In the wake of a $6 billion settlement offered by 3M to resolve tens of thousands of hearing damage lawsuits over allegedly defective military-issued earplugs, the Florida judge has issued a ruling forbidding plaintiffs’ attorneys from approving or participating in deals between their clients and so-called litigation funding companies.
Judge Casey Rodgers ruled that some litigation finance companies are offering “predatory” deals where they offer to pay plaintiffs in advance of the final settlement, Reuters reports. The companies that are pre-paying plaintiff settlements are charging “exorbitant” fees and interest rates for their services, added Judge Rodgers, who issued the unusual order to protect the over 260,000 veterans who have filed a lawsuit against 3M from predatory lending practices.
Plaintiffs in what has become the nation’s largest mass tort MDL in U.S. history accuse 3M of hiding design flaws in Combat Arms Earplugs version 2 (CAEv2), deliberately altering test results and failing to provide instructions for proper use of the earplugs, leading to hearing loss or tinnitus. By issuing the order, Judge Rodgers is exercising her legal authority to demand disclosure from plaintiffs’ attorneys to ensure that the veterans are protected from these allegedly unscrupulous companies.
Because litigation is a long and expensive process, a lawsuit can take months or even years to conclude. Financing companies claim that they assist plaintiffs by investing in the lawsuit in exchange for a portion of the profit when the case eventually pays out. On paper, this practice is similar to attorneys who work on contingency, absorbing all of the up-front costs of the lawsuit and only taking a portion of a successful verdict as payment. However, while contingency is an established and honored practice in the court system, the funding of lawsuits by a non-party, sometimes called champerty, is largely frowned upon.
Champerty is technically legal in the United States; however, most states do not “welcome the scheme,” says Cornell Law. States equate the practice to a risky form of gambling, thus for all practical purposes it is illegal because it functions as a form of financial speculation, which violates most state’s laws.
In the case of the 3M CAEv2 settlement offer, announced at the end of August, Judge Rodgers is calling for full disclosure of all pre-settlement litigation funding deals, using her authority under the Federal Rules of Civil Procedure. Additionally, no plaintiff in the MDL may enter into a deal with any litigation funding company without her advance approval.
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