Litigation Finance Has Become ‘Money Play,’ House Lawmakers Told

Litigation finance’s potential dangers came under a spotlight Wednesday at a US House committee hearing, where the panel’s chairman said many lawsuits are funded by left-wing activists aiming to hijack the US legal system.

The wide-ranging, nearly four-hour hearing, also featured discussions of the benefits of third-party funding in mass tort cases, as well as the use of the financing tool by nonprofit groups to change government legislation.

“Today is a first step to identifying how pervasive third party litigation funding is and how deep the abuses go,” said Representative James Comer (R-Ky), chairman of the House Committee on Oversight and Accountability. He said progressive activists’ funding of lawsuits to combat climate change impede oil and mining projects.

Litigation funding is the $13.5 billion industry in which investors pay for lawsuits in exchange for a portion of the award. The industry attracted attention this week when a case funded by Burford Capital saw a potential 37,000 percent return on an investment made in a lawsuit involving Argentina’s re-nationalization of its state oil company.

The investment vehicles fund law firms for mass tort cases at high interest rates, and investors are paid back once there’s a settlement or award.

Johnson & Johnson recently proposed a settlement of $8.9 billion for claimants that say they contracted various types of cancer after using the company’s talcum powder product. Aviva Wein, assistant general counsel for Johnson & Johnson, told the House panel that litigation finance increases the amount of meritless claims through false and misleading advertisements, which ultimately harms manufacturers.

“Mass tort litigation has been transformed into a money play: driven, funded and distorted by legal financial entrepreneurs,” she said.

Democrats pushed back, saying funding leveled the playing field and brought access to justice for those who can’t afford it. They also cited examples of conservative organizations using litigation to affect policy, including Alliance Defending Freedom, which used the tool to overturn Roe v. Wade.

“Fundamentally, a lack of money should not prevent any individual American from seeking justice when they have been harmed,” said Rep. Jamie Raskin (D-Md). “Likewise, on the complete opposite side of the spectrum, money should not be the determining factor in receiving the attention of and fairness from the Supreme Court.”

Whether litigation funding’s good ultimately outweighs the bad will depend largely on whether and how well it’s regulated, said Maya Steinitz, professor of law at Boston University.

“While litigation finance is a relatively new industry, it is part of—and its functions overlap with—established industry,” Steinitz said. “We in the US know well how to regulate the finance and banking industry, the legal industry, and the insurance industry.”