Insurance industry representatives called for more transparency into third-party litigation funding and praised federal lawmakers for highlighting the issue during a Sept. 13 U.S. House Oversight and Accountability Committee hearing.
Committee members convened the hearing to address the practice of groups who are not directly involved in lawsuits providing loans to plaintiffs. In a letter to the Oversight Committee, the American Property Casualty Insurance Association (APCIA) described the practice as “a dark money lending practice that allows unknown investors with no ties to the injured person to invest in lawsuits, and in some cases falsely inflate medical costs, for their own profit.”
In the letter, Nathaniel Wienecke, APCIA senior vice president of federal government relations, noted that states like Indiana, Montana, Wisconsin, and West Virginia have passed some form of third-party financing disclosure requirements. U.S. District Court judges in California, Delaware, and New Jersey have adopted disclosure policies in litigation.
Additionally, in late August, Florida U.S. District Court Judge M. Casey Rodgers, who is handling 3M’s proposed $6 billion fund to settle product liability claims over military-issued earplugs, said she would require disclosure of any third-party litigation funding agreements to ensure plaintiffs do not face the “exorbitant fees and rates of interest” that can accompany such funding.
APCIA supported legislation from the last session of Congress that would create disclosure requirements for all class actions and multi-district proceedings in federal courts. The bill’s sponsors plan to reintroduce the legislation again this session, according to the letter. APCIA highlighted another bill currently in the U.S. House that would require disclosure of third-party litigation funding in highway accident litigation.
“As insurance protecting civil defendant consumers and businesses must be disclosed in nearly all jurisdictions and in the US District Courts, it is indeed peculiar that those backing litigation financially are not similarly obligated to disclose their involvement,” wrote APCIA.
Democratic committee members largely defended the practice of third-party litigation funding, arguing that it levels the playing field between plaintiffs and well-resourced corporate defendants. Some also railed against what they described as unethical behavior by judges, namely those sitting on the U.S. Supreme Court, for cozying up to billionaires.
Rep. Jamie Raskin (D-MD), ranking member of the Oversight Committee, called the hearing on third-party litigation funding a “surprising and bizarre tangent.”
“Our colleagues seem confused,” Raskin said. “No one has a right to bribe judges or load them up with fancy gifts, but people do have every first amendment due process and equal protection right to raise money to make their case in court. The courts are not just there for rich people who can write themselves a big check.”
Third-party litigation funding is neither inherently good nor bad, Maya Steinitz, law professor at Boston University Law School, told committee members during the hearing.
“Whether the good ultimately outweighs the bad, at the scale of our society as a whole, will depend largely on whether and how well it is regulated,” said Steinitz.
Representatives of the pharmaceutical technology, mining, and offshore oil, gas, and wind industries testified on the impact third-party litigation funding has on their respective sectors.
Mass tort lawsuits funded by third parties are among the most significant challenges facing U.S. manufacturers of products such as medications and medical devices, said Aviva Wein, assistant general counsel at Johnson & Johnson. Plaintiffs’ attorneys target widely used products with large consumer basis so they can recruit plaintiffs for their cases through “false and misleading advertising.”
“Mass tort litigation has been transformed into a money play: driven, funded and distorted by legal and financial entrepreneurs,” Wein told the Oversight Committee.
Erik Milito, president of the National Ocean Industries Association, told committee members it typically takes between five and 10 years for an offshore project to begin producing energy. Litigation “extends it [the timeline] dramatically and sometimes impossible to move forward and construct the projects,” he said in response to questions from Rep. Andy Biggs (R-AZ).