litigation funding and lead generation: how might … · one law firm employee’s description of...

April 25, 2018 In-House Counsel Conference

Litigation Funding and Lead Generation:

How Might They Affect Your Litigation

Budget?

Presenters:

Jennifer Dubas, Esquire

Endo Pharmaceuticals, Inc.

Barbara R. Binis, Esquire Stephen J. McConnell, Esquire

Partner - Reed Smith LLP Partner – Reed Smith LLP

http://delvacca.acc.com 2

Delights Down Under

And . . . Litigation Financing


But U.S. Litigation Differs From Litigation

Abroad:

• Loser pays rule Parties bear own costs

• Fewer cases generally Mass torts

• Smaller verdicts Enormous verdicts


Litigation Funding Is Here To Stay



Source: http://www.burfordcapital.com/2017-litigation-finance-survey/

What Is Litigation Funding?


Individual Case Investment


Portfolio Case Investment


Living Expense Assistance


Travel Expenses


Surgery Funding


Pre-Paid Settlements


There has always been litigation

financing. But the new litigation

financing involves equity, not just debt

financing.

Equity affects incentives and control


Who Uses Litigation Funding?


“The vast majority of litigation financing

is for the pursuit of claims”

Burford Capital Limited First Half 2017 Investor Presentation

Yes

Not as much

Questions:

1. Does litigation financing lead to more litigation?

Suggested answer: Yes

2. Does it lead to more speculative litigation?


3. Does it alter the ways in which litigation is conducted?



How Are Funding Dollars Spent in Mass

Torts?


One Law Firm Employee’s Description Of How

Law Firms Might Use Hedge Fund Money:

• Borrow as much money as possible;

• Buy as many television ads and/or faceless clients as

possible;

• Wait on real lawyers somewhere to establish liability

against somebody for something;

• Use those faceless clients to borrow even more money or

buy even more cases;

• Settle cases for whatever they can get

• Lather, rinse and repeat.


David Yates, “Mass Tort Warehouse” Fires Fund Officer to Avoid Paying

Millions for Acquiring 14,000 Mesh Claims, Suit Alleges,” SE Texas

Record, Oct. 10, 2015

Follow The Money


“Factor” vs. Financier


“Factor” Mark Up

Doctors get paid $ 4,500*

Intermediary facilitator produces “bill” to lawyer $35,000

Funder buys “receivable” $15,000

*Usual and customary charges for same surgery and same

doctor in regular practice = $900 to $1,500.


Question – How can this be true

“factoring” if the costs are determined

before the surgery occurs?


Finance “Loans” Directly to Plaintiffs

• Before a Plaintiff ever talks to or sees a

doctor, she or he signs documents (non-

recourse) to cover the cost of surgery,

travel and expenses



Surgeries done by regular treating $3,500 - $5,000

physicians in Plaintiffs’ home state

covered by insurance full cost of

surgery

Loaned amounts for same surgery at $21,000

doctor recommended by funders

Interest at 39% compounded

After 1 year $31,319

After 2 years $45,987

Avoiding Insurance Payments

• If the plaintiff has insurance, the plaintiff agrees not to

submit for any recovery to the insurance company

• “. . .if such coverage is available, Patient is specifically

instructing Provider not to submit its charges to such carrier

or governmental program. Patient also represents that Patient is

not eligible for financial assistance under the Provider’s financial

assistance policy, and/or if Patient is entitled to financial

assistance, Patient voluntary and irrevocably waives any right

to such financial assistance.”


Practice Pointers

• Know your inventory and pick up on these red

flags:

• Higher number of treatments by specific doctor or in

specific geographic areas

• Cases disproportionately brought by Plaintiffs in

specific geographic areas

• Specific treatments alleged which are not generally

known to be efficacious (or ailments alleged that are

not generally associated)

• Get experts involved early and ask them to report

anything they hear from medical community


Where Does The Money Go In Addition

To The Funders?


