The federal judge overseeing the proposed $6 billion settlement of claims against 3M by hundreds of thousands of U.S. military veterans and service members is apparently not a fan of litigation funding.
In an extraordinary orderm U.S. District Judge Casey Rodgers of Pensacola, Florida, ruled that plaintiffs’ lawyers with cases in the 3M multidistrict litigation may not approve or participate in any deal between their clients and outside funders offering high-interest cash advances in anticipation of payouts from the proposed settlement. The judge also barred claimants in the MDL from entering any deal with a litigation funder without obtaining her approval in advance.
Rodgers said she wants to be sure that plaintiffs in the consolidated litigation, which involves claims that 3M’s military-issued earplugs caused hearing loss, are not “exploited” by “predatory” litigation funders who charge “exorbitant fees and rates of interest.” (Like I said, not a litigation finance fan.)
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.
But the experts I spoke with could not recall a previous case in which an MDL judge flat-out barred plaintiffs’ lawyers from facilitating a funding deal for their clients and prohibited claimants from entering a deal without court approval.
“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.
Law professor Ronen Avraham of the University of Texas, who has co-authored landmark litigation funding studies, told me by email that he is “sympathetic” to Rodgers’ apparent goal of restricting these deals in the earplug MDL because funders in the past have sought “crazy” interest rates when they’ve advanced money to plaintiffs expecting payouts from settled cases.
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?
You may recall that in a previous MDL, brought by retired NFL players who blamed the league for their neurological injuries, U.S. District Judge Anita Brody in Philadelphia was so disturbed by allegedly exploitive funding deals that she tried, after the fact, to invalidate agreements between litigation finance companies and retired players.
Funders challenged Brody’s wholesale invalidation of their contracts. In 2019, in a landmark decision on the scope of the court’s authority, the 3rd U.S. Circuit Court of Appeals ruled that because the players’ settlement with the NFL contained an anti-assignment provision, Brody was within her rights to strike down funding deals in which players assigned their claims to outside funders.
But the appeals court in the NFL case held that the MDL judge did not have the power to stop funders from bringing actions to demand repayment after players received their settlement money. Brody’s authority, the appeals court said, ended at the border of the MDL. She was not entitled to “void contractual provisions that went only to a lender’s right to receive funds after the player acquired them.”
Rodgers, perhaps mindful of the 3rd Circuit’s (admittedly non-binding) analysis of the limits of her authority, did not entirely preclude earplug plaintiffs from contracting with funders. She said instead that they must obtain her approval to enter a deal.
So can plaintiffs sidestep the order, claiming that the MDL judge can’t bar them from entering a contract outside the scope of the MDL? And what happens if a plaintiff in the earplug case does make a funding deal without Rodgers’ approval? Litigation funding expert Anthony Sebok of the Benjamin R. Cardozo School of Law said the MDL judge’s only recourse might be to dismiss the plaintiff’s case — a harsh penalty for the claimants Rodgers wants to protect.
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.
“My client would welcome that,” Buckley said.
But would Rodgers approve any deal a funder would consider to be financially viable? That’s one of the many open questions arising from her order. I suspect we haven’t heard the last of the issue.
A 3M spokesperson declined to comment on the litigation funding order. Plaintiffs’ co-chair Christopher Seeger of Seeger Weiss was not available for comment.