Co-authored by Lorie Almon and Gerald L. Maatman, Jr.
A recent New York Times article is creating a buzz in the class action world – the article discusses the phenomenon of how private third parties (such as banks, financers, and lenders) are “investing” in plaintiffs’ class action firms relative to the prosecution of class actions. The “smells like raw tuna” reaction of many manifests itself on multiple levels. It creates a platform whereby plaintiffs’ counsel can use investor money to finance bigger and more ambitious class action filings, and alters the typical settlement dynamics in which lead plaintiffs can receive advance payments from the third-party during the litigation. The subject surfaced during the approval process for the massive class action in the U.S. District Court for the Southern District involving an estimated 10,000 workers who stand to share in a proposed $650 million plus settlement for people sickened after working on the World Trade Center site. Judge Hellerstein required plaintiffs’ counsel – who stand to secure an multi-million pay day from the settlement – to absorb the financing costs from the financing done in that settlement in lieu of passing the lending costs on to the class members. View Approval Order. We expect this phenomenon may well accelerate and that the scrutiny of courts and regulators likewise will increase. Meanwhile, corporations will face enhanced litigation pressures with the pace and size of class action filings.