Schenk v. Valeant Pharmaceuticals International Inc.

Single plaintiff of modest means wished to pursue contract claim against well-funded defendant. British funder to cover legal fees and disbursements in exchange for escalating return.

First time Court considered funding in a single-party commercial action: “I see no reason why such funding would be inappropriate in the field of commercial litigation” (para. 8).

Up to 50% return for the funder was acceptable: “In my view, it would be reasonable to allow a funder a recovery of approximately 50 percent in certain circumstances. This case would, to my mind, fit within that category, since it involves a plaintiff of modest means seeking to pursue significant litigation against corporate defendants involving complicated subject matter and very significant damages being claimed” (para. 17).

Court was concerned about open-ended nature of funder’s recovery, which allowed an additional 5% of the litigation proceeds for every 10% that counsel exceeded the litigation budget: “I cannot, however, countenance the terms of the LFA that provide for a significant recovery for Redress, with an open-ended exposure to Schenk that could result in Redress retaining the lion’s share of any proceeds” (para. 17).

Court concluded that this agreement constituted maintenance and champerty, but it was without prejudice to plaintiff’s ability to renegotiate the terms and return for approval. Funder and plaintiff revised the agreement, and it was subsequently approved.