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Key Takeaways from LFJs Special Digital Event: Mass Torts and Litigation Funding 

On Thursday March 23rd, Litigation Finance Journal hosted a special digital event: Mass Torts and Litigation Funding. Panelists included Michael Rozen (MR), Founder and Managing Partner at TRGP Investment Partners, James Romeo (JR), Managing Partner at Greenpoint Capital, Brian Roth (BR), Chief Executive Officer and Chief Investment Officer of Rocade Capital, and Michael Guzman (MG), Partner at Kellogg, Hansen, Todd, Figel and Frederick. The discussion was moderated by Ed Truant (ET), Founder of Slingshot Capital.

The panel discussion spanned a range of topics, including claims origination, financing/underwriting, plaintiff and defense-side strategies and tactics, the impact of ABS regulation and much more. 

Below are some key takeaways: 

ET: How does the industry originate claims and identify and validate claimants? And how has origination industry evolved over the years from the time of mass TV advertising to the current omni-channel world of advertising? 

MG: First, all of the old traditional methods still work.  Networking, late night TV, radio, advertising – all of that still works. But what I am seeing is a number of firms have either affiliated with or own social media marketers, who are using social media in targeted ways. It’s a lot cheaper depending on how you use it, and it can be a lot faster. So people are using the old techniques, plus a number of new ones.  I’ve had some really good success with that, because you’re not just blanketing the airwaves, the people that you get back are much more focused and more interested in what it is you’re trying to recruit them for. 

JR: I think it’s helpful to go back and think about the history of legal advertising, which started in the late 70’s when two lawyers started advertising, it led to some fighting in the state bar, but ultimately it was decided that legal ads are a form of free speech and that they provide consumers valuable information. 

We’ve now seen this huge evolution around what’s possible. There is very targeted social media and paid search advertising that is driven by analytics. At Triton we’re doing a lot of this, we’ve developed our own in-house marketing team, and we’re using things like intake forms and chatbots to help pre-screen potential claimants. We’re using different identify verification tools and we’re experimenting with different medical retrieval tools to help with the intake of potential claimants. 

ET: Describe the ‘fall-out rate’ of claimants and what are typical fall-out rates evidenced in the market and reasons therefor? Has there been an improvement in fall-out rates as a result of enhanced data analytics and technological sophistication?

MR: Access to justice is always a goal for those who think that corporate America has long gotten away with unequal justice because they have a lot of money and the individual claimants don’t. So having better ways of reaching people who may have been impacted by a drug that’s been pulled from the market or a product that didn’t work as advertised is obviously a good thing. The flip side is, in tougher economic times, you see higher claim rates from people who may not be good claimants, because there is an expectation there may be some quick money to be obtained. 

So I think the fall-out rate is really a function of whether or not you’re in the right economic time with the right kind of claim. Camp Lejeune is an example of that. 3M earplugs is an example of that. We’re talking about hundreds of thousands of claimants, whereas in an ordinary mass tort you may have tens of thousands of claimants. And this is something defendants don’t like, and they push back on litigation finance in particular, and argue that somehow specious claims are being promoted. What is really at the base of that is a desire to create an unequal footing between the haves and the have nots. If you are on the have side, it is obviously to your benefit to have either lower claim rates, fewer number of plaintiffs, and/or a higher fallout rate where you can allege later on that these were not valid claimants, that they were somehow propped by third party financing. 

Nobody who has or will speak on this panel will tell you that investing in non-meritorious claims is a good thing. Yet what the other side of this argument will claim is that somehow the fall-out rate as an individual metric is indicative of whether or not there are valid claims in a particular litigation. I would say you to it is irrelevant—the more claims you have in a litigation, the higher the fall our rate is going to be. 

ET: Given the high fall-out rates and the potential for false claimants, is this sector ripe for the application of blockchain to minimize duplication of claimants and decrease fall-out rates as well as tracking the transactions and pay-outs? 

 BR: Fall out impacts the litigation strategy and settlement strategy. When a litigation starts, nobody really knows what will be a settle-able case, so there’s always going to be some level of origination that’s not going to result in a paid claim at the end of the day. I do think the technology will help with some areas like de-duplication and dual representation, whether it’s blockchain or other smart contracts. We’re seeing billions of dollars transact in the space and there’s very little transparency across the different players in the space. I see that changing over time, and that will impact the fall out rates as well. 

