Risk Update

Financial Risk Review — Judicial Stock Ownership Conflict Clash, PE Litigation Funding Fundraising News

Posted Dan Bressler

“Judge’s Potential Recusal Over Citi Stock Divides CFPB, Industry” —

  • “Parties in a lawsuit challenging the Consumer Financial Protection Bureau’s credit card late fee rule are divided on whether a federal appeals judge hearing the case might stand to financially benefit from the court fight.”
  • “Attorneys with the CFPB on Thursday told the US Court of Appeals for the Fifth Circuit that the outcome of the litigation ‘could substantially affect’ stock owned in any of the large card issuers affected by the case. Groups challenging the rule, led by the US Chamber of Commerce, downplayed the impact the litigation would have on those issuers and said that recusal in such cases would lead to ‘an unworkable system.'”
  • “Fifth Circuit Judge Don Willett, one of the judges presiding over the case, has disclosed owning stock in Citigroup Inc., which he said amounts to roughly $2,000 in his child’s education savings account. But he said he had received advice that he didn’t need to recuse himself from the case, before the CFPB flagged that large credit card companies could be financially affected by the matter.”
  • “Willett last week authored the majority opinion in a 2-1 decision rejecting a Texas trial judge’s ruling that the case should be transferred out of his court to one in Washington, D.C.”
  • “In Thursday’s letter, attorneys from the CFPB said that, in addition to the financial impact of the case, the ‘appearance of partiality created by an ownership stake in a large card issuer could also trigger a judge’s recusal obligation.’ The CFPB’s final rule, which is set to cap credit late fees at $8, could reduce covered companies’ annual revenue by about $10 billion, the lawyers said.”
  • “In their letter, the rule’s opponents said the CFPB’s own filings in the case cut against the agency’s argument that there would be an ‘easily ascertainable substantial effect on any, much less all, of their stock prices.'”

[Has anyone yet argued that if a judge has a “cash back” or mileage credit card, or got a sign up bonus, or gets travel discounts through a card’s portal, or complimentary purchase/travel insurance, that’s an issue too, as those programs and benefits may be affect as well? Because I now have that on my bingo card…]

“Quinn Emanuel Inks $40 Million Deal to Fund Private Equity Suits” —

  • “Quinn Emanuel Urquhart & Sullivan will receive $40 million in litigation funding from Longford Capital to finance lawsuits for private equity firms and their portfolio companies. “
  • “The deal, announced Thursday, will offer funding for private equity clients who want to pursue litigation without harming profit and loss statements, according to the law firm. Quinn Emanuel said liquidity challenges posed by high interest rates make outside funding particularly attractive for private equity companies.”
  • “Funding will be available for private equity clients across different types of litigation, said Jonathan Bunge, co-chair of Quinn Emanuel’s national trial practice and managing partner of the Chicago office. That sets it apart from the firm’s previous arrangements with Longford and others, in which funding was decided on a case-by-case basis, he said.”
  • “There might be a reason, given their business model, why they don’t want to pursue a valid claim held by a portfolio company because of the impact that might have on the portfolio company’s earnings,’ Bunge said. ‘What we’re trying to do is listen to those concerns of our clients and come up with an alternative that they might find attractive.'”
  • “Longford will provide financing for attorneys fees and costs, while also offering private equity clients the option of investing directly with the company. The funder will treat legal claims as corporate assets that can be monetized, it said, after underwriting and due diligence.”
  • “The funding will finance business disputes, such as breach of contract, fraud, and intellectual property cases. Much of those fights among private equity companies are waged behind closed doors in arbitration.”
  • “Litigation finance is a $15.2 billion industry in which investors fund lawsuits in exchange for a portion of any award. It’s become increasingly attractive to Big Law firms, even as the overall market for deals slows.”