(Reuters) - The $1 billion settlement of traumatic brain injury claims by retired NFL players is shaping up to be an important test of judicial power to regulate contracts between plaintiffs in multidistrict litigation and outside legal funders.
There is, as you know, a booming industry in advancing cash to plaintiffs expecting payouts in personal injury cases. Funding deals can take a variety of shapes. Some litigation funders provide plaintiffs with non-recourse loans at relatively high interest rates. Other purchase an interest, or assignment, in settlement proceeds at a discount from the plaintiffs’ anticipated payout. Either way, funding deals take place outside of the underlying personal injury case. They’re private agreements between the funder and the plaintiff.
The industry was once almost entirely unregulated, but that’s changing. As I’ve reported, nearly a dozen states have recently enacted laws regulating some aspect of the business of advancing cash to plaintiffs. The federal Consumer Financial Protection Bureau has also claimed authority over lawsuit lenders, filing suits against two litigation financiers in 2016.
One of those CFPB cases is against the New Jersey funder RD Legal, which has attacked the bureau’s power to regulate its transactions, which are structured as assignments in which plaintiffs awaiting settlement payouts sell an interest in the proceeds they expect to collect. RD’s lawyers at Boies Schiller Flexner contend those transactions are not in the CFPB’s bailiwick.
Among RD Legal’s clients are seven plaintiffs in the NFL brain injury class. In total, an RD subsidiary advanced the seven NFL retirees $1.63 million in exchange for rights to $3.43 million of the cash they are expected to receive in the settlement. (The $3.43 million RD assignments are only a portion of the total $11.47 million these seven ex-players are slated to be paid.)
The plaintiffs’ lawyers leading the NFL multidistrict litigation, which was settled as a personal injury class action, filed an amicus brief in the CFPB case against RD Legal, arguing that RD’s transactions with NFL retirees breached a provision of the settlement agreement that prohibits plaintiffs from assigning an interest in their claims to outside funders. Class counsel said they specifically included the no-assignment provision to stop litigation financiers from reaping a windfall at the expense of plaintiffs with cognitive impairments. RD responded that it hadn’t taken advantage of anyone and hadn’t violated the settlement agreement because it did not acquire an interest in plaintiffs’ claims. Instead, RD argued, it purchased an interest in plaintiffs’ settlement proceeds – and those were not specifically addressed in the anti-assignment clause of the class action settlement.
To interpret the scope of the anti-assignment provision, U.S. District Judge Loretta Preska of Manhattan, who is overseeing the CFPB’s case against RD, turned to her counterpart in the NFL case, U.S. District Judge Anita Brody of Philadelphia. Judge Preska asked Judge Brody to determine if RD’s agreements with its NFL clients violated the class action settlement. RD, class counsel and the CFPB (along with the New York attorney general) briefed that issue earlier this fall.
That briefing dovetailed with Judge Brody’s concern about funders and self-described claims service providers exploiting NFL retirees. In July, after The New York Times documented a “feeding frenzy” on ex-players covered by the settlement and class counsel requested injunctions to block unauthorized solicitations to class members, Judge Brody announced that she would hold a hearing on these financial pitches to class members. She ordered class counsel to conduct expedited discovery on outside claims facilitators and litigation financiers pitching their services to the NFL retirees.
Based on that discovery – and with the scope of the anti-assignment provision yet to be decided via the RD briefing - class counsel from Seeger Weiss filed an extraordinary motion in the NFL case on Oct. 23. Seeger Weiss asked Judge Brody to issue a freeze on payouts to 15 third-party funders and claims service providers until the judge determined the validity of their claims. The claims administrator should continue to process settlement payouts to class members, Seeger Weiss said, but whatever portion of their recovery is supposedly owed to funders or facilitators should be placed in an escrow account.
Seeger Weiss’s motion included the stunning disclosure that at least 900 ex-players - and possibly as many as 1,000 - had entered deals with the two claims facilitators and 13 litigation funders named in the motion. It argued that unless Judge Brody acts prospectively to protect those 900 class members from “potentially unscrupulous third parties,” it will be tough for class counsel to recoup any money the third parties weren’t actually entitled to.
The motion asserted three justifications for freezing payouts to facilitators and funders: the settlement agreement itself, which barred plaintiffs from assigning claims and granted Judge Brody continuing jurisdiction over class members and their lawyers; the federal rules for class actions, which invest Judge Brody with a responsibility to protect class members’ interests; and the inherent power of the court to “go beyond the matters immediately underlying its equitable jurisdiction and decide whatever other issues and give whatever other relief may be necessary.”
It’s entirely possible that just as many, or even more, plaintiffs in other big personal injury MDLs have entered funding arrangements. These deals don’t usually come to light, as I mentioned, because they’re private contracts struck outside of the underlying litigation. What’s unusual about the NFL concussion case is that it’s a class action, which puts every member of the class under the aegis of class counsel, and that Judge Brody ordered discovery on outside solicitations to class members.
Such a broad inquiry into the propriety of funding agreements could be a watershed for the litigation finance industry, prompting other MDL judges to require plaintiffs to disclose post-settlement funding agreements for their own protection. But that can occur only if MDL judges actually have jurisdiction to monitor these private contracts.
They don’t, according to briefs in the NFL case from several of the entities on Seeger Weiss’s no-pay list. The funders RD Legal and Walker Preston and the claims facilitators Case Strategies Group and Legacy Sports contend Judge Brody doesn’t have authority over parties outside of the MDL. Among other things, they all pointed out that their clients, the NFL retirees, have not contested the third-party agreements. Nor have individual lawyers for the ex-players. So according to them, there’s no case or controversy giving rise to federal court jurisdiction.
“The requested relief manufactures disputes between third parties, class members, and their attorneys where none exist, and effectively rewrites the contracts of nonparties – all without providing any admissible evidence of wrongdoing,” wrote Case Strategies’ lawyers from Montgomery McCracken Walker & Rhoads. “Class counsel attempts to have the court invoke its equitable powers to do what the law otherwise counsels against.”
The briefs also argue that Seeger Weiss is effectively asking for an injunction against paying the funders and facilitators without even trying to meet the high bar for injunctive relief. By its own concession, class counsel’s brief doesn’t actually allege the businesses on its no-pay list are not entitled to the money they contracted to be paid by class members, just that the payments may not be justified. That sort of speculation, said Case Strategies, Legacy and Walker Preston, falls way short of the persuasive evidence that would justify an injunction. (RD Legal said it does not oppose putting the contested payments in an escrow account; it also argued that the proliferation of funding deals by NFL class members proves RD’s point that the settlement agreement’s anti-assignment clause is, at best, unclear.)
Nearly 40 percent of the civil cases on the federal court docket are in MDLs. As far as I’m aware, the NFL litigation will be the first to determine if MDL judges’ authority extends to third-party funders who’ve entered deals with individual plaintiffs. This is one to watch.