It typically takes years for toxic tort cases to resolve and can cost millions. even billions, of dollars to prosecute. Since plaintiffs’ lawyers only get paid upon their cases' “successful” conclusion, you may wonder how these cases get bankrolled.
John Grisham fans probably know about the novel industry funding mass tort cases. Experts say the practice began in the 1990s. In the ensuing years, the time to resolution has mushroomed to decades in complex mass tort cases. So, too, the expense to litigate has ballooned – along with the returns. Since the 1980s, over $50 billion have been generated in verdicts and settlements, with plaintiffs’ attorneys typically receiving a contingency fee of 40% of the compensation. Last year alone, estimates ranged between 400,000 and six million Americans were recipients of this corporate largesse.
Doing the evidentiary homework that drives a successful toxic tort verdict means foraging through mountains of data: industry and, government reports, medical studies, and reams of internal corporate documents – searching for the “smoking gun.” One reason asbestos cases turned so lucrative was finding an internal memo from an executive at the Bendix company (which used asbestos in its products) to a colleague at Johns-Mansville (once the major asbestos supplier):
“My answer to the problem is: If you have enjoyed a good life while working with asbestos products, why not die from it? There has to be some cause.” [1]
Product Liability from Asbestos to Zantac
Today’s court dockets are gummed up with cases claiming injuries from asbestos to Zantac. Add pelvic and hernia mesh implants, RoundUp, formaldehyde-containing hair straighteners, and contaminated water from Camp LeJeune, for starters. Asbestos cases are an industry staple. More than 700,000 cases have been filed since the first case in 1966, “producing” some $17 billion in awards and settlements and about 100 corporate bankruptcies (which generate huge attorney’s fees on their own). Over 60 active medical monitoring firms and dedicated trust funds are looking for those who will file for yet undiscovered injuries in the future.
Litigating these cases is expensive. In the Vioxx litigation, lead lawyers said they spent $41 million before their clients saw a dime. Some plaintiffs’ lawyers have the money to front the case from its inception – but what about those who don’t?
Enter the “Dark World” of Investor-financed Lawsuits
Banks are reluctant to lend in any but the surest cases and those are few. Enter private equity firms seeking higher returns tantalized by sky-rocketing verdicts. One firm, Counsel Financial, has reportedly lent more than $1.5 billion to plaintiffs’ law firms. The Fortress Investment Group and Gramercy Funds are also players in the lawsuit-lending industry, funding plaintiffs’ lawyers to the tune of hundreds of millions of dollars. Reportedly, about one-sixth of some six million pending mass-tort cases, worth roughly $17 billion, have outside funding - with a rate of return said to be between 20 and 30%!
“[I]n some ways … it’s … a very exciting future in the sense that funders are fundamentally innovators,… The key going forward…., will be how regulators…approach the industry. Right now, regulators are looking for a box to put the funders in, but a lot of funders to this point have been able to morph the structure of their transactions to fall outside of regulatory frameworks.”
- Professor Victoria Shannon Sahani, Arizona State University Sandra Day O’Connor College of Law.
Typically, two types of plaintiff lawyers engage in the mass-tort sport: the “gladiators” who try the cases and the “clam-diggers” who troll for plaintiffs. They generally split the contingency fee or court-determined award evenly. But the cash cow may be running out of milk, or the cows (i.e., the store of plaintiffs ) might be getting too expensive to corral. Advertising for plaintiffs costs between 12% and 50% of the litigation budget. X-Ante, a data provider, estimated that mass-tort lawyers spent $152 million in TV ads and millions more on social media last year.
Defense lawyers are also getting more savvy (and successful) in presenting and communicating complicated scientific theories to lay juries. They are winning more cases, and in some situations, they are convincing judges that the plaintiffs’ scientific evidence is junk even before the matter is presented to the jury. Delays incident to finding corporate refuge in bankruptcy also stymies resolution, delaying payout – and investment return. And sometimes the toxic marketeers over-promise:
The Keller Postman law firm spent “tens of millions of dollars” hyping cases against acetaminophen manufacturers for allegedly causing ADHD and autism when these Tylenol-like drugs were ingested during pregnancy, only to have the cases thrown out. Federal Judge Denise Cote ruled that the lack of reliable scientific evidence required dismissal. But in the words of an ever-hopeful Warren Postman:
“A successful appeal can turn everything around.”
That’s not likely in the Tylenol cases, as the scope of appellate review of such evidentiary issues is limited. Of course, not every investment is successful; you win some, you lose some. Indeed, some plaintiffs’ law firms have been bankrupted, and at least two dozen plaintiffs’ firms carry a debt load of at least $100 million. That’s a hefty load if a case goes south or a delay on return becomes interminable.
But, the plaintiffs’ bar is getting adept at leveraging technology to reduce costs and maximize returns. Call center operators screen potential clients for viable claims in a mass-market business model. The plaintiffs’ bar is successfully using artificial intelligence (AI) to comb through the mountain-loads of data, decreasing the staff needed to manage the caseload and reducing costs to litigate. These AI tools reportedly drive up the value of claims by 30%.
A Look to the Future
Many regard attorneys bringing these civil actions as private “attorneys-general” policing safety and fraudulent conduct by untoward, greedy, or nefarious manufacturers. However, in some cases, the policing is purely a witch-hunt, with innocents getting slaughtered (and corporate profits tanking), as in the silicone-gel breast implant cases, later found to be unrelated to the injuries claimed. [2] In investment-funded lawsuits, antics have tanked even further. Some activities have skirted (or even overstepped) the bounds of criminality, such as where lenders finance surgeons to remove pelvic meshes from women, both hoping to receive a portion of the settlement trove or award treasure.
The run on the corporate money is not merely a function of greedy lawyers or negligent manufacturers [3], some of which engaged in truly outrageous conduct. The modern trend of higher verdicts is also a function of changes in law and society. Prior to 1920 women could not sit on juries; some plaintiff attorneys believe women make more sympathetic jurors, or at least they did. Most states barred any recovery if the plaintiff contributed to their injury by even 1% under the law of “contributory negligence,” which remained the law until recently. In New York, contributory negligence was only abolished in 1975. (Now, where the plaintiffs’ negligence contributes to their injuries, the award is reduced by that proportionate amount). In the wake of the med mal crisis of the 1980s, caps on liability were widely imposed in medical malpractice claims, although those restrictions are slowly being lifted in many states.
Until recently, the fence on lawsuits run amok was the reality that plaintiffs’ attorneys only took on cases they were quite sure they could win or settle quickly—otherwise, they wouldn’t get paid after expending millions in expenses. But with third-party “investment” lending, that control becomes more remote.
To prevent abuse, regulators must address unfettered and unwarranted intrusion by private equity into the pocketbooks of product manufacturers, many of which are sorely needed. Additionally, the law can impose penalties for specious lawsuits, such as where the scientific evidence is found unreliable or invalid. Imposing “the loser pays rule” is another possibility. Finally, as I have often said, defense lawyers must learn to present complicated scientific testimony in a manner accessible to the laity. It seems they are learning.
[1] EA Martin to Noel Hendry, dated Sept. 12, 1966, as reported in Mealey’s Litigation Reporter
[2] Silicone on Trial by David Fisher
[3] Cases have been documented where drug manufacturers knowingly marketed defective drugs, concealing safety information, instead setting up a stash of cash for the anticipated cases the manufacturers were sure would be filed but which they estimated would be less than the profits, such as the arthritis drug MER-29
