WASHINGTON (Legal Newsline) - A congressional committee will hear testimony today on how hedge funds and activists are financing litigation for private profit and political goals Republicans say are “otherwise unattainable through the legislative process.”
The House Committee on Oversight is scheduled to meet at 10 a.m. for the hearing titled “Unsuitable Litigation: Oversight of Third-Party Litigation Funding.” Speakers will include the assistant general counsel of Johnson & Johnson, which has faced well-financed litigation over opioids and talcum powder and the executive director of MiningMinnesota, whose members have lost court rulings to environmental activist groups.
“Private equity and left-wing billionaires are funding litigation against companies and agencies in an all-out effort to sway policy and determine outcomes in the courtroom,” Committee Chairman James Comer (R-Ky.) said ahead of the hearing. “The House Oversight Committee must work to prevent financiers from hijacking America’s courtrooms.”
Once considered illegal or at the very least unethical, litigation finance has grown into a $100 billion industry, according to some estimates, although the actual amounts third-party litigation funders pour into lawsuits is unknown. Hedge funds including Fortress Investment Group, D.E. Shaw & Co., and Elliott Management have invested billions, as has publicly traded Burford Capital. Burford recently scored a potential $16 billion victory over the nation of Argentina after buying interests in lawsuits over the nationalization of the YPF oil company.
Republicans in Congress have long pushed for federal laws requiring disclosure of TPLF. They argue outside funders not only sponsor unnecessary litigation but can exert behind-the-scenes influence over cases or serve the interests of business competitors and political activists. In one of the best-known examples, billionaire Peter Thiel financed Hulk Hogan’s lawsuit against Gawker, which yielded a $140 million judgment, reportedly as revenge against the publication for outing him as gay.
Billionaire Mike Bloomberg’s charity funds climate-change lawsuits against the oil industry, including by state attorneys general who have fought vigorously against public disclosure of how they interact and who helps fund their cases.
Some states have mandated TPLF disclosure, including Wisconsin, West Virginia and Montana. Federal courts in California, New Jersey and Delaware also require litigants in some types of cases, including class actions, to disclose outside funding. Delaware federal Judge Colm F. Connolly has been particularly aggressive in demanding patent-licensing firms to identify their financial backers.
Scheduled witnesses include Boston University Law School professor Maya Steinitz, who described litigation finance in an influential 2019 article as “the single most important development in civil justice.” The primary effect of litigation finance is to increase the number of lawsuits, Steinitz acknowledged, although that could be good or bad based on one’s viewpoint.
Until the beginning of the 21st century, Steinitz wrote in a 2019 article, TPLF “was considered near-universally as a crime, a tort, or at least an ethical violation.” She advocates a balancing test for disclosure, based on who is suing and who is providing outside finance.
“Our legal system arguably should treat providing access to justice very differently than it does using the courts as a vehicle for revenge,” Steinitz wrote. “Similarly, companies funding cases against their competitors should be treated differently than professional funding firms funding similar cases for a monetary profit.”
She also advocates for courts probing into finance agreements and collecting data on the practice.
“Courts should be a place for the resolution of disputes and not a source of business profit,” Steinitz wrote. New York imposed a 33% cap on contingency fees, for example, after courts collected data showing fees frequently exceeded 50%. “The need for data in the context of litigation funding is particularly acute,” she wrote.
Chuck Grassley sponsored the Litigation Funding Disclosure Act, which would require TPLF disclosure in class actions and multidistrict litigation, so courts and parties could identify conflicts of interest and “undue pressures and secret agreements” that might drag out litigation unnecessarily.
Nearly a quarter of federal district courts require disclosure.