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Ethicon Media Monitoring 6/26/2018
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Hedge Funds Look to Profit From Personal-Injury Suits
Jun 25, 2018 | The New York Times
By Matthew Goldstein and Jessica Silver-Greenberg
Hedge funds and private-equity firms are deepening their involvement in big-ticket personal-injury lawsuits against drug companies and medical device manufacturers. -
Pelvic Mesh MDL is Closing to New Cases!
Jun 25, 2018 | Mesh Medical Device News Desk
By Jane Akre
It was opened in January of 2012. The multidistrict litigation (MDL) court handling pelvic mesh cases swelled to more than 104,000 cases. -
Lawyers, litigation funders grade class action reform proposals
Jun 26, 2018 | Lawyerly
By Christine Caulfield
Regulating third-party litigation funders gets a resounding yes, but experts are divided on removing the ban on contingency fees and other recommendations for reforming the class action regime.
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Hedge Funds Look to Profit From Personal-Injury Suits
Jun 25, 2018 | The New York Times
By Matthew Goldstein and Jessica Silver-Greenberg
Hedge funds and private-equity firms are deepening their involvement in big-ticket personal-injury lawsuits against drug companies and medical device manufacturers.
Investment firms are lending money to law firms that bring so-called mass torts and providing cash advances to plaintiffs involved in such litigation. The activity is increasing just as prosecutors and lawmakers intensify their scrutiny of the industry.
Earlier this year, EJF Capital, a $6 billion hedge fund, began raising money for its third investment vehicle that will lend money to lawyers bringing mass-tort cases, according to a February email to prospective investors. The new fund aims to raise $300 million on top of the nearly $450 million the Arlington, Va., hedge fund has already lent to personal injury law firms.
EJF was an early mover in the business of financing mass tort litigation. Such loans can carry annual interest rates as high as 18 percent.
The field is getting crowded. Wall Street firms and other investors have become go-to financiers for many of these cases, which feature large numbers of plaintiffs who have suffered similar injuries from a consumer product.
Adam J. Levitt, an attorney in Chicago who has brought mass-tort cases, said there was an “ever-increasing influx of hedge funds into the litigation-funding space.” One cause, he said, is their eagerness for investments that won’t perform in lock step with stock markets or the overall economy.
Hedge funds such as Fortress Investment Group, Pravati Capital and Virage Capital Management have lent money to mass-tort law firms in recent years, according to lawyers and lending executives.
Marketing documents for EJF’s new fund said the firm saw an opportunity to take advantage of the “current banking regulatory environment,” which has led some banks to pull back from lending to mass-tort firms.
Meanwhile, a slew of newer firms — including hedge funds and those affiliated with hedge funds — that specialize in lending to mass-tort lawyers are cropping up.
Deer Finance, a small Manhattan firm with a board member who works for the hedge fund Fir Tree Partners, began focusing on such loans last year. An Arizona investment firm, Stillwell Madison, signed a financing agreement in 2016 with Girardi Keese, the Los Angeles mass-tort firm involved in the case that the movie “Erin Brockovich” made famous.
Some hedge funds are considering providing law firms with loans to buy large mass-tort cases from rival firms in order to bulk up their caseloads, according to a person involved in negotiating one such deal.
Tom Girardi of Girardi Keese, one of the nation’s most successful mass-tort lawyers, said funding from alternative lenders was necessary to battle companies with unlimited budgets. “If you are going to fight them, you better have the money to properly present these cases,” he said.
The litigation-finance business has been around for a long time, but until recently it was mostly focused on the financing of complex, long-term commercial litigation. The emphasis on bankrolling consumer suits is newer and potentially even more profitable for lenders.
Analysts estimate that litigation finance is at least a $10 billion industry, and they expect it to keep growing.
Daniel Ballen, a portfolio manager with Pimco, the giant bond fund, described the industry as being in its “third inning” at a recent litigation-finance conference.
As the industry booms, state and federal authorities are beginning to look into a specialized corner that provides high-interest cash advances to litigants waiting for settlements or jury awards.
Federal prosecutors in Brooklyn recently opened an investigation into a network of lawyers, finance firms and others that may have lured women into getting unnecessary surgery to remove pelvic mesh implants, according to people familiar with the matter. Removing the implants improved the chances that the women would win large legal settlements from medical device manufacturers.
In a report in The New York Times in April, women said that they had been prodded to get the vaginal mesh implants removed and that a cash advance firm had provided them with financing to do so.
The people familiar with the nascent investigation, who were not authorized to speak publicly about it, said prosecutors had recently asked some lawyers involved in the litigation to hand over transcripts of depositions in which plaintiffs discussed how their mesh-removal surgery was paid for.
A spokesman for Richard P. Donoghue, the United States attorney for Brooklyn, declined to comment.
In New York, state lawmakers are trying to crack down on finance firms that offer cash advances to litigants, introducing legislation that would cap the interest rates. Critics say that the fine print of these deals is often incomprehensible and that the loans can leave plaintiffs with only a small fraction of the settlement money they thought they would receive.
“We have turned our civil justice system into a profit center, and now the Wall Street sharks are circling,” said Tom Stebbins, executive director of the Lawsuit Reform Alliance of New York, which represents a number of industries. “They see litigation as a low-risk investment. They see this as a sure thing with so many cases settling.”
The firms say they are serving a valuable role and helping litigants in need of short-term cash while their lawsuits spend years making their way through the legal system.
Settlement advances help individuals “meet pressing financial needs and have the financial wherewithal to pursue cases against often-powerful interests,” said Jim Terlizzi, chief executive of DRB Capital, a company that offers such advances and that is owned by Blackstone Group, the private-equity firm.
The broader business of lending to mass-tort firms is also facing growing pressure.
Last month, three Republican senators introduced a measure that would require attorneys in class actions and mass torts to disclose if a third party is financing their case.
A federal judge in Cleveland overseeing hundreds of mass-tort cases against opioid makers last month ordered plaintiffs’ law firms to disclose any financing they were getting from third parties.
Plaintiffs’ lawyers and investment firms argue that the money the firms provide makes it possible to pursue costly litigation against large companies. But some hedge funds impose higher interest rates if a case drags on too long.
Elizabeth Burch, a professor at the University of Georgia School of Law, said she found that problematic because it “encourages quick settlements that, at least in the mass-tort context, are unlikely to be in plaintiffs’ best interests.”
https://www.nytimes.com/2018/06/25/business/hedge-funds-mass-torts-litigation-finance.html
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Pelvic Mesh MDL is Closing to New Cases!
Jun 25, 2018 | Mesh Medical Device News Desk
By Jane Akre
It was opened in January of 2012. The multidistrict litigation (MDL) court handling pelvic mesh cases swelled to more than 104,000 cases.
Now Judge Goodwin who oversees the MDL has issued orders that no more cases are to be filed in his federal court.MDL 2327 – No More Cases Accepted!
The MDL is closing. Any new filings will have to be in state court, according to a June 21 order issued by Judge Joseph Goodwin in each of seven pelvic mesh MDLs filed in his federal court in Charleston, West Virginia.
For example in the largest MDL, Ethicon (Johnson & Johnson) Judge Goodwin writes in Pretrial Order #304, filed June 21, in the Ethicon MDL #2327 that since January 2018, his court has requested cases no longer be transferred to MDL 2327.
On June 19th, the Judicial Panel on Multidistrict Litigation entered a Minute Order to that effect.“The court ORDERS that plaintiffs may no longer direct file claims against Ethicon, Inc. or Johnson & Johnson or any related entities in the Ethicon MDL (as set forth in PTO # 118) or in any other pelvic mesh MDL assigned to the court.” ~ Judge Joseph Goodwin
Other MDLs have the same order – C.R. Bard MDL 2187; American Medical Systems MDL 2325; Boston Scientific MDL 2326; Coloplast MDL 2387; Cook Medical MDL 2440; and Neomedic MDL 2511.
What does this mean for future mesh cases? A plaintiff law firm will have to file in state court, either the state where the manufacturer is located or where the plaintiff lives.
It is unknown whether the plaintiff will be able to share in the “discovery” that has already been gathered to prepare these cases for trial. For a plaintiff law firm, it can take hundreds of thousands of dollars to work up discovery in pursuit of a case, so theoretically, the MDL system short-cut the preparation time.
Before the doors close, the MDL will be the setting for two Wave trials, Wave 7 and 8, against Ethicon.
WAVE 7 AND 8 AHEAD
Wave 8 cases in the Ethicon MDL, the last major trial by the federal MDL court should be concluded with discovery by October and made trial ready in a June 13th order by Judge Goodwin. See PTO 303 here.
Ethicon, Johnson & Johnson, is still facing Wave 7 trials of about 150 pelvic mesh-injured women to be heard in this West Virginia federal court. The final settlement conferences are scheduled for August 1 with trial set to begin August 14.
At one time, the MDL contained 104,749 cases representing plaintiffs filing pelvic mesh cases against seven manufacturers. Beginning in 2018, the trickle of new cases slowed to a crawl.
The cases of Carolyn Lewis v. Ethicon, Donna Cisson v Bard, Jo Huskey v Ethicon as well as Tyree v. Boston Scientific, among others have all been heard in the Charleston courtroom.
MND has covered those cases from the courtroom! Use the Search Bar to pull up more on those cases.THOUSANDS DISMISSED
Additionally, in the Ethicon MDL, thousands of cases were dismissed with prejudice because they were non-revision cases. See MND story here.
In Pretrial Order #293, issued Wednesday, April 11, federal Judge Joseph Goodwin, overseeing thousands of defective product pelvic mesh cases amassed in multidistrict litigation (MDL), announced the court would dismiss more than 13-thousand Ethicon mesh cases where the plaintiff has a mesh-in-place with no attempted removals, also known as revisions.
There are many reasons a woman may not have her pelvic mesh removed – compromised health, a risk of going under anesthesia, a new complication to her health, a warning from her doctor that the risks of revision outweigh the benefit – all might preclude having a mesh removal. Now that may count against her.
In compromise language, Ethicon agreed for plaintiffs who have more than one office revision of the mesh and have trigger point injections, vaginal physical therapy or vaginal Valium, would be treated the same as those plaintiffs who undergo revision surgery within five years.
https://www.meshmedicaldevicenewsdesk.com/pelvic-mesh-mdl-is-closing-to-new-cases/
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Lawyers, litigation funders grade class action reform proposals
Jun 26, 2018 | Lawyerly
By Christine Caulfield
Regulating third-party litigation funders gets a resounding yes, but experts are divided on removing the ban on contingency fees and other recommendations for reforming the class action regime. Lawyerly spoke to defence and plaintiff-side lawyers, as well as funders, for their take on the recent proposals, and five major talking points emerged.
Removing the ban on contingency fees
Both the Victorian Law Reform Commission and the Australian Law Reform Commission propose lifting the current prohibition on lawyers charging contingency fees as a way to encourage competition with litigation funders and to spur firms to take on smaller matters that funders see as unprofitable.
The VLRC suggested any move by the state legislature to remove the ban be made in conjunction with the Commonwealth to avoid litigation forum shopping, a recommendation Quinn Emanuel partner Damian Scattini and IMF Bentham investment manager Matt Kennedy supported.
“It has to be national otherwise, cynically, you’ll find everyone filing in the Victorian Supreme Court,” said Scattini.
“Without a national approach, greater complexity will arise with respect to multiplicity of and competing class actions,” Kennedy said.
But Slater & Gordon head of class actions Ben Hardwick said the firm was “somewhat disappointed” the VLRC had suggested the more cautious approach.
“It’s time to take the next step,” Hardwick said. “Victoria was the first state to introduce class actions and there is no reason why it can’t be the first state to introduce contingency fees. There’s no reason other states wouldn’t follow and Victoria could take the lead.”
Both reports also suggested the removal be limited to certain class actions and under the supervision of the court. Shine Lawyers special counsel Vicky Antzoulatos questioned the rationale for excluding personal injury class actions.
Antzoulatos, whose firm is leading the massive vaginal mesh class action against Johnson & Johnson on a no-win, no-fee basis, said litigation funders mostly steer clear of personal injury claims.
“These class actions are very expensive to bring. The quantum is generally lower and there are statutory caps on damages,” she said.
Lifting the ban on contingency fees for cases relating to defective products would “really ensure access to justice, especially on a mass scale, where people have been injured by the one product”, she said.
King & Wood Mallesons corporate lawyer Matt Egerton-Warburton said the proposal would likely lower the costs to bring a claim, as the costs of litigation funding would not be included.
“This may make previously ‘uncommercial’ claims, marginally commercial” he said. “The net result will likely be an increase in claims, but the overall quality of claims may deteriorate without the vetting that litigation funders provide.” For his ASX-listed clients “this will likely have a detrimental effect as the increased litigation costs will lower shareholders returns.”
Matt Egerton-Warburton said he also worried about conflicts, “At present, lawyers are obliged to act in the best interests of their client in service of the court. With the introduction of contingency fees, lawyers will be primarily concerned with protecting their own fee position – possibly to the detriment of their client or the court process. What if a client wants to settle but their lawyer sees more value in continuing to pursue an action?”
IMF Bentham’s Kennedy said the case for introducing contingency fees “remains elusive”.
“The current model, with lawyers acting for their clients, funders overseeing the lawyers’ costs, and the court overseeing all, offers the best set of checks and balances,” he said.
Increasing transparency and strengthening court oversight
Both reports make proposals to increase transparency with respect to funding arrangements and legal fees in class actions to improve accountability, and the lawyers and funders Lawyerly spoke with say they generally supported the recommendations, with some conditions.
Antzoulatos said the proposal to increase oversight of the lead applicant’s legal costs with the appointment of cost referees, already a power more and more judges are keen to use, was not something her firm opposed, but that the defendants’ costs should also be scrutinised.
“Oversight could disadvantage applicants if defendants’ costs are also not reviewed,” she said. “Without review, defendants can put enormous pressure on applicants if they know their costs will later be looked at”.
Quinn Emanuel’s Scattini said his firm also welcomed transparency, but he too said it should be a two-way street.
“When the terms of the funding agreement are shown to the defence, the defence should have to show their insurance arrangements to the plaintiffs. That’s a good bit of transparency.”
More transparency and disclosure are fine, Slater’s Hardwick said, provided confidentiality and privilege were protected. And there was no need to codify or legislate the court’s existing powers to order the release of information, he said.
“Our preference is for courts to continue to exercise its powers. I think it has to be a case-by-case analysis. There will be situations when it is preferable to preserve confidentiality, but that power rests with the court already.”
Strengthening, or codifying, the court’s powers to set funding rates should also be considered with extreme caution, Antzoulatos said.
“The courts need to allow market forces to set the funding rates,” she said, adding that judges are not apprised of the commercial considerations that go into calculating a litigation funder’s commission.
Reviewing continuous disclosure rules
The ALRC proposed a review of continuous disclosure obligations of listed companies and the propensity for corporate entities to be the target of funded shareholder class actions. A review would also examine the availability and cost of directors and officers liability cover in Australia, the commission said.
King and Wood Mallesons’ Egerton-Warburton said a review was welcome.
“At present continuous disclosure is operating as a strict liability offence. There needs to be consideration of reasonable reforms that protect shareholders while also limiting penalties on companies for non-material breaches of their continuous disclosure requirements,” he said.
Egerton-Warburton said the “explosion” in class actions against listed companies was having unintended consequences, one of which was a substantial increase in the cost of directors and officers insurance. In at least one case, he said, a distressed company facing multiple class actions could not get D&O insurance at all.
In a recent interview with Lawyerly, VLRC chair Justice Philip Cummins disputed the idea that there had been an explosion in class actions in Australia.
IMF Bentham’s Kennedy said weakening the continuous disclosure rules would be a “retrograde step”.
“A better approach would be to improve directors’ understanding of their legal obligations, reducing the risk of misconduct in the first place,” he said. “In any event proposals to water down the impact of the continuous disclosure regime are well outside the terms of reference and, for that reason alone, should not be pursued by the Commission.”
Continuous disclosure obligations serve as a check and balance, Shine’s Antzoulatos said.
“If we weaken those we could see more of the misconduct we’ve been seeing coming out of the Royal Commission,” she said.
The heart of the continuous disclosure obligations under the Corporations Act and ASX’s listing rules was that investors have a right to information on a company’s performance, Slater’s Hardwick said.
“It’s very surprising that there is consideration of modifying those laws, particularly given the findings of the Royal Commission,” he said. “The community would be very concerned if there were any move to roll back continuous disclosure rules.”
Craig Arnott, managing director of global litigation funder Burford Capital, said weakening the law would be a “great mistake”.
“The evidence about AMP at the Hayne Royal commission demonstrates that rules for proper corporate governance are needed now more than ever, and shows the destruction of value in corporations when they are not followed,” Arnott said.
Establishing a regulatory regime for litigation funders
The ALRC proposed that litigation funders be subject to licensing requirements and regulation by the Australian Investments and Securities Commission. The VLRC said the Victorian Government should advocate for stronger, national regulation of funders.
“Burford welcomes [ALRC chair] Justice Derrington’s fair and considered report. We strongly agree with the recommendations that adequate capitalisation and transparency of funds should be important requirements in a licensing regime,” Arnott said.
IMF Betham’s Kennnedy said his ASX-listed firm, which is already subject to ASIC oversight, welcomed regulation, especially of overseas funders. The funder would be making “detailed submissions” to ALRC before its final report is due in December, he said.
“Overseas funders often hold very few assets in Australia and, for those who are private entities, their financial position is opaque. They have arguably fuelled the rise of “competing” class actions, which the courts are addressing,” he said.
Slater’s Hardwick said a licensing regime “made sense”. His firm would only engage a funder if it had adequate capital behind it, he said.
Quinn’s Scattini said regulation for funders was “long overdue”.
Introducing a collective redress scheme
The ALRC proposed a federal collective redress scheme as an alternative to litigation, saying that in addition to a fine against a wrongdoing company a redress scheme, “would likely achieve greater access to justice and at a fraction of the cost of a class action”.
Egerton-Warburton said a redress scheme was potentially an efficient tool for companies to avoid the costs and diversion of litigation. For aggrieved shareholders, it means not losing a substantial percentage of any recovery to a third-party funder.
“Collective redress schemes allow the corporate client to be proactive and to talk to a regulator early,” he said. “If structured properly a scheme could provide companies with an avenue to offer redress efficiently for errors and aggrieved persons can be compensated.”
Burford’s Arnott said the ALRC’s discussion paper “overemphasised” the role a redress scheme could have, and noted that the UK’s Consumer Rights Act, which allows a business to submit a voluntary redress scheme to the competition regulator, was a cautionary tale.
“There can certainly be a role for such schemes, but we don’t expect them to substitute for a ‘day in court’ and judicial scrutiny of claims,” Arnott said. “The UK experience shows that they are slow moving, lead to dissatisfaction and often end up in litigation anyway.”
A redress scheme was a perplexing proposal, Quinn’s Scattini said.
“That seems to be not a solution to anything,” he said. “I don’t understand how that would be a better. There is a need for justice to be seen to be done, not just done. If you make it like a speeding ticket, if it becomes a transaction costs for businesses, I don’t think that sends a good message at all.”
https://lawyerly.com.au/lawyers-litigation-funders-grade-class-action-reform-proposals/
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