“3M Lawsuit Investors Ordered to Be Unmasked Amid $6 Billion Deal” —

• “A federal judge wants to know how much of a $6 billion settlement for military veterans injured by faulty 3M Co. earplugs is set to go to outside investors backing the lawsuits.”
• “Rodgers expressed concern about outside funders’ role in the deal. ‘For at least the past decade, settlements of this size and nature have often attracted the attention of third-party litigation funding entities intending to prey on litigants,” she wrote. Rodgers said she wants to ensure that the claimants are not being “exploited by predatory lending practices, such as interest rates well above market rates, which can interfere with their ability to objectively evaluate the fairness of their settlement options.'”
• “The settlement will resolve roughly 260,000 lawsuits alleging defective 3M combat earplugs caused hearing damage to troops. The company agreed to contribute $5 billion in cash and $1 billion in common stock through 2029, under the terms of the deal.”
• “The plaintiffs lawyers are required to disclose all funding agreements made with any claimant before or after the settlement, within 30 days, according to the order. The lawyers and the claimants are also barred from entering new outside funding deals without court approval.”
• “The funding declarations, which Rodgers said will be filed under seal, will include lender names, loan amounts, and interest rates, among other information. Lawyers will be required to produce financing agreements and be prepared to discuss them, Rodgers said.”
• “Disclosure is a contentious topic in the $13.5 billion litigation finance industry, where investment firms pool money into litigation in exchange for a portion of the award. A federal judge in Ohio made a similar move in 2018 in massive opioid litigation, requiring in camera disclosure of litigation finance agreements.”
• “Funders in mass torts cases typically loan money to law firms against their entire docket of cases. The 3M order does not specify whether such “portfolio deals” are required to be disclosed.”

“3M judge issues extraordinary order to shut down ‘predatory’ litigation funding” —

• “She appears to be the first MDL judge to place significant logistical obstacles in the way of post-settlement agreements between plaintiffs and lenders offering them advances on their settlement money, according to several litigation funding experts I consulted. Like many other federal courts, Rodgers also called for the disclosure of pre-settlement litigation funding deals, citing her authority under the Federal Rules of Civil Procedure.”
• “‘It’s a significant leap,’ said Jack Kelly, managing director of the American Legal Finance Association, a trade group for funding companies that offer non-recourse advances to plaintiffs. Charles Agee of Westfleet Advisors, which issues an annual report on the litigation finance market, said Rodgers’ order is ‘unique,’ adding, ‘I worry about the ambiguity surrounding the standards by which the court would approve any such new transactions or, worse, potentially invalidate or void any historical agreements.'”
• “Rodgers, who did not say what prompted her order, certainly has reason for concern about lenders who contend that double-digit interest rates are justified by the risk that a proposed settlement will take years to win approval or won’t be approved at all. (Plaintiffs who take advances against their anticipated settlement payouts — often because they need quick cash to pay bills or medical expenses — don’t have to pay anything back if they don’t recover any money.)”
• “Rodgers cited a December 2022 study from the U.S. Government Accountability Office, which noted that post-settlement funding deals can create conflicts between plaintiffs and their lawyers and can gum up settlement approval when plaintiffs seek extra money to pay back litigation funders.”
• “But Rodgers’ order, however well-intended, raises two important and related questions: Will the restrictions actually deter funders? And does the judge have the power to block plaintiffs from entering into private contracts with litigation funders?”
• “Rodgers does have power over plaintiffs lawyers in the MDL. And barring them from facilitating funding deals, which typically include a letter in which plaintiffs’ lawyers promise to pay funders from the clients’ proceeds, could chill agreements.”
• “But Peter Buckley of Fox Rothschild, who represents a litigation funder from the NFL case, said funders can structure agreements to work around that part of Rodgers’ order. In fact, Buckley said, Rodgers’ order could turn out to be a boon for good-faith funders, as long as the judge gives fair consideration to proposed deals. His reasoning: Advance court approval of funders’ repayment process will reduce the risk of plaintiffs trying to evade contractual obligations after they receive settlement money.”

For that 2022 report, see: United States Government Accountability Office: “THIRD-PARTY LITIGATION FINANCING: Market Characteristics, Data, and Trends.“