Who You Gonna Call? “Lead Generators”


(Email sent to defense lawyers by

mistake)

Accumulate and Sell “Leads”

• Cold calls

• Targeted calls with personal

information generated through

purchases from websites

• Facebook “surveys”

• Respondents to TV ads are

routed directly to lead

generators

• Personal injury lawyers will pay

as much as $3,000 for each

lead (usually in the tens of

thousands)1

1 Barrett, Paul. Inside Massive Injury Lawsuits, Clients Get Traded Like Commodities for Big Money. Bloomberg Law, Oct. 22, 2015


Ubiquitous TV Ads – How Many are

Funded?


Rise Of Lawsuit Advertising – 116% More in

2017 than 2006 – 28% Increase Between 2015

and 2017 in Both Funding and Advertising


Some Example Content of The Calls and

Internet Ads In Recent Mass Tort

• Presenting what is an advertisement for legal

services as a “medical alert,” “health alert,”

or “consumer alert,” and incorporating medical

symbols into the background

• Using the FDA logo or the text, “FDA

Warning,” implying agency affiliation

• Using the word “recall” in website addresses,

names, and headings, when the product was

never recalled


Affidavit Filed By Recipient Of Add Call


Practice Pointers

1. Consider hiring a media or Public Relations firm to capture all

advertising - TV, internet and print - from the very beginning of the

litigation

Use that library at depositions

Source the ads to a particular law firm or funding company

2. Include general Facebook social medial research to identify

organizations targeting your products with social medial

accounts

3. Send Cease and Desist letters as soon as you see any

inaccuracies in advertisements

4. Follow up any complaints the company receives from its own customer

base about ads/callers trolling for Plaintiffs.


Response of One Website To Cease and

Desist Letter 1. The above-referenced website has been revised to omit any

statements that a pelvic mesh patch “recall” has occurred.

2. My clients have removed all e-mail creative and content that

mentions a “recall”

3. Future e-mail advertisements, if any, will not use any subject lines

that include the word “recall”

Prior to undertaking any future e-mail advertising or uploading any new

marketing content to the above-referenced website, Consume Injury

will take all reasonable measures to ensure that the website includes

accurate and factual information consistent with up-to-date FDA and

medical news reports.


Call Centers

• Call centers - burgeoning industry using

operators to contact individuals who took a drug

or had a medical device implanted but have not

yet sued

• Use a “script” written by owners of the call

center which may imply that there is a problem

with the product and that the individual will be

affected, if not now, later

• May promise a big payout to Plaintiff who sign

up


Affidavits of Call Recipients:


“They were very insistent, trying to lead me in the

direction of saying I had problems. The second caller

finally ended the call, saying ‘How about if I called you

back in a couple months because you may have

problems by then.’”

“All callers insisted that I would be entitled to get money.”

“I feel they went even further, trying to “create” problems

where none exists.”

Plaintiffs’ Deposition Testimony

A. Someone had called and said that there was a recall on

my sling. I do not know who it was.

Q. And how did they know you had a sling?

A. I do not know.

Q. Did they say that they knew you had a sling?

A. Yes.

Q. What else did they know?

A. They knew what hospital…

A. They knew my date of birth …

A. When [the doctor] put it in, they knew that.


Potential HIPAA Violations

“The fact that someone has gained access to my

confidential medical information, without the knowledge of

my doctor and without permission from me is extremely

disturbing … my privacy has been breached and this is

extremely upsetting.”


Practice Pointers

• Make sure you look at Plaintiffs’ public social media prior

to depositions

• Consider asking for electronic production from Plaintiffs to

get any chat room, website interactions

• Ask specific questions about whether in accessing a

website, Plaintiff gave anyone permission to contact them

• Ask whether Plaintiffs wanted to be contacted?


Cold Calls – How Do Call Centers Get

Such Detailed Info?

Some possibilities:

1. Website “permission”

2. Use of demographic data from the U.S. Centers for

Disease Control and Prevention (CDC) and other

sources

3. Social Media searches

4. On-line pharmacy and doctor referral businesses

5. Insurance databases

6. Illegal acquisition of databases?


Practice Pointers

• At deposition drill down on ways Plaintiff got to his or her

attorney• Get dates, channels, websites, clips of advertisement

• Any calls from call centers suggesting injury?

• Get as many specifics as possible • Name of caller

• City/state

• Exactly what was said

• Get any documents Plaintiffs received (Note: If sent by a

“law firm” get name of firm at least)


Medical Funding – The Underbelly of

Litigation Financing


How do Plaintiffs get directed by callers to

specific doctors?

