Date: November 19, 2024
Mass tort lawyers across the U.S. are finding themselves trapped in a cycle of debt as they await the resolution of years-long personal injury cases. The delay in high-profile lawsuits, such as those involving Johnson & Johnson’s talc products and Bayer’s Roundup pesticide, has led to an escalating financial crisis for law firms. With high-interest loans coming due and no big payouts on the horizon, many of these firms are scrambling to refinance loans or face potentially devastating losses.