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Members of Georgia’s legal and business communities warn that wealthy financiers, whether here or overseas, could quietly bankroll civil litigation lawsuits that could not only bankrupt big business but also jeopardize America’s national security.
They believe that this is happening through a burgeoning legal mechanism known as third-party litigation funding (TPLF).
Georgians For Lawsuit Reform Executive Director James Beal says he knows of at least two instances of TPLF happening within the Peach State.
Legislators in three other states have passed laws to restrict TPLF — although Georgia is not one of them. Members of Congress, including former U.S. Sen. Marco Rubio, have expressed grave concerns about it.
Staff at the U.S. Chamber of Commerce’s Institute for Legal Reform report of at least four other instances of TPLF happening in the country.
Hunter Loggins is the Georgia state director for the National Federation of Independent Business. Loggins said TPLF is a “relatively new concept.”
“What we are seeing is private equity and other types of investment firms paying plaintiffs [in civil cases] in exchange for a property interest in the particular outcomes of the cases, whether through verdicts, settlements, judgments, or through discovery,” Loggins said.
TPLF is not American in origin.
Georgians For Lawsuit Reform Executive Director James Beal said TPLF originated nearly 9,000 miles away… in, of all places, Australia.
“It has a major footing over there, but it has been replicated in the United States,” Beal said.
“It has mainly been in the background and not come up on too many people’s radars.”
THIRD-PARTY LITIGATION FUNDING
Loggins asks Georgians to imagine that they own a business.
“Suppose there’s a slip and fall, an alleged ADA (Americans with Disabilities Act) non-compliance issue or whatever it may be,” Loggins said.
“[You and your attorneys] think you can win so you try to take it to court, but then you’ve got a third party that is helping fund that lawsuit [against you]. That third party could be a competitor trying to put you out of business.”
Businesses large and small are targets of TPLF, said John Sambdman, the CEO of Samson Tours, an Atlanta-based charter bus services company. He said litigation hedge funds will finance any plaintiffs’ attorney “who is willing to do any liability case, including premise liability, auto liability or anything like that.” The U.S. Chamber of Commerce Institute for Legal Reform says the same.
“This is an effort to target the policy limits of whatever the commercial carrier has in range, anywhere from $1.5 million to many millions, depending upon the type of business that you are in,” Sambdman said.
“This third-party funding removes all risk from the [plaintiffs’] side when it comes to trying a case that is expensive, at least $150,000 minimum. The odds of a jury finding in favor of a defendant when the defendant is a corporation in Atlanta, anyway, is very slim, even if the evidence shows there was no actual harm done by the company.”
After a verdict, settlement or judgment, the law firm that did the work for the plaintiff gets roughly 30%. The hedge funds get 30% to 40%. The plaintiff gets whatever is left, Sambdman said.
Loggins said big businesses are a primary target.
“You only hear about big nuclear verdicts from the CVS’s of the world or the Norfolk Southern or CSX railroads. That’s because they have the money to fight this,” Loggins said.
Sambdman, meanwhile, said that these hedge funds “have discovered how to turn TPLF into an investment vehicle.”
“That is not what justice is supposed to be about,” Sambdman said.
The U.S. Chamber of Commerce Institute for Legal Reform says “TPLF has experienced explosive growth.”
“[It] is now a multi-billion-dollar industry worldwide, with an estimated $15.2 billion in commercial litigation investments in the United States alone,” the organization said.
A CONTRACTUAL (AND SECRET) ARRANGEMENT
In third party litigation funding, the plaintiff and the financier contract with one another.
Beal said he knows of two cases in Georgia where TPLF poses a problem.
“One was a federal case here in Georgia. At the end of the day the courts found that some of these contractual provisions in there between the finance company and the plaintiff violated public policy,” Beal said.
So do we know who, exactly, funds these lawsuits?
We don’t.
In TPLF, there is no paper trail — not even the barest of crumbs — that might lead a defendant’s attorney or even jurors in a civil trial to learn who funds any given lawsuit.
“This is the issue we have in Georgia,” Loggins said.
“You are not allowed to know who is funding the lawsuit. You are not allowed to know about the other parties involved in the plaintiffs’ side of things. It’s a transparency issue. If I am a jury or if I am a defendant then I would want to know if I have a competitor funding the plaintiff’s lawsuit. That shows you right there that there could be some nefarious things involved.”
Beal, meanwhile, said TPLF amounts to “unregulated gambling in our civil justice system.”
“We don’t know what is in those contracts. There are no consumer protection aspects to this, and it is purely [based on] what is in the contract. This could be auto collision cases. This could be bigger product liability cases. It runs the gamut of cases, Beal said.
“To these financiers it is just an investment vehicle for them seeking a return. It is not a loan because there is a contingency to that. If the plaintiff loses their case then the financier doesn’t get anything. It’s a multi-billion-dollar industry, and I call it unregulated and it’s people rolling the dice on whether the plaintiff wins or loses.”
Beal said, “the freedom to contract is a great and beautiful thing in this country.”
“But when it comes to especially vulnerable parties, if you are in a horrific accident and you are taking advice from your trial attorney about what your next steps are then your attorney may say ‘Hey, look, to help you get through some of these living expenses, here’s a financing company that can help you, one that specializes in litigation financing,” Beal said.