• We have the “three best doctors in the country”

• “No doctors in your area do these operations”

• “No cost to you”

• Flights, accommodations, expenses all paid for

Note: None of the callers are medically trained


Plaintiff Deposition Testimony

Q. What did they say about why would it be necessary to

go out of state?

A. The answer on that one was: “Do you trust the doctors

around your area.”


• By the time the call center sends the case to the lawyer

for work up, Plaintiff has already:

• Produced medical records

• Been told their complaints are/may be related to the

product

• Referred to a doctor

• Referred to a funder

• Has surgery scheduled?


Referred Doctors

• Contracts with lead generators provide

guaranteed income per day plus “bonus”

for each surgery performed.

• Doctors recruited by lead generators and

funders.


One Expert’s Affidavit

• Got email out of the blue from lead generator seeking

experienced surgeons

• Follow up call with self-described “entrepreneur” who

offered (a lot of) money for surgeries “whether it took 5

minutes or 2 hours”

• Was told that a “federal judge … needs to see key

phrases in the operative report … it’s a game, but we

have to play the game”

• Later called by funder and “I told him that there were other

ways to manage complications than full surgery.”

• Funder replied “you would not be helping the patient if you

fix them but you don’t help them win their lawsuits”


Practice Pointers

1. Ask Targeted Questions at Plaintiff’s Deposition

How he/she was referred to his/her doctor

Who paid the doctor

Why not go to Plaintiff’s own primary care doctor for

referral

Whether Plaintiff traveled for surgery – if so, why

Who paid

Whether the Plaintiff sought other medical opinions

Timing of signing contract for funding vs. seeing the

doctor for the first time


Practice Pointers

2. Plaintiff’s Fact Sheet – add questions related to who paid for

medical procedures and whether there are liens against the lawsuit

3. Document requests include contracts Plaintiff has signed for

subrogation of rights

4. Establish at the beginning of the litigation the reasonable and

customary charges for the treatment alleged

Medicare/Medicaid allowances

Bills from Plaintiffs treated by doctors where insurance was

accepted

Subpoena billing companies used by doctors to establish usual

and customary charges


Practice Pointers

5. Targeted Questions at Doctor’s Deposition

How the Plaintiff came to the doctor’s practice

Who is putting bill together and who is paying the bill

Who recruited the doctor

How many people did he talk with

6. Did he receive any documents from recruiters, i.e.,

contracts, templates of operating reports, bills, or

office notes, etc.

7. Consider taking deposition of “Business

Manager” of doctor’s practice if doctor

not clear on financial details


Practice Pointers

8. Ask your experts to relay any information

they hear regarding outreach to doctors by

funding companies


Litigation Funding Bottom Line: Net Plus

or Minus?


Potential Benefits of Litigation

Funding

• David v. Goliath

• Ideally funds otherwise expensive and

unreachable cases for the pursuit of social

justice

• In funding companies’ best interest to fund only

strong claims? [ROI]


Potential Detriments of Litigation Funding

• May violate laws against maintenance and

champerty

• Distorts traditional adversarial system of justice

• Increases

• Size of mass torts/class actions

• Cost of litigation

• Inflates settlement costs – not only in numbers,

but in amounts

• Raises several ethical concerns


Distorts The Traditional Adversarial

System Of Civil Justice

• Improperly vetted lawsuits brought in by

financed mass marketers

• Funding allows for more mass advertising

• Who controls the settlement decisions?


Maintenance – Intermeddling in a

suit that in no way belongs to one, by

maintaining or assisting either party

with money or otherwise, to prosecute

or defend it.

Considered outdated for many years, but

now reappearing in case law


How Much Control Do Funders Have Over The

Litigation?

• Specific terms in funding agreements:

• Manage “litigation expenses”

• Vet, approve, and interview expert witnesses

• Receive notice of and provide input on any

settlement demand and/or offer; and

• Participate in settlement decisions and

mediations


Champerty: prohibits a party from funding litigation in

which he or she is not a party (dates from colonial times)

• Several courts have recently set aside funding

agreements as champertous and usurious or held that

champerty is a viable defense:

• Pennsylvania

• North Carolina

• Kentucky

• Minnesota

• New York


Usury Laws

• The percentages are staggering

• Ways around usury laws?

