By now we’re all familiar with the problem of excessive litigation and mass tort abuse.
The issue of outside funding for mass tort litigation, however, is a more recent phenomenon. Hedge funds and other investors increasingly wager their money on questionable mass tort litigations, frequently flying under the radar as they finance courtroom attacks on major companies.
We’ve now reached a point of critical mass justifying laws to shine some more light on those activities.
Mass tort litigations aggregate multiple personal injury claims, usually related to a product of some kind, to pursue court judgement or – more frequently – force manufacturers and other corporate targets into massive settlements. The attorneys undertaking those suits usually profit far more than the actual individual claimants, sometimes walking away with millions of dollars.
Those trial attorneys aren’t always the only winners, however. In recent years private equity companies, hedge funds and other asset managers have introduced outside funding for mass tort cases. Those investors leverage mass tort investments to generate revenue immune from economic downturns or stock market fluctuations. In other words, mass tort cases can offer profit potential when other traditional investment avenues might fail.
The investments that third-party investors pump into mass torts typically help pay for the aggressive advertising campaigns and lead generation services that attorneys use to identify possible claimants. Between 2017 and 2021, they spent almost $7 billion on 77 million ads, as the number of trial lawyer ads on television, radio and billboards increased by more than 30%. Litigation funders invest an estimated $2.3 billion to $5 billion per year in the oft-realized hopes of hitting a big settlement.
More troubling, those investments create serious concerns that third-party funders do more than just write checks. Ample evidence suggests that whereas financiers were content in previous years to be passive partners, today they play an increasingly active role in the lawsuits themselves. It shouldn’t surprise anyone that the opaque capital they provide gives them financial leverage to make key strategy decisions.
Allowing profit-driven investors to take control of mass tort suits constitutes an abuse of the legal system that can damage defendant companies and even work against the best interests of legitimate victims themselves. Among other concerns, the increase in outside capital funding can prolong cases and delay judgements for claimants as investors look to squeeze more money out of targeted defendants. The advertising that the investments support also multiplies the number of baseless claims filed by people who were not even injured, which in turn clogs courtrooms and diverts funds from people who have actually suffered harm.
Many of these problems associated with third-party litigation funding result from the lack of transparency that surrounds the practice. Judges and juries have no idea who is financing suits or how much influence they are exerting, because no rules require the disclosure of that information. If this practice is to be allowed at all, regulations should ensure that investors are held potentially accountable for their actions. Such regulations could mandate disclosure of funding arrangements either at the outset of litigation or any subsequent time litigation partners enter into a funding agreement.
What’s important is that parties to lawsuits and courts should possess this vital information. Only then can they rest more accurately assess how much influence outside funders exert in costly mass tort suits.
Timothy Lee is the Senior Vice President of Legal and Public Affairs for the Center for Individual Freedom.
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