“The second case [I was referring to] that we have in Georgia, this one in state court, peels back the layers of this industry. The attorneys’ staff were steering their client to a funder. In that instance, the court found that a plaintiff who was injured in some sort of accident accepted $8,000 to cover living expenses and other bills,” Beal said.
Some sort of dispute — between the finance company and the plaintiff — occurred after the settlement was made, Beal said.
“The courts found that, for that $8,000, the financing company was coming after the plaintiff for $84,000 in return,” Beal said.
Charles Tarbutton is president of the Sandersville-based B-H Transfer Company. He said TPLF creates “a very opaque relationship” that deserves disclosure in court.
“[You could benefit from this] if you are a hedge fund or a private equity fund… or even a drug-dealing cartel that is laundering money,” Tarbutton said.
NATIONAL SECURITY CONCERNS
Sambdman suggested that one of America’s largest economic competitors funds TPLF within the United States.
“You got China involved, and China is funding these things. It is a type of asymmetric warfare,” Sambdman said.
The Financial Times reported in 2023 that a Chinese company funded several patent lawsuits within the United States, which, at the time, alarmed members of Congress, including Rubio, who was recently confirmed as the new U.S. Secretary of State.
That same year, the U.S. Chamber of Commerce Institute for Legal Reform reported on the matter.
“Purplevine IP, a Chinese third-party litigation investment firm, is financing multiple intellectual property lawsuits in U.S. courts against Samsung and a subsidiary,” according to the U.S. Chamber of Commerce.
“The only reason we learned of this funding is because the Chief Judge of the Delaware federal district court, where one of the lawsuits was filed, issued a standing order requiring disclosure of all litigation funding in his courtroom. The plaintiff in that case has since acknowledged that Purplevine is funding three more similar cases in federal court in Texas.”
Bloomberg Law, meanwhile, reported last year that a Russia-based firm financed a lawsuit in New York “both before and after three of its billionaire founders were sanctioned following the 2022 invasion of Ukraine.”
Beal said members of Congress have already investigated TPLF.
“I think that given the efforts of the federal government, the things that have come out from investigations by Congress, these reviews by the federal government have shown that some of our foreign adversaries are willing to go to any lengths necessary to influence even the most minute things in this country. I think we have seen efforts by foreign actors who are willing to go to any lengths necessary to influence domestic policy.”
Loggins put it this way:
“Let’s say you are a private group, and you have some technology that could be interesting to overseas adversaries. You could go through this process and pay these plaintiffs to continue their case and their lawsuit to get that information [about how to replicate the technology], which can be pretty scary.”
Beal cited a recent advisory opinion from the U.S. Department of Justice (DOJ). The document discussed how a U.S.-based law firm accepted funds from a foreign, non-governmental organization to fund litigation within the United States.
“The question was ‘Does this fall under requirements of the Foreign Agents Registration Act? The DOJ’s National Security Division said ‘Yes, absolutely,’” Beal said.
“This is litigation that is financed by a foreign entity for the specific purposes of influencing state and federal policy through the courts. This is a potential national security issue.”
GOING NUCLEAR
Loggins said he is seeing verdicts that surpass $1 billion in judgment such as the recent one in Gwinnett County against the Ford Motor Company. Loggins said, of course, there is no way to know if any third-party financiers funded that case.
“That Ford case was incredibly high,” Loggins said.
“Nuclear verdicts have been happening for decades, but this is just another drop in the bucket in new ways for them to do it.”
Tarbutton said TPLF was the major topic everyone talked about when he attended a recent insurance conference.
“The best thing to happen would be to outlaw it, to take that unseen and unknown entity that is driving cases,” Tarbutton said.
State Rep. Todd Jones, R-South Forsyth, introduced a bill last year that would have increased transparency for TPLF in Georgia. The bill, however, did not make it out of committee.
According to information provided by Georgians for Lawsuit Reform, the state governments in Montana, Louisiana and West Virginia have passed laws clamping down on TPLF.
In Louisiana, any foreign third party who funds litigation in a civil action must disclose that information during the discovery process and also to that state’s attorney general. Third-party financiers in Montana, meanwhile, must register with the Montana Secretary of State. Montana also establishes a 25% cap on the amount that a funder may receive or recover from any judgment, award, settlement or verdict.
On the federal side of things, two bills that would have required greater disclosure of third-party litigation funding failed to pass Congress, one in 2023 and the second last year.
FOREIGN VS. DOMESTIC POLICY
“Everyone is impacted by these cost drivers in our litigation system. We’re all certainly impacted by foreign influence through whatever means are out there,” Beal said.
“I think rural Georgians in particular may care about this issue for those very reasons, especially areas around some of our military bases,” Beal said, citing Naval Submarine Base Kings Bay as an example.
Beal said that policymakers, whether at the state or federal levels, must start asking the right questions.
“Are policymakers looking into that? Are they putting in place a policy that protects this state from outside influence” Beal asked.
“That is what we need. Now is the time to get this done.”
Add your name: Georgia needs tort reform!
Georgia’s legal environment has deteriorated to the point that it threatens all the other good work policy makers have done over the decades. This can be fixed!