• “non recourse”

• Characterize transactions as “contingent

interest in the potential post-judgment proceeds

of the Plaintiffs’ case” instead of loans


Shawn Cohen, “Inside the Cottage Industry that’s fleecing the New York Taxpayers”, New York Post, January 2,

2018

Effect on Settlement

• Higher settlement demands because of the

extra layers of middlemen and mark ups

• Greater media attention because of higher

dollars

• “We make it harder and more expensive to

settle cases.” - Allison Chock, IMF Bentham

US


Ethical Concerns

• Pits relatively unsophisticated personal injury

Plaintiffs against hedge fund investment

gurus

• Creates a potential conflict of interest for

attorneys between client and funder

• Potential undisclosed judicial conflicts of

interest (Chevron)

• May violate rules prohibiting sharing of

attorneys’ fees with non-lawyer


Does this result in more litigation? Yes

Does it result in more speculative

litigation? Yes


How Does It Alter The Conduct Of The

Litigation

• Increased discovery costs: depositions and documents

• Third party discovery costs

• Funders fight discovery at every level

• More motion practice

• Motions to quash and compel

• Court imposed structures for managing large inventories

• Consolidation of cases at trial

• Increased settlement costs

• Inflated damages

• Larger inventories

• Unnecessary treatment


Should Litigation Disclosure Rules

Require Transparency?


Historically Not Discoverable

Body of case law that holds that

litigation funding documents are

Protected by attorney client privilege and

work product protection

Barred by Collateral Source Rule


But Some Newer Developments Allowing

Disclosure:

Wisconsin – Act 235 (April 2018) requires disclosure of all

funding documents in civil cases

11th Cir. Court of Appeals – (February 2018) aff’d lower

courts’ holding allowing funding documents and testimony

at trial to show bias of Plaintiffs’ physicians

N.D. California – 2017 rule requiring the disclosure of

funding contracts in all class action

Fairness in Class Action Litigation Act of 2017 would

require disclosure in all class actions. Passed by U.S.

House of Representatives in March 2017, but held up by

Senate.

Delaware Case Law - Discoverable because no common

legal interest between funders and counsel


Recent Push For Transparency

• In recent years, the U.S. Chamber of Commerce and other

organizations drafted a proposed amendment to Fed. R. Civ. P.

26(a)(1)(A) to address disclosure of third party litigation funding

• “a party must, without awaiting a discovery request, provide to the

other parties . . .for inspection and copying as under Rule 34, any

agreement under which any person, other than an attorney

permitted to charge a contingent fee representing a party, has a

right to receive compensation that is contingent on, and sourced

from, any proceeds of the civil action, by settlement, judgment or

otherwise.”


Recent Push For Transparency

• The Rule was rejected in 2014 and 2016, after the

Federal Committee on Rules of Practice and Procedure

held hearings on the arguments for and against amending

the rules. • “With the Advisory Committee’s acknowledgment that litigation

financing continues “growing and evolving,” it appears committed to

moving cautiously on developing a mandatory disclosure rule.”

Garret Ordower, Above the Law, February 12, 2018


Why Should Funding Be Transparent?

You don’t know what you can’t see

Enormous growth of the industry

Imbalance in the obligation regarding financial

disclosures, between Defendants and Plaintiffs

May violate state champerty and maintenance laws

Disconnect from actual cost and value


Lead Generators Currently Working On Opioid

Epidemic


Exploiting the Opioid Epidemic?

• Lead generators recruit clinics

• Many of these clinics operate in Florida

• Lead generators then run ads on TV, internet, print

• Sometimes callers responding to ads automatically routed to a

rotating list of treatment centers, generating an automatic $40-

$50/referral fee each time the phone rings

• Other times, lead generator recommends particular treatment

program

• Treatment might cost $40,000 or more; individuals referred to the

most expensive treatment, offered free flights, with no medical

personnel’s assessment

• All without any medical assessment of the individual

caller


litigation funding and lead generation: how might … · one law firm employee’s description of...

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