NEW YORK — Private equity funds are quietly powering some of the most headline-grabbing legal battles in the U.S., trading the familiar turf of Wall Street for risky but potentially lucrative courtroom confrontations. Amid increasingly complex and drawn-out lawsuits involving toxic torts, these investment firms are stepping in to fund costly litigation, betting on huge settlements and court awards.
Toxic tort cases, covering damages from substances like asbestos and controversial drugs, can span decades and accrue millions in expenses. Plaintiffs’ attorneys traditionally bear these upfront costs, not receiving payment until a case concludes successfully. This risky financial layout raises the question: how are these expensive litigations funded?
The answer traces back to the 1990s when investment in mass tort litigation began to gain traction. Over time, both the costs of litigation and the potential financial returns have ballooned. In the past decades, over $50 billion have been awarded in settlements and verdicts in these cases, with attorneys often taking up to 40% in contingency fees.
Litigating such cases requires a deep dive into vast quantities of data including industry reports, government studies, and internal corporate documents. A landmark moment in legal financing history was highlighted by an internal memo from a Bendix executive found during asbestos litigation, suggesting chillingly that death from asbestos might be considered an acceptable risk of business.
Today, the spectrum of products implicated in these lawsuits has broadened significantly, ranging from asbestos to the heartburn medication Zantac, and includes various medical implants and consumer products. Since the first asbestos case in 1966, more than 700,000 claims have led to roughly $17 billion in settlements and awards.
Facing reluctant banks, which avoid all but the most secure cases, plaintiffs’ lawyers have turned increasingly to private equity firms hungry for higher returns. One such firm, Counsel Financial, has loaned over $1.5 billion to law firms. Other major players include Fortress Investment Group and Gramercy Funds, collectively pumping hundreds of millions into the legal industry.
The landscape of litigation finance often entails a duo of lawyer types: those who litigate the cases and those who scour for plaintiffs, with both sharing the spoils of successful lawsuits. Yet, with rising costs and savvy defense strategies, some warn this model could be unsustainable. Notable failures have occurred, such as the high-profile dismissal of cases against acetaminophen producers, which a judge discarded due to unreliable scientific evidence.
Despite setbacks, technological advancements are helping cut costs and boost claim values. Artificial intelligence is increasingly vital in managing extensive data, improving the efficacy and reducing the expense of litigation processes.
As the market for lawsuit investment grows, a crucial discussion is unfolding about the ethical and legal implications of third-party funding in litigation. This includes concerns over possible abuses where funding influences the course of medical treatments and legal strategies, edging toward the boundaries of legality.
Regulatory attention might intensify as the stakes and complexities of funded lawsuits increase. With immense sums involved and public safety often at stake, the debate around private investment in public justice continues to evolve, posing fundamental questions about the future of legal practice and the role of capital in the justice system. As this niche but growing industry entwines further with traditional litigation practices, its trajectory will surely be one to watch.