Welcome back for another week of What's Next, where we report on the intersection of law and technology. Here's what we've got for you today.

>> Eva Shang, CEO of tech-centric litigation funder Legalist, breaks down what she's learned from winning a half-billion in damages across 20 concluded investments.

>> Plaintiffs' lawyers in Facebook's class action stemming from its Cambridge Analytica scandal say discovery in the case is moving at a glacial pace.

>> A recent ruling could aid in gig economy companies' fight against California's AB5.

Let's chat: Email me at [email protected] and follow me on Twitter at @a_lancaster3.

Eva Shang of Legalist.

 

Legalist CEO on Proving Its Mettle

Eva Shang, who dropped out of Harvard at the age of 20 to found San Francisco-based litigation finance firm Legalist, said she thinks she's proven skeptics of the company's model wrong. Legalist-funded cases have won $500 million in damages across 20 concluded investments since 2017. The lit funder only takes on claims requiring less than $1 million in funding, and uses artificial intelligence to help perform due diligence on cases. The firm's average investment is still less than $500,000, Shang said.

"I think a lot of people when we raised our second fund were skeptical of our ability to stay disciplined in investing in sub-$1 million cases," she said. "What you've seen with a lot of other funders, they start off doing smaller cases, because they have less assets under management, and then as they grow, they do larger and larger cases. You've seen that with Burford and any funder that starts out with a small amount of money under management and then branches out until they are exclusively doing deals that require more than $5 million dollars each."

Most of the $500 million in damages have come from qui tam and breach of contract claims in federal court. What's surprised Shang as a non-lawyer in these suits is that breach of contract claims look similar between industries. "You see the same set of behaviors and the same tendencies to not honor their side of the bargain once they've made money across a variety of sectors," she said.

For now, the company is not changing anything about its investment thesis of funding "David vs. Goliath" cases to ensure Legalist is enabling justice and that the defendant is collectible, she said. "We'd never do a case where we're funding a large company to go after a smaller company," she said.

 

Facebook's Slow Going Privacy Class Action

Last week, Facebook and plaintiffs' lawyers in a proposed privacy class action against the company met in front of U.S. District Judge Vince Chhabria of the Northern District of California to discuss what he called some "relatively inconsequential beefs."

Yet, Derek Loeser, a plaintiffs' lawyer with Keller Rohrback in Seattle, said "discovery is moving very, very slowly" in the case, which alleges Facebook broke the law by sharing user data with unauthorized third parties such as Cambridge Analytica.

Loeser said there's "a huge gap between what Facebook views it should be producing and what we believe we need." He said the general discovery about who Facebook shares user data with and who accessed plaintiffs' information—"we have none of that."

Keller Rohrback has requested discovery for all documents the social media behemoth has handed over to the Federal Trade Commission, even prior to the agency's first action against the company in 2012.

Loeser alleges that Facebook is dragging its feet on FTC documents pre-dating the 2012 settlement over charges the company deceived users on its privacy procedures. However, in a joint case management statement signed by Gibson, Dunn & Crutcher's Joshua Lipshutz, Facebook said it "has not agreed to produce wholesale all documents produced previously to government entities and regulators, given that different rules, considerations, and substantive issues governed the production of such materials."

At the hearing, Chhabria ordered Facebook to provide the pre-2012 FTC documents, just not on an expedited basis. The judge said it's "a different calculus when dealing with the government," where parties are less worried about turning over documents that aren't related to discovery but could be embarrassing.

"If Facebook wants to spend the time and money to review that stuff again, I don't think that I can order them to turn it in without doing that," he said.

Another one of plaintiffs' discovery hangups was that it requested the company's org charts, to which Facebook responded "it does not have any documents responsive to this request," according to the joint case management statement.

Chhabria appeared stunned: "Facebook really doesn't have any org charts? Is there a philosophy behind that? Would an org chart be too contrary to disrupting?" Loeser said the philosophy is "chaos." And Lipshutz said he would have to confer with his clients, but it's true Facebook does not have an org chart.

"We've encountered this issue in other litigations," Lipshutz said.

 

Uprooting California's AB5 With Preemption

A ruling preempting professional truck drivers from California's Assembly Bill 5 could mean gig economy companies have more ground to stand on with their challenges to the law, which proponents say helps prevent the misclassification of employees as contractors.

Last week, Los Angeles County Superior Court Judge William Highberger ruled in The People v. Cal Cartage Transportation Express that the Federal Aviation Administration Authorization Act preempts AB5 when applied to motor carriers and their drivers.

Although it does not directly impact challenges outside the trucking industry, it could strengthen other attempts to upend the law from companies such as Uber and Postmates, which have filed a lawsuit calling AB5 unconstitutional, said Gibson Dunn's Lipshutz, who repped Cal Cartage Transportation Express in the case.

"I think it's a significant ruling, because it demonstrates AB5 is an ill-considered law that violates federal law," Lipshutz said. "So in that respect, yes, I think it does support the arguments that are being made in favor of the law's invalidity by other companies, as well."

Richard Meneghello of Fisher Phillips in Portland also said there's hope for gig employers, too.

"If you're an optimist and you're trying to look at the glass half full, you can say, 'Maybe this will give the judge that will ultimately rule on the big-picture validity of AB5 in the Uber and Postmates lawsuit more comfort and support to knock down the statute completely, or at least temporarily put it on ice,'" Meneghello said.

Elizabeth Holmes and attorneys from Williams & Connolly head into the Northern District on Monday, Jan. 13. (Photo: Jason Doiy/ALM)

 

On the Radar

Theranos Overloading FDA Elizabeth Holmes' criminal case is drowning the U.S. Food and Drug Administration with discovery requests, according to the agency's top lawyer. Stacy Amin, chief counsel of the FDA and deputy general counsel of the Department of Health and Human Services, said the lawsuit against the Theranos founder is putting "wholly unprecedented" demands on the FDA to hand over internal agency documents to the defense team. Amin told U.S. District Judge Edward Davila of the Northern District of California that the FDA had several employees working at 200% their normal capacity to meet the court's deadline. Read more from Ross Todd here.

Atrium Dumps Legal Staff Atrium has laid off the bulk of its legal staff in a "restructuring" effort. The alternative legal services firm led by Twitch co-founder Justin Kan is widening its scope outside of legal services to a "professional services network." The move comes almost a year-and-a-half after the company raked in $65 million in venture capital funding. Read more from Frank Ready here.

Paul Weiss Calls California 'Arbitration-Hostile' Paul, Weiss, Rifkind, Wharton & Garrison filed a petition to the U.S. Supreme Court Monday asking the justices to address how the California court system has "thumbed its nose" at the Federal Arbitration Act. The law firm, which is representing a wage dispute involving an auto dealer that could undercut "millions of arbitration agreements," said the state is a "serial offender" of the high court's decisions codifying the law. Read more from Mike Scarcella here."

Thanks for reading. We will be back next week with more What's Next.