ET: What is the nature of the prototypical plaintiff litigation firm? Why do so called “White Shoe” law firms not get involved in mass tort plaintiff litigation work? 

MG: When I started my career, there was this perception that there were defense-side firms and plaintiff-side firms. Lines were pretty well drawn, people crossed over from time to time. But for the most part, if you did plaintiff’s work you did plaintiff’s work, and you didn’t go back and forth. My firm and lots of others defy that model, and at this point, I’m not sure there is a prototypical plaintiff’s firm. My firm is a litigation boutique, and very early on we realized some of our clients wanted us to be plaintiffs for them, and it was enormously challenging and lucrative to play that role for them.

I think why so many of the so-called ‘white shoe’ law firms have found it difficult to be a plaintiff-side firm is because they have corporate departments or longstanding institutional clients, and some of those clients just don’t like the idea that one of those partner is representing them, but at the same time someone else is off pursuing a mass action or class action, so it gets to be an institutional conflict—it’s hard to manage from a client standpoint, and we’ve dealt with that over the years. 

ET: How has the US mass tort industry evolved in terms of the size of the industry, the quantum of cases and the number of claimants over the years? 

JR: If you look at the federal docket, it took something like 59 years to reach the first 250,000 cases in MDLs, and over the subsequent seven years, from 2007-2014, we hit a total of half a million cases, and then by 2021, we topped 1 million cases. So that’s an additional 500,000 case jump from 2014 to 2021. And there’s currently something like 360,000 cases that are still pending in the federal docket. So there’s definitely been an acceleration of cases, and that’s continued. And I don’t see that sopping any time soon. 

ET: Can you describe the various ways in which finance intersects with the mass tort industry?

BR: Financing is an ever changing landscape, but at the front end, you’re seeing it for case origination, a lot of times it’s done on a non-recourse basis. We see a lot of law firm loans, where you’re financing the whole process from origination to settlement. We’re also seeing capital enter for service providers in the space – lead origination or working up cases, ordering records on a contingent basis. We’re also starting to see some post-settlement finance develop, where firms are basically able to factor their claims. 

As we think about the space, we expect this to continue to evolve and develop, and this matures as an asset class, and we develop more data and track records, you’ll see more segmentation I think. But that should translate into more flexible options for the firm. The space currently is shaped by the rules around fee sharing and the ethical rules for law firms which prevent non-lawyers from having ownership in the firm. Obviously, Arizona and other jurisdictions are changing that, so the landscape of how finance intersects with firms is changing as well. 

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More Than 100 Companies Sign Letter Urging Third-Party Litigation Funding Disclosure Rule for Federal Courts Ahead of October Judicial Rules Meeting

By Harry Moran |

In the most significant demonstration of concern for secretive third-party litigation funding (TPLF) to date, 124 companies, including industry leaders in healthcare, technology, financial services, insurance, energy, transportation, automotive and other sectors today sent a letter to the Advisory Committee on Civil Rules urging creation of a new rule that would require a uniform process for the disclosure of TPLF in federal cases nationwide. The Advisory Committee on Civil Rules will meet on October 10 and plans to discuss whether to move ahead with the development of a new rule addressing TPLF.

The letter, organized by Lawyers for Civil Justice (LCJ), comes at a time when TPLF has grown into a 15 billion dollar industry and invests funding in an increasing number of cases which, in turn, has triggered a growing number of requests from litigants asking courts to order the disclosure of funding agreements in their cases. The letter contends that courts are responding to these requests with a “variety of approaches and inconsistent practices [that] is creating a fragmented and incoherent procedural landscape in the federal courts.” It states that a rule is “particularly needed to supersede the misplaced reliance on ex parte conversations; ex parte communications are strongly disfavored by the Code of Conduct for U.S. Judges because they are both ineffective in educating courts and highly unfair to the parties who are excluded.”

Reflecting the growing concern with undisclosed TPLF and its impact on the justice system, LCJ and the Institute for Legal Reform (ILR) submitted a separate detailed comment letter to the Advisory Committee that also advocates for a “simple and predictable rule for TPLF disclosure.”

Alex Dahl, LCJ’s General Counsel said: “The Advisory Committee should propose a straightforward, uniform rule for TPLF disclosure. Absent such a rule, the continued uncertainty and court-endorsed secrecy of non-party funding will further unfairly skew federal civil litigation. The support from 124 companies reflects both the importance of a uniform disclosure rule and the urgent need for action.”

The corporate letter advances a number of additional reasons why TPLF disclosure is needed in federal courts:

Control: The letter argues that parties “cannot make informed decisions without knowing the stakeholders who control the litigation… and cannot understand the control features of a TPLF agreement without reading the agreement.” While many funding agreements state that the funder does not control the litigation strategy, companies are increasingly concerned that they use their growing financial leverage to exercise improper influence.

Procedural safeguards: The companies maintain that the safeguards embodied in the Federal Rules of Civil Procedure (FRCP) cannot work without disclosure of TPLF.  One example is that courts and parties today are largely unaware of and unable to address conflicts between witnesses, the court, and parties on the one hand, and non-parties on the other, when these funding agreements and the financial interests behind them remain largely secret.

Appraisal of the case: Finally, the letter reasons that the FRCP already require the disclosure of corporate insurance policies which the Advisory Committee explained in 1970 “will enable counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based on knowledge and not speculation.” The companies maintain that this very same logic should also require the disclosure of TPLF given its growing role and impact on federal civil litigation.

Besides the corporate letter and joint comment, LCJ is intensifying its efforts to rally companies and practitioners to Ask About TPLF in their cases, and to press for a uniform federal rule to require disclosure. LCJ will be launching a new Ask About TPLF website that will serve as a hub for its new campaign later this month.

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Commercial People Moves

Mesh Capital Hires Augusto Delarco to Bolster Litigation Finance Practice

By Harry Moran |

In a post on LinkedIn, Mesh Capital announced the hiring of Augusto Delarco who has joined the Brazilian firm as a Senior Associate, bringing a “solid and distinguished track record in complex litigation and innovative financial solutions” to help develop Mesh Capital’s Litigation Finance and Special Situations practices. 

The announcement highlighted the experience Delarco would bring to the team, noting that throughout his career “he has advised clients, investors, and asset managers on strategic cases and the structuring of investments involving judicial assets.”

Delarco joins Mesh Capital from Padis Mattars Lawyers where he served as an associate lawyer, having previously spent six years at Tepedino, Migliore, Berezowski and Poppa Laywers.

Mesh Capital is based out of São Paulo and specialises in special situations, legal claims and distressed assets. Within litigation finance, Mesh Capital focuses on “the acquisition, sale and structuring of legal claims, covering private, public and court-ordered credit rights.”

Case Developments Commercial

Delaware Court Denies Target’s Discovery Request for Funding Documents in Copyright Infringement Case

By Harry Moran |

A recent court opinion in a copyright infringement cases has once again demonstrated that judges are hesitant to force plaintiffs and their funders to hand over information that is not relevant to the claim at hand, as the judge denied the defendant’s discovery request for documents sent by the plaintiff to its litigation funder.

In an article on E-Discovery LLC, Michael Berman analyses a ruling handed down by Judge Stephanos Bibas in the United States District Court for the District of Delaware, in the case of Design With Friends, Inc. v. Target Corporation. Design has brought a claim of copyright infringement and breach of contract, and received funding to pursue the case from Validity Finance. As part of its defense, Target had sought documents from the funder relating to its involvement in the case, but Judge Bibas ruled that Target’s request was both “too burdensome to disclose” and was seeking “information that is attorney work product”.

Target’s broad subpoena contained five requests for information including Validity’s valuations of the lawsuit, communications between the funder and plaintiff prior to the funding agreement being signed, and information about the relationship between the two parties.

With regards to the valuations, Judge Bibas wrote that “while those documents informed an investment decision, they did so by evaluating whether a lawsuit had merit and what damages it might recover,” which in the court’s opinion constitutes “legal analysis done for a legal purpose”. He went on to say that “if the work-product doctrine did not protect these records,” then the forced disclosure of these documents “would chill lawyers from discussing a pending case frankly.”

Regarding the requests for information about the relationship between Design and Validity, Judge Bibas was clear in his opinion that these requests were disproportionately burdensome. The opinion lays out clear the clear reasoning that “Target already knows that Validity is funding the suit and that it does not need to approve a settlement”, and with this information already available “Further minutiae about Validity are hardly relevant to whether Target infringed a copyright or breached a contract years before Validity entered the picture.”The full opinion from Judge Bibas can be read here.