Mass tort and litigation funding
Legal finance in the United States was initially limited to personal injury cases, claims brought by individual litigants who had been harmed in isolated accidents or wrongdoings. These remain a large and important part of the work that litigation funders do. But when a product or incident affects a large group of people, personal injury litigation is inefficient. This is where mass tort litigation, and associated funding, comes into play.
The rise of mass tort litigation
Mass tort litigation in the United States dates back to Agent Orange, a herbicide used in the Vietnam War to kill enemy vegetation that subsequently caused cancer, heart disease, diabetes, and birth defects in veterans and their children. Commonly considered the first successful mass tort suit, the first round of Agent Orange plaintiffs—over two million veterans—sued seven chemical manufacturers in 1979.(1)(2) The plaintiffs were organized by a veteran and his wife who recognized their daughter’s birth defects as part of a larger pattern implicating Agent Orange. The initial group achieved a $180M settlement. Societal and legal developments in the 1980s allowed other mass tort victims to follow the Agent Orange blueprint. Mass media informed potential plaintiffs that their injuries were shared and connected them to attorneys willing to help. Product liability law opened pathways to legal recourse, while new aggregation procedures allowed courts to resolve claims more efficiently.
Mass tort today
Mass tort litigation remains a powerful legal tool for plaintiffs who are injured by a similar toxin, product, catastrophe, or fraud.3 A few recent and ongoing mass tort cases include:
Transvaginal mesh: Transvaginal mesh devices were fast-tracked to the market in the mid-1990s to treat incontinence and pelvic organ prolapse. Since then, plaintiffs have filed over 100,000 lawsuits against medical device companies that allegedly hid the severe risk that the devices would break down inside women’s bodies and damage organs. Thousands of claims reached favorable settlements, with over half still pending as of March 2017.
Syngenta corn: A few years ago, corn prices plummeted, putting severe pressure on the agriculture industry. Farmers, now plaintiffs in a mass tort lawsuit, blamed Syngenta for selling them genetically modified (GMO) seeds before China—one of their largest export countries—approved the product. China’s subsequent rejection of farmers’ grain shipments allegedly amounted to $5-7B in lost profits.
NFL concussions: As research more conclusively linked head trauma to diseases including Alzheimer’s and ALS, hundreds of former football players sued the NFL for hiding its knowledge of football’s health hazards. Parties announced a preliminary settlement in 2013, but negotiations continued until December 2016. Individual payouts will vary according to injury severity, and may reach up to $5M for some players.Takata airbags: Defective airbags manufactured by Takata led to at least 11 deaths and 180 injuries in the United States, and to a massive ongoing recall. The government brought criminal fraud charges against Takata, but victims also sought to hold automakers—who allegedly knew of the defect and installed the airbags anyway—responsible. Four automakers recently agreed to a $553M settlement.
Mass torts’ unique utility and difficulty
“Mass torts” are sometimes confused with a closely-related category of legal cases, “class actions.” Mass torts, though, are typically more complex because plaintiffs’ injuries vary and must be individually established in court proceedings. (In class actions, named plaintiffs establish a common injury on behalf of the whole class). Sometimes, class actions are actually a subset of mass torts, because mass tort plaintiffs with very similar injuries are grouped together. The Syngenta corn plaintiffs, for example, initially sued in hundreds of separate lawsuits, but were later grouped into several classes. This simplifies proceedings, because just a few plaintiffs can show their injuries as proxies for everyone in each class. Mass torts could, therefore, be called individualized class actions and aggregated personal injury claims. The intersection of individualization and aggregation enables tailored recoveries while achieving benefits of scale in litigation costs. However, it also poses unique difficulties. It takes a lot of time, and money, to prove each plaintiff’s injuries. Some plaintiffs may face mounting pressure to settle, even if it means compromising with defendants. Alternatively, attorneys’ funds may dry up, tempting them to settle prematurely.
How are litigation funders involved?
Litigation funding mitigates these competing settlement pressures. Third-party funders cover plaintiffs’ injury-related costs and keep contingency-fee attorneys afloat until a truly fair settlement is reached.
Funding for plaintiffs
Mass tort victims may amass medical bills from their injuries. Alternately (or additionally), they may be too injured to work, making basic living expenses suddenly unaffordable. Bills are due long before litigation is over. Even once parties reach a favorable settlement, years may pass before plaintiffs actually receive checks. Litigation funders offer non-recourse loans to help mass tort plaintiffs recover from their injuries and avoid bankruptcy. These loans may be provided pre-settlement (while litigation is pending) or post-settlement (while disbursements are pending). Post-settlement loans are often available for an especially low percentage stake in the settlement because defendants typically pay the promised amount.
Funding for attorneys
Just as mass tort victims must front injury-related costs as they await settlement payouts, plaintiffs’ attorneys must front litigation costs. Mass tort attorneys typically operate on a contingency fee basis, meaning they receive no compensation until the lawsuit is over. Paying out of pocket subjects attorneys to massive risk, especially when litigation costs exceed initial forecasts as more plaintiffs come forward or defendants drag their feet in the settlement process.
Third-party funding lowers the risk that a case or firm will fail due specifically to mass tort litigation costs. Through non-recourse loan arrangements, plaintiffs’ attorneys receive financing in exchange for a percentage of any contingency fee award. These loans may be pre-settlement litigation loans or post-settlement attorney fee acceleration. Both forms of funding decouple cost from quality of representation, giving plaintiffs access to the most suitable attorneys regardless of the depth of those attorneys’ pockets.
Opportunities for investors
Mass tort litigation funding does not just help plaintiffs and attorneys, it also provides opportunities for investors seeking consistent returns in hopes of beating traditional equity markets.
Yieldstreet has and continues to invest in mass torts both pre- and post-settlement. Mass tort lawsuits are an innovative mechanism to pursue large-scale justice against defendants who have caused far-reaching harm. Mass tort litigation funding is a crucial solution by which investors give plaintiffs faster relief, keep law firms afloat, and potentially generate attractive returns.
For additional questions regarding Yieldstreet or our legal finance offerings, please email us at [email protected].
1Deborah R. Hensler, Third-Party Financing of Class Action Litigation in the United States: Will the Sky Fall?, 63 Depaul L. Rev. 1101, 1109 (2014).
2Mary Cathern Hensinger, Agent Orange and Boyle: Leading the Way in Mass Toxic Tort Actions, 6 J. Cont. Health L. & Pol’y 359, 363 & n.27 (1990).
3William P. Statsky, Mass Tort Litigation, in Torts: Personal Injury Litigation 404 (5th Ed. 2010).
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]