A disturbing trend continues to infiltrate courtrooms across the country where third-party groups – including Wall Street hedge funds, institutional investors and private companies – are providing money to litigators in exchange for a portion of any financial recovery from litigation. These groups are pouring millions of dollars into class action funding as if they were betting on stocks – often with little or no transparency.
This trend, better known as Third Party Litigation Funding (TPLF), perpetuates a toxic cycle of turning our civil justice system into a for-profit enterprise, focusing on maximizing case value to fund more prosecutions instead of serving justice.
Even more troubling is that the National Association of Attorneys General (NAAG) is jumping into the action, using its vast resources to conduct lucrative multi-state litigation targeting various deep-pocketed industries.
Historically, NAAG has played an influential role in handling investigations and prosecutions in several states. The organization claims to be a “national, nonpartisan forum offering collaboration, ideas, and expertise to hold U.S. attorneys general to account and defend them.”
But over time, NAAG’s focus shifted from promoting collaboration to promoting entrepreneurial litigation. NAAG has primarily morphed into an organization with one goal: to pursue corporations for profit.
Far from being a neutral entity, NAAG benefits massively financially from these lawsuits and, in turn, uses its accumulated wealth and resources to help coordinate and facilitate even more lawsuits. The NAAG playbook is beginning to emerge from the shadows after the recent departure of several of its disgruntled members, including the attorneys general of Montana, Texas and Missouri. Additionally, seven other attorneys general joined Kentucky AG Daniel Cameron in sending a letter to the NAAG executive director outlining their concerns about the organization’s funding.
Currently, NAAG has over $200 million in assets. The organization distributes these funds as grants to states to help litigation get started. States receive grants to fund research and other expenses to determine participation in a multi-state trial. In return, NAAG buys an interest in the outcome of a lawsuit and receives an agreed financial exclusion from the final settlement.
This TPLF process diverts settlement money from actual victims and provides it to NAAG – putting profits ahead of the public interest. It also allows state attorneys general to avoid using state-appropriated funds or having to travel to their respective state legislatures to obtain more funds to pursue financially lucrative or interest-driven litigation. an ideology. The NAAG grant process allows state attorneys general to participate in a multi-state action to secure funds to pursue required research and litigation without having to dive directly into the state appropriation process. This funding bypasses and weakens the checks and balances that a state legislature should want to exercise in these situations.
Injecting third-party financial interests into litigation threatens a state’s ability to exercise independent judgment in cases where the funder can influence litigation or settlement decisions – transforming litigation involving plaintiffs and defendants into a multiparty process with a behind-the-scenes mega-donor. As Cameron explains in his letter to the NAAG Executive Director, this process likely violates many state laws that vest the power of the stock exchange exclusively in their legislatures.
Beyond the lack of accountability and transparency of NAAG’s litigation funding, their internal coordination shows how the organization has become a litigation factory. When a state pays dues to NAAG, that state’s attorney general’s office has access to all of NAAG’s resources, including their training and working groups.
NAAG training courses focus on best practices for filing lawsuits to instructional courses on using new software and analytics to generate new leads. This helps state attorneys general learn to be more effective in filing broad class action lawsuits and tort suits against anyone suspected of having deep pockets. The NAAG task force serves as a sounding board for case generation focusing almost exclusively on multistate ligation. Once a target of litigation is found, the task force strategizes on which states are best placed to take the lead. States are then allowed to exchange information about this litigation through information-sharing agreements so that others can lend resources and benefit from any settlement.
The exodus of NAAG members who oppose this exploitation of our civil justice system for financial gain should serve as a stark warning. The fabrication of corporate litigation devastates our economy, takes away resources from real victims and further distorts our legal system. NAAG must immediately realign its priorities if it wishes to salvage its original mission of being a credible, non-partisan organization.
Instead of perpetuating more third-party litigation funding, NAAG must return to its primary goal of promoting efficiency and coordination among state attorneys general.