Defense-Side Litigation Funding – In Practice

Litigation funding is not just for plaintiffs.  We, at Lake Whillans, provide defense-side financing using a unique transaction structure. While our approach does not work for all defense-side litigation or arbitration, in the right circumstances, our structure provides for a straight forward transaction that allows a defendant to optimally protect its business.

How it works

In a litigation or arbitration where a defendant is at risk of losing all or a portion of a revenue producing asset, Lake Whillans will provide capital to pay for litigation fees and expense (and potentially to help support the company’s operations) in return for a percentage of the future revenue derived from the asset.

Typical Structure

Lake Whillans will provide $X million (the amount will vary depending on the needs of the case

and the value of the asset’s revenue stream) to a defendant in return for profits produced by the asset in dispute pursuant to the following waterfall:

1. Return of Capital: Lake Whillans receives the first $X million of profits produced by the asset.
2. Profit Sharing: Lake Whillans receives an agreed percentage of all profits thereafter subject to a cap.
3. Cap on Revenues: Lake Whillans shall have no interest in any revenues generated by the asset once Lake Whillans has received the capped amount.

Example

Company A is a manufacturer; Company B is a distributor. Company A contracts with Company B to be the exclusive distributor of its goods for a period of 10 years. Two years into the relationship, business is booming for Company A, and it decides that it wants to vertically integrate and distribute its own product. The only problem is that Company A has a contract with Company B that entitles Company B to be the sole distributor of the product for the contracted period.

In an effort to terminate the contract pursuant to its terms, Company A alleges that Company B is in material breach of their agreement and files suit: Company A is the plaintiff; Company B is the defendant. In this situation, assuming that Company B has a solid legal defense, Lake Whillans would fund the legal fees and expenses associated with Company B’s defense of the distribution contract. In return, Lake Whillans would receive a percentage of the revenues generated from Company B’s continued distribution of Company A’s product upon successful defense of the litigation or arbitration.

When Can These Situations Arise?

There are many other examples of disputes over an income-producing asset or contract where a defendant can avail itself of funding from Lake Whillans, such as disputes over:

1. rights to market/sell pharmaceutical products;
2. energy supply contracts;
3. real estate associated with revenue streams (e.g., leases, etc.);
4. rights to technology created pursuant to a contractual arrangement;
5. portfolios of revenue producing securitizations (e.g., collateralized loan obligations, mortgage backed securities, etc.);
6. ownership and/or valuation of equity interests.

These disputes may take the form of a declaratory action, where the court or tribunal is asked to decide ownership or interpret contractual rights.   The best way to explore the possibility of defense-side funding is to contact us to discuss.