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Legalist, a San Francisco alternative asset manager run by Harvard University dropouts, has invested money in a leaseholder’s effort to collect $124.5 million from the Port of Lake Charles in southern Louisiana.
The leaseholder, IFG Port Holdings, was on track to collect the award until an appeals opinion vacated a lower court order because a magistrate judge who ruled on the matter had a long friendship with IFG’s lawyer.
Legalist’s role in the case is disclosed in a Uniform Commercial Code filing that doesn’t divulge the amount of the investment. The company’s stake is part of a $13.5 billion litigation finance industry in which outside investors pool money into lawsuits in exchange for a portion of any award that results from cases.
The Legalist disclosure is noteworthy because the role of investors in lawsuits is kept secret in all but a few states. Disclosures under the Uniform Commercial Code, which governs commercial transactions in the US, can offer a window into the role of litigation funders, as it did in the port case—though even those filings often hide the role of investors.
“The main reason disclosure is not common is because the funded party doesn’t want to open the door to providing information that their opponent in litigation isn’t entitled to have,” said Charles Agee, chief executive officer of litigation finance consulting firm Westfleet Advisors. “Knowing how much money a party has to fund a case or defend a case would give the other side a glimpse into the case strategy and the resources.”
Harvard dropouts Eva Shang and Christian Haigh started Legalist in 2016 when Shang was 20 and had no formal investment training, according to a Wall Street Journal article about the company last year. Legalist had $770 million assets under management last year, its website said. The company didn’t respond to a request for comment.
Under the case Legalist is backing, IFG Port Holdings sued the Port of Lake Charles for allegedly breaching the terms of a lease in 2016. The port failed to secure permits that would have allowed IFG to dredge to a depth spelled out in a contract by 2015, IFG claimed.
A U.S. magistrate judge last year issued a $124.5 million judgment in favor of IFG. But the port alleged that it had been misled into consenting to having the case heard by a magistrate judge. It said that at the time of the referral it did not know that IFG’s lead trial counsel, William Monk, had been a groomsman at the wedding of the magistrate, Kathleen Kay.
The US Court of Appeals for the Fifth Circuit vacated the district court’s order denying the port’s appeal on the issue of consent and directed it to conduct an evidentiary inquiry.
Finance Disclosure
The legislature in Louisiana, where the Port of Lake Charles case is being litigated, passed legislation earlier this year requiring disclosure of litigation finance agreements. “I don’t think that our courts and our judicial system should be turned into a profit center for investors,” said State Senator Barrow Peacock, who proposed the bill.
But Democratic Governor John Bel Edwards vetoed the bill, calling it “a pretense designed to gain a litigation advantage under the guise of promoting transparency.”
Louisiana has a code that could be relevant in the IFG case, said Melissa Lonegrass, a civil law professor at Louisiana State University. The code could allow defendants to end a lawsuit by paying plaintiffs the amount they received for litigation funding.
“The defendant would have a good argument that the plaintiff had essentially sold or divested themselves of their right to the benefit of the litigation,” Lonegrass said. “I would hate to predict which way the court might go.”
In the US Senate last week, Louisiana Republican John Kennedy proposed a bill with Joe Manchin, a West Virginia Democrat, to require disclosure of foreign investments in litigation finance. The bill would ban sovereign wealth fund and foreign government investments in litigation.
The case is IFG Port Holdings v. Lake Charles Harbor, 5th Cir., 22-30398
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