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Litigation Funder May Have to Reimburse Spiderman's Attorneys' Fees
Practical Law Legal Update w-000-5761 (Approx. 4 pages)
Litigation Funder May Have to Reimburse Spiderman's Attorneys' Fees
by Practical Law Litigation
| Published on 15 Sep 2015 • USA (National/Federal) |
The US District Court for the District of Colorado, in Stan Lee Media, Inc. v. The Walt Disney Co., enforced a subpoena issued to the litigation funder of Stan Lee Media Inc., a shell company, as part of Disney's effort to collect attorneys' fees awarded against the shell company that unsuccessfully claimed that it owns the rights to Spiderman and other superheroes created by Disney's Marvel Comics. This case highlights additional risks to litigation funders who support litigation of dubious merit.
Third-party litigation financing (also referred to as alternative or external dispute financing) is a mechanism by which a party not affiliated with a lawsuit pays for another party's (usually a plaintiff's) legal fees and costs to pursue that lawsuit in exchange for a portion of any proceeds recovered by settlement or collection of a damages award.
A litigation financing company considering whether to fund a claim typically evaluates issues relating to:
- The merits of the claim and potential damages available.
- Possible obstacles to recovering damages.
The decision in Stan Lee Media, Inc. v. The Walt Disney Co., (D. Colo. Sept. 8, 2015) reminds that where a claim is unsuccessful, litigation funders risk not only losing their investment but also being held liable for the defendant's attorneys' fees. In Stan Lee, Disney issued a subpoena for testimony and documents concerning the funder seeking to support an argument that that the funder should be held to be a party to the underlying litigation for the purposes of collection of attorneys' fees rendered against the plaintiff. The funder moved to quash the subpoena and the district court denied the motion.
Stan Lee Media Inc. (SLMI) sued Disney and others in multiple courts for almost a decade, asserting ownership claims to Spiderman and other Marvel characters. The courts found these claims "simply implausible" (see Stan Lee Media, Inc. v. Lee, 585 F. App'x 597, 598 (9th Cir. 2014), cert. denied sub nom., Stan Lee Media, Inc. v. PowA Entm't, Inc., 135 S. Ct. 1723 (2015)). The district courts in which the lawsuits were resolved in Disney's favor awarded Disney judgments for attorneys' fees pursuant to 17 U.S.C. § 505 and 28 U.S.C. § 1927 because it was it was objectively unreasonable for SLMI to pursue these claims (see, for example, Stan Lee Media, Inc. v. Walt Disney Co., (D. Colo. July 31, 2014)).
Because SLMI was a shell company with no assets, Disney sought to enforce its judgments for attorneys' fees from SLMI's litigation funder. After Disney issued a subpoena seeking testimony and documents, the funder sought to quash it because the subpoena was "invasive" and impermissibly sought "private" information. The court enforced the subpoena, holding that:
- A separate person or entity that funds litigation costs and also controls what is later found to be vexatious litigation can be deemed a party for purposes of paying costs and attorneys' fees.
- Given the behavior of the funder and SLMI in pursuing litigation, Disney can make a colorable argument that the funder should be held to be a party to the underlying litigation and its assets should be available to satisfy the judgments.
- Disney was permitted to seek disclosure from the funder of:
- the amount of money that the funder paid to bring SLMI's lawsuits;
- the funding agreement;
- communications relating to various fee awards against SMLI; and
- a list of the funder's investors.
Practical Law has resources to help practitioners stay informed and current about litigation funding, including: