correct to order a plaintiff in a proposed class action against Chevron Corp. to produce his litigation funding agreement.
“I actually think the order was right,” she recently told Legal Newsline. “I think the judge did the right thing in this case.
“But I think the reaction to it was blown a little bit out of proportion.”
On Aug. 5, Judge Susan Illston of the U.S. District Court for the Northern District of California granted Chevron’s motion requiring plaintiff Natta Iyela Gbarabe to produce his funding agreement.
The plaintiff filed a proposed class action against the oil giant over a January 2012 gas explosion off the coast of Nigeria. Gbarabe alleges he and others similarly situated suffered financial and personal losses, including health issues, as a result of the explosion.
Illston said in her August ruling that considering the circumstances of the case, the litigation funding agreement was relevant.
“The confidentiality provision of the funding agreement does not prohibit plaintiff from producing the agreement, and instead simply states that ‘if at any time such a requirement [to produce the agreement] arises or to do so would be prudent... the lawyers will promptly take all such steps as reasonably practicable to make such disclosure…’” the judge wrote in her seven-page order.
Gewolb said the specifics of a case are what matter.
And in Gbarabe, she said, the plaintiff conceded two of the strongest and most common arguments against production of funding agreements: relevance and privilege.
“Here, the plaintiffs attorneys were two lawyers who were working out of their homes and admitted they were uniquely reliant on funding,” Gewolb explained. “Their only argument was the confidentiality agreement within the funding agreement, but it allowed for production pursuant to court order.
“So, I think the judge’s order made a lot of sense.”
It has become commonplace for third-party funders to pay the owner of a civil claim upfront in return for the claim owner’s promise to convey a portion of the potential recovery.
This brings tax advantages for both the third-party funders and class action plaintiffs attorneys, allowing them to defer tax liability on the monetary advancement until the claim pays off while the funders deduct expenses and pay taxes on profit accrued at the lower capital-gains rate. These agreements routinely are entered confidentially.
Bentham, which provides funding to plaintiffs and law firms for large legal disputes, established its foothold in Australia before opening an office in the U.S. about five years ago. The company quickly has become a leading litigation funder, dealing in commercial funding, law firm financing, whistleblower funding, appeal funding and some pro bono, public interest cases, according to its website.
It does not invest in class actions, Gewolb noted.
“The cases we typically fund involve pretty sophisticated plaintiffs,” she said.
Gewolb said most of the cases referred to Bentham come from attorneys and claimants who are looking for funding for a variety of reasons: to cover some or all attorneys’ fees, the costs of experts or, sometimes, working capital.
However, the company always does its due diligence before backing a case, Gewolb said. Typically, it only invests in about 5 percent of the cases that come through its doors, she said.
“We have an open dialogue about the claims, and we do our own research,” she explained. “We’re all former litigators here, so we know how to evaluate a claim. We know whether it’s likely to be successful or not.”
Bentham is one of three litigation funding companies who have come out against a proposed rules change that would require disclosure of third-party litigation financing.
In 2014, it joined Gerchen Keller Capital LLC and Burford Capital LLC in writing a letter to the 15-member Advisory Committee on Civil Rules regarding an amendment to Federal Rule of Procedure 26.
The amendment was proposed by the U.S. Chamber’s Institute for Legal Reform and others. ILR owns Legal Newsline.
The litigation funders have argued that such a proposed amendment is “unnecessary, untimely and contrary to the purpose of Rule 26.”
Twice, in 2014 and earlier this year, the committee has considered a disclosure rule. Both times, it decided to keep monitoring the issue, saying it didn’t have enough information to proceed.
Gewolb said the committee is right to take a “very measured approach” to the topic.
“While it’s a very hot topic -- and for a very good reason -- it’s still pretty small and still very much developing,” she said of third-party litigation funding.
She contends that such disclosures should always be fact-dependent.
“There’s no need for a blanket rule that all funding agreements should be disclosed,” Gewolb said, pointing to a case in the U.S. District Court for the Southern District of New York last year.
In Kaplan v. S.A.C. Capital Advisors LP, the federal court denied the defendant’s motion to compel. The class action plaintiff objected to producing funding documents on the basis that they were irrelevant to the issues in the case, including adequacy of class action counsel.
“Just because there’s a funder in a case, that doesn’t make it relevant,” Gewolb said. “In that sense, I think the two decisions (Gbarabe and Kaplan) are very consistent with one another.”
And there’s no reason to think that Illston’s decision in Gbarabe will lead to a flood of disclosure in class action cases, Gewolb said.
“I think it will always be a case-by-case thing,” she said. “I think the facts in each case are so unique, there can’t be any bright-line rule.”
Not to mention, requiring disclosure of such agreements across the board would make things tougher for plaintiffs, she said.
“It could chill good cases, preventing them from being brought because everyone’s too worried about the discovery sideshow,” Gewolb said.
“Litigation funding helps a lot of meritorious claims get their days in court.”
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.