Third party litigation funding (TPLF) is the practice of investors buying an interest in the outcome of a lawsuit. It has quickly become a multi-billion dollar industry. TPLF comes in several forms that present distinct issues and require different solutions, but they share three commonalities:

• The funder has a financial interest in the ultimate resolution of the lawsuit.
• The involvement of an outside funder raises ethical issues, such as who is driving or influencing the litigation, directly or indirectly.
• The presence of an outside funder, and its entitlement to a portion of a plaintiff’s recovery, can complicate the ability to fairly resolve disputes and drive up settlements and awards.

This paper focuses on three forms of TPLF:

• “Big-ticket” lawsuit lending;
• “Fast-cash” lawsuit lending; and,
• “Letters of protection.”

The paper further focuses on relevant ethics rules and laws as well as potential solutions.

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Several years ago, the American Tort Reform Association (ATRA) began to take note of a disturbing new trend; the once-esteemed American Law Institute (ALI) was evolving its role. No longer was it content to serve as an educational resource to state courts and the legal profession—rather it has begun to move into a new advocacy role outlining what the law should become.

This short paper outlines and highlights the adverse impact of this new ALI role on state court jurisprudence. The late Supreme Court Justice Antonin Scalia noted that the authors of the ALI’s flagship publications – its restatements – have, “abandoned the mission of describing the law and have chosen instead to set forth their aspirations for what the law ought to be.”

Here we outline the ALI’s agenda and highlight how the ALI’s new advocacy agenda threatens ATRA’s goal of a fair, equitable and predictable civil justice system.

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Executive Summary

The National Association of Attorneys General (NAAG) was founded in 1907 as a nominally independent association as a way for state AGs to coordinate shared antitrust cases.[1] Historically, the Association has played an influential role in managing multistate investigations and lawsuits. Over time, however, NAAG’s focus has shifted from promoting efficiency and coordination to instead promoting entrepreneurial litigation targeting a variety of industries – similar to the mission of the mass torts plaintiffs’ bar.

NAAG has had a significant role in some of the most prominent mass tort litigation over the past few decades. Its targets have included manufacturers of tobacco, and most recently, opioids. The Association fully participates in settlements reached in multistate lawsuits, just as individual states and their for-profit, contingency-fee counsel participate. Interestingly, this places what once was an independent association in a situation in which it now has profit as a main motive to help initiate and settle litigation, just as the trial bar does.

For example, in March 2021, NAAG received $15 million as part of McKinsey’s $600 million settlement for the company’s role in marketing opioid prescriptions.[2] NAAG also received $103 million that grew to $140 million from the landmark Tobacco Master Settlement Agreement.[3]

NAAG essentially acts as a self-sustaining litigation machine, mainly funded by two revenue sources: yearly dues from state attorneys general of approximately $70,000 per state, per year[4]; and carveouts from multistate litigation settlements.

NAAG’s programs, operated through these funds, seem to be tailored specifically to promote litigation against business – attorneys in state AGs’ offices are trained under NAAG programming to bring more cases against other industries.[5] These training sessions are designed to help AGs be more effective in litigation. NAAG’s targeted training and support of state AGs offices is similar to that of other activist groups looking to influence and promote litigation in AG offices. For example, the Bloomberg-funded State Energy & Environmental Impact Center at New York University School of Law is designed to further litigation by placing lawyers funded by the Center in the offices of friendly attorneys general across the country, empowering them to bring climate change litigation. However, outside influence, whether it be from NAAG or other activist organizations, creates a concerning lack of accountability and transparency in state attorneys’ general offices.

To promote coordinated mass tort litigation, NAAG members also participate in working groups that focus on potential multi-state lawsuits. Their activities include information sharing agreements between state AG offices as well as monthly phone calls to discuss ongoing investigation. NAAG then offers lead states the opportunity to recruit other states to join specific litigation.

Additionally, plaintiffs’ lawyers often hold training sessions at NAAG conferences in which they discuss best practices for pursuing mass torts. It is an excellent business development opportunity for these plaintiffs’ lawyers because many of them will later look to be hired on a contingency-fee basis once the AGs initiate lawsuits.

