Key Takeaways
Arigna v. Longford Capital exposes the risks litigation funding poses to all parties and underscores the importance of transparency reforms and understanding how funder economics may drive litigation behavior. Practitioners may benefit from discovery into funder ownership structures to determine if there are any jurisdictional defects and scrutinize contractual definitions that funders may interpret expansively.
What started as a routine patent settlement has escalated into a $32 million legal battle, raising questions about third-party funding structures, arbitrability, and jurisdiction. Irish patent firm Arigna Technology Ltd. (“Arigna”) sued its counsel’s litigation funder, Longford Capital Fund III, LP (“Longford Capital”), and its law firm Susman Godfrey LLP in Texas state court seeking to vacate an arbitration award stemming from a dispute about allocation of settlement proceeds. The case offers a cautionary tale about how funding arrangements can create unexpected liabilities for all parties.
In August 2020, Arigna retained Susman Godfrey to pursue claims for alleged patent violations involving radio frequency amplifiers and circuits. The litigation centered on claims that the iPhone 12 infringed Arigna’s patents, though the settlement resolved claims involving multiple patent holders. To fund the litigation, Susman Godfrey entered a separate funding agreement with Longford Capital. When patent suits against one of the parties settled, the parties clashed over how much of the multiparty settlement constituted “Proceeds” under Susman Godfrey’s funding agreement with Longford.
Longford Capital sought a percentage of the proceeds based not just on the amounts paid to Arigna to settle the specific case that Longford Capital funded but instead on the entire settlement payment amount—including to parties not represented by Susman Godfrey, not funded by Longford Capital, and owning separate patents. Arigna’s engagement with Susman Godfrey included an arbitration clause. After a Delaware federal court compelled arbitration, the arbitrator awarded Longford Capital $32.2 million—six times the amount Arigna received in the settlement for the underlying claim.
Arigna challenged the award by raising whether a valid arbitration agreement bound a non-signatory, third-party funder. And in a parallel action, Arigna contested the jurisdiction of the court that compelled arbitration. Though the parties ultimately stipulated to the lack of jurisdiction and dismissed the actions, the cases illustrate critical lessons about litigation funder dynamics, jurisdiction, and the reach of arbitration clauses.
The cases also underscore the growing need for transparency for third-party funders of litigation. Some states are taking initiative. New York’s Consumer Litigation Funding Act mandates comprehensive disclosures. A similar bill recently advanced in Florida. And the Federal Civil Rules Advisory Committee continues to consider revisions to the Federal Rules of Civil Procedure that would increase disclosure of third-party funding. These reforms address concerns that undisclosed funding arrangements distort litigation incentives and obscure true parties in interest.
