SAN FRANCISCO (Legal Newsline) - A litigation funding company that launched in the U.S. only six months ago has been identified as the third-party funder in a proposed class action brought against Chevron Corp. over a gas explosion off the coast of Nigeria.
According to a copy of the litigation funding agreement, found buried among other documents in the Gbarabe v. Chevron case docket, Therium Litigation Funding IC has more than $1.5 million invested in the class action lawsuit against the oil giant.
Founded in London in 2009, Therium is one of the more established litigation financing firms.
According to an April news release announcing its U.S. launch, the company, in 2015, secured $300 million to invest in commercial litigation financing -- the largest ever single investment in the litigation funding sector, globally.
Mary Terzino, an attorney and consultant who has studied the subject of third-party litigation funding for the last six years, said until recently Therium focused on the UK. It has been and continues to be a member of the Association of Litigation Funders in London, she noted.
She said she is not personally aware of any other U.S. litigation in which the company has invested.
Eric Blinderman, who left his post as international litigation counsel at Proskauer Rose LLP to become the CEO of Therium’s U.S. office, did not immediately respond to emails from Legal Newsline seeking comment on the funding agreement.
However, Terzino, who has consulted with the U.S. Chamber’s Institute for Legal Reform, which owns Legal Newsline, said the agreement has some “interesting features.”
First, it is an agreement between the funder and the lawyers for the putative class, Jacqueline A. Perry and Neil J. Fraser, both of Los Angeles-based Perry & Fraser. The claimants are not parties, Terzino noted.
Neither Perry nor Fraser could be reached for comment on the agreement.
“The funder’s award will come from the lawyers’ contingency fee if there is a settlement or judgment,” Terzino explained. “This appears to be a form of fee-splitting in which lawyers are sharing their fees with a non-lawyer (Therium).”
Terzino said many legal ethicists, and the American Bar Association itself, have grave concerns about fee-splitting because it poses a prospect of control of the litigation by the non-lawyer, and may result in decision-making that enhances the non-lawyer’s profit at the expense of the claimants’ interests.
Second, while the funding agreement states Therium will not control the litigation, Terzino said there are other parts of the agreement that “throw up red flags” in terms of Therium’s control.
“Therium may attend meetings with expert witnesses and other ‘internal meetings,” she said, pointing directly to the agreement. “Therium must approve adding claimants to the case, and must approve adding co-counsel, forensic accountants or anyone else not already accounted for in a document called the Budget & Plan.
“The way funders budget, who and what they agree to pay for, and the timing of their payments, can have a significant influence over litigation strategy.”
Also, the lawyers committed in the agreement to use “reasonable endeavors” to recover the “maximum possible contingency fee,” Terzino pointed out.
“Who decides what ‘the maximum possible’ is? And what if the claimants, contrary to the wishes of the funder, are willing to accept less? Deciding what is the appropriate amount of a settlement is a major control mechanism in a lawsuit,” she said.
According to the agreement, which commenced in November 2015, Therium originally committed $1.5 million in funds. However, in a letter dated May 18, 2016, the company upped that number to $1.7 million.
Terzino explained that the amount means that if the case results in settlement or judgment, Therium will get back its investment, plus six times its investment, $10.2 million, plus an additional 2 percent of the lawsuit proceeds.
It’s difficult to say whether the funding agreement between Therium and the lawyers is considered a standard agreement, she said.
Terzino points out that third-party litigation funders operate largely under the radar in litigation.
“Funders take deliberate steps to shield their funding agreements from disclosure,” she explained. “As a consequence, we have seen very few such agreements, mostly those where there has been some dispute between the funder and the funded party resulting in litigation, or in the relatively few instances where courts have ordered that the plaintiff must produce the agreement in their case.”
She said Chevron was right to pursue the release of the funding agreement and Judge Susan Illston was correct in granting Chevron’s motion requiring plaintiff Natta Iyela Gbarabe to produce it.
“Chevron made a sound and reasonable argument, with which the judge agreed, that disclosure of the funding agreement was needed to evaluate whether plaintiffs’ counsel had the resources to commit to acting as class counsel,” Terzino said. “Without the agreement, Chevron would be unable to make its own arguments about the adequacy of class counsel.”
Chevron attorneys could not be reached for comment on the agreement.
Illston, of the U.S. District Court for the Northern District of California, granted Chevron’s motion in August.
The judge said in her 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…” Illston wrote in her seven-page order.
She noted that the plaintiff’s proposal for an in camera review of the agreement -- meaning a hearing would be held before the judge in her private chambers -- was “inadequate.”
“... it would deprive Chevron of the ability to make its own assessment and arguments regarding the funding agreement and its impact, if any, on plaintiff’s ability to adequately represent the class,” Illston continued.
Chevron requested that the plaintiff produce documents “reflecting or relating to the actual or potential financing or funding of the prosecution of this litigation.”
The oil giant argued the funding agreement and related documents are relevant to determining adequacy of representation in the putative class action.
The company also pointed out that the plaintiff does not dispute that his counsel are dependent on outside funding to prosecute the case.
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.
Terzino argues Illston’s decision serves as a “cautionary tale” to funders who are moving into the arena of speculating on class action litigation.
“They may no longer be able to hide behind confidentiality agreements with law firms and clients,” she said.
While she agrees Illston’s order was correct, Julia Gewolb, legal counsel at Bentham IMF, one of the largest litigation finance companies, argues the reaction to it was “blown a little bit out of proportion.”
Gewolb told Legal Newsline last week that there’s no reason to think that the judge’s decision in Gbarabe will lead to a flood of disclosure in class action cases.
“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.”
She argues requiring disclosure of such agreements across the board could prevent good cases from being brought because everyone’s too worried about a discovery “sideshow.”
On Jan. 16, 2012, an explosion occurred on the KS Endeavor drilling rig, which was drilling for natural gas in the North Apoi Field off of the coast of Nigeria. The explosion caused a fire that burned for 46 days.
Gbarabe alleges that the KS Endeavor was operated by KS Drilling under the management of Chevron Nigeria Limited, which, in turn, acted at Chevron’s direction.
Gbarabe is a fisherman who lives in a coastal community of Bayelsa State in Nigeria who depends on fishing for his primary method of earning a living.
He alleges he suffered financial and personal losses, including health issues, as a result of the explosion.
Gbarabe seeks to represent a class of individuals who live and work in communities and co-operatives located in the Niger Delta region.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.