Litigation funding can drive early settlements, legal scholar says

By Amanda Robert | Dec 22, 2015

As the size and complexity of transvaginal mesh MDLs continue to attract considerable attention, so do the details of how some of their claims made it to court.


CHARLESTON, W.Va. (Legal Newsline) – As the size and complexity of transvaginal mesh MDLs continue to attract considerable attention, so do the details of how some of their claims made it to court.

In the last five years, more than 80,000 women have sued the seven companies involved in the pelvic mesh multidistrict litigation, claiming that transvaginal mesh products that were intended to treat their stress urinary incontinence and pelvic organ prolapse were defective and caused severe medical problems.

Nearly 15,000 of them were bought and sold by trial lawyers in Texas, as alleged in a lawsuit filed on Sept. 29 in Harris County District Court. AkinMears even struck a deal with a litigation funder to finance the purchase.

Elizabeth Chamblee Burch - a professor at the University of Georgia School of Law who teaches civil procedure, class actions and mass torts - says that type of third-party financing can affect fee recovery - and even how a case is litigated and when it is settled - in complex litigation like MDLs or class actions.

“Loaning money directly to the law firm can create even more pressure on the law firm to settle because of the growing interest rates,” she said. “If you’re a law firm, and you can’t pass those costs along to your clients, it means it’s cutting into your recovery of the claim.”

Amir Shenaq, the former business development director of the Houston law firm AkinMears, filed the suit against plaintiff’s attorneys Truett Akin IV and Michelle Mears, along with their firm, for allegedly firing him in order to avoid paying him millions of dollars for the thousands of pelvic mesh lawsuits he acquired for them.

Shenaq, an investment banker who moved to Houston in June 2014 to work at Wells Fargo, describes AkinMears as a “mass tort warehouse” in the suit.

He alleges that the firm initially spent significant amounts of money on thousands of television advertisements to rack up clients’ cases. However, Shenaq says, Akin told him he would rather buy claims that had been accumulated by other trial lawyers, with a goal of closing on $100 million worth of cases in 2015.

According to the suit, Shenaq began working for AkinMears in March, and by the end of April, he had negotiated a $50 million deal with Chicago-based Gerchen Keller Capital, one of the largest litigation funders in the world.

After Shenaq met Mazin Sbaiti, a Dallas trial lawyer who was affiliated with a group of four law firms known as Alpha Law, he says Gerchen Keller Capital provided AkinMears with an additional $50 million to purchase their combined docket of 14,000 pelvic mesh cases.

Shenaq also says in the suit that he closed on a separate purchase of 160 mesh cases gathered by Houston trial lawyer Fletch Trammell.

He was fired by AkinMears in late July for allegedly failing to honor a confidentiality and nondisclosure agreement and not paid the more than $4.2 million he claims he was owed for those deals.

Burch contends that these types of disputes may often occur behind the scenes.

As an example, she points to the MDL involving price-fixing on liquid crystal displays, in which attorney Joseph Alioto borrowed money from LFG National Capital LLC. The lender created a lien on his attorney’s fees in the litigation to get back its $18.3 million loan, along with nearly $13 million in interest.

“I think you do see it, and the question is, how does it affect the conduct of the litigation?” Burch said.

Burch explained that in this type of third-party financing, companies make loans to law firms that typically have higher interest rates than bank loans. Also, she says, the law firms use their case inventory as collateral, while banks typically require brick-and-mortar assets.

“So they’re more willing to lend you money based on your portfolio of cases, but you have a higher interest rate as a law firm,” Burch said.

Alan Zimmerman, the CEO and legal counsel of Law Finance Group, disagreed, saying that non-party litigation funding is a simple principle that is vital to the American civil justice system. He pointed out that being a party to a lawsuit is expensive, costing up to millions of dollars to pursue a claim.

“Very few people have that kind of money,” Zimmerman said. “So if you want to give people access to the civil justice system, then there has to be some mechanism for someone else to pay.”

Zimmerman became involved in the industry 22 years ago, when another lawyer called him about a client who faced an appeal over a sexual harassment suit she had filed against her employer. The woman didn’t have enough money to fight the appeal, so Zimmerman gave her a loan.

“If she lost the case, she could keep the money, because if she lost the case, she couldn’t pay it back anyway,” he said. “And if she won the case, she would pay me more than I gave her. In about three months, the lawyer settled the case.”

Zimmerman said that while non-party litigation funding isn’t a new concept, it has become more prevalent as the expense of litigation continues to increase and people find it more difficult to resolve disputes on their own.

He added that he doesn’t see any cons to non-party litigation funding, especially since it allows everyone to look out for their economic interests.

“People who have claims are looking out for their interests,” he said. “People who are lawyers who are trying to represent people in cases and get paid have their interests. That includes lawyers who represent insurance companies and who represent plaintiffs.

“They are all lawyers who needed someone to pay them in order to get paid.”

Zimmerman said he wasn’t familiar with the AkinMears case. However, he also said that since AkinMears is a law firm, whether or not its actions should be permitted is a matter of regulating the practice of law, not the practice of litigation funding.

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