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Delaware judge wants details on financial arrangement
July 31, 2012
Wilmington, Delaware: A judge has demanded the details of a novel litigation financing arrangement, in which a group of plaintiffs objected to a proposed settlement and now have hopes of taking over the case in which a private equity fund is involved.[1]
Travis Laster, the Vice Chancellor of Delaware's Court of Chancery, wanted to go public with the terms of the arrangement in hopes of getting others to add proposals as to how they wanted the case to be taken over. Laster's goal was to let forth "market forces" to determine if the proposed settlement was fair, instead of leaving that decision entirely up to himself.[1]
The case involves a 2005 derivative lawsuit that alleged there was mismanagement at a private equity fund set up by the Canadian Imperial Bank of Commerce. The fund originally had 490 limited partners and agreed to a settlement of $13.25 million. A select 57 members of the fund objected that the settlement was too low.[1]
Travis Laster then came up with a clever proposition, asking if the objectors could post a bond for the value of the settlement, they could take over the case, discard the settlement, and continue on to a trial to seek a bigger return on their investments.[1]
Much to the surprise of those involved, the objectors made good on the arrangement through a deal with a unit of Burford Capital, a British litigation finance company.[1]
A hearing on July 26, 2012 had Laster wanting to make the details of the financing arrangement public so that all parties were totally aware and understood the terms of the new proposal. Laster told the representer of the objectors, Steven Mintz, of Mintz & Gold, that, "I'm, bluntly, using you to test fairness."[1]
Mintz believes making the details of the arrangement public could potentially put the objectors at a point of disadvantage in the litigation, but Laster told him he would not be disappointed if Burford refuses to reveal its terms, and thus, Laster would find the proposed settlement at a fair advantage for all.[1]
Laster expects the parties to return after six weeks of briefing on the issue and the case name will be filed under James Forsythe et al v. ESC Fund Management Co (U.S.) Inc et al, Delaware Court of Chancery, No. 1091.[1]
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