Third-party litigation financing (TPLF) has been a hot topic amongst litigators for a long time. Scarcely, a week goes by without a feature article appearing in a legal publication on the latest trends in litigation financing or the latest effort to enhance disclosure of TPLF in civil litigation. 

Much of the interest in TPLF comes from the differing points of view of the defense and plaintiff bar. Defense-oriented attorneys are concerned that TPLF unduly subjects litigation to outside influences that make it more difficult to discern whom the interested parties are, while plaintiff-oriented attorneys argue that litigation-funding arrangements should not be disclosed, and disclosure would only serve to inhibit access to justice for individuals whose financial means dwarf in comparison to corporate defendants. In support of the plaintiff bar’s arguments, litigation financiers often claim they are nothing more than “passive investors” who “do not control the legal assets in which they invest.” However, a recent Bloomberg Law article turns that argument on its head.

In an August Bloomberg article, it was reported that a large mass-tort advertiser had hired a former CEO of a litigation funding firm to lead a program focused on selling advertising to litigation funders as opposed to law firms. Surprisingly, the article reported that the advertiser's “funders” program already made up more than half of its business. 

The article shed light on an underappreciated aspect of modern litigation financing – private equity is no longer loaning law firms money to generate leads or prosecute cases but are instead generating cases themselves. Though it may still be true that the private equity funds “do not control the legal assets in which they invest,” it appears they are now creating the legal assets and selecting counsel to partner with to prosecute the claims they’ve created and then are financing the prosecution. In other words, they’ve exercised the purest form of control – creation of the asset they’re investing in. 

These arrangements raise concern that TPLF has crossed a figurative Rubicon – moving from passive loaning of money to the active generation of mass torts. And once crossed, the relevance of TPLF disclosure grows exponentially. For instance, a jury should be able to consider that if it weren’t for advertising generated by private equity funds owned by foreign governments, the plaintiff might never have brought a case. 

Likewise, knowledge of TPLF involvement in the generation of a mass tort might encourage earlier entries by courts of discovery mechanisms like Lone Pine orders because when litigation financiers are controlling the generation of a mass tort, there is a perverse incentive to drive up the number of claims – no matter how flimsy – in order to blackmail a corporate defendant into early settlement or run the risk of stock price ruin, all taking place long before the quality of the inventory can be evaluated. Such an incentive to generate frivolous claims might not be present when plaintiff attorneys are generating claims themselves as they could be subject to sanctions for vexatious litigation should those claims prove fanciful. 

Recent passages of TPLF disclosure bills in jurisdictions like Louisiana provide some hope that the worst abuses of TPLF will be curtailed. However, a majority of jurisdictions still do not require disclosure. As funders become more intertwined and involved in the litigation ecosystem, such a policy makes less sense.