In the early stages of litigation, NAAG provides grants to the states to help litigation get off the ground. Currently, NAAG has more than $200 million in assets. States receive grants to fund research and other expenses needed to determine participation in a multistate lawsuit. Any state seeking NAAG funding must submit a detailed memo outlining their legal strategy, expenses, and predicted results. States are required to repay the grant if there is a settlement regardless of whether the settlement terms stipulate reimbursement to NAAG.[6]

Utilizing this sort of funding source for litigation allows AGs to avoid using state-appropriated funds – or having to go to the legislature for more funds. This funding side-step weakens potential checks and balances a legislature may want to exercise in these situations.

NAAG continues to find new targets, from the tobacco litigation of the 1990s to the opioid lawsuits of today. While the opioid lawsuits begin to wind down, NAAG is now forming working groups on climate change and environmental issues like PFAS, eyeing a new generation of potential mass tort lawsuits.[7] Given the new NAAG focus on mass tort profit motive, it’s only a matter of time until they move into new areas of focus.

The following report provides additional information about the innerworkings of NAAG along with supporting background and research.

 

[1] Rachel M. Cohen, “The Hour Of The Attorneys General,” The American Prospect, Spring 2017.

[2] O.H. Skinner, “Payouts To Victims, Not Special-Interest Groups,” Washington Times, 3/3/21; https://www.washingtontimes.com/news/2021/mar/2/payouts-victims-not-special-interest-groups/.

[3] Daniel Fisher, “The House Tobacco Built,” Forbes, 8/14/08.

[4] Sean Ross, “Alabama Becomes First State To Leave National Association Of Attorneys General — ‘Going Further And Further Left’,” Yellowhammer News, 4/26/21.

[5] “Events & Training,” National Association Of Attorneys General, Accessed 1/27/22.

[6] “Janssen Settlement Agreement,” Office Of The Texas Comptroller, 7/21/21.

[7] “Clean Energy Issues Are On The Docket For State Attorneys General,” New York University, 10/3/19.

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Key Findings: 

• Majorities across both parties maintain that elected officials should respond to the pandemic, rather than trial lawyers. 59% say those harmed by the pandemic should get assistance from policies passed by elected officials, versus just 7% who say they should get payouts from lawsuits: this is consistent from October when 63% favored assistance through policy versus 9% who favored payouts from lawsuits.
• Messaging on small business receives an even stronger response: 74% say small businesses affected by COVID-19 should be supported by government grants or loans versus 6% who say lawyers should help small businesses pursue legal claims.
• 48% of voters agree law firms using PPP funds for lawsuit advertising is inappropriate compared to 26% who say this is appropriate. This trend holds from October when 62% called lawsuit advertising inappropriate and 24% considered this appropriate; the discrepancy in those who call advertising inappropriate was driven by a greater proportion of Unsure respondents.
• The proportion of voters who say trial lawyer advertisements are annoying and take advantage of people is virtually unchanged from October: 65% said advertisements are annoying and take advantage of people in December, and 66% said the same in October.

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Key Takeaways:

1. When it comes to COVID-19 relief, Americans strongly favor government assistance over the legal actions of trial lawyers.
   • Less than one-in-10 respondents (9%) believe that trial attorneys filing lawsuits is a better approach to dealing with COVID-19 than government assistance policies.
   • A solid majority—63% of those surveyed—stated government assistance policies were preferable.
2. America’s preference for government assistance over the actions of trial lawyers is even more pronounced when it comes to small businesses.
   • Just 7% of respondents stated that lawyers encouraging small business to pursue legal claims is preferable to the government providing grants or loans.
   • An overwhelming majority—78%—stated government-provided small business loans and grants were preferable.
3. Americans dislike the trial lawyers’ television advertisements and view the use of PPP loans on them as inappropriate.
   • Two-thirds of respondents (66%) agreed with the notion that trial lawyer TV ads took advantage of people and were annoying.
   • Less than a quarter (24%) of those surveyed believed trial lawyers’ use of PPP loans on television advertisements was an appropriate use of funds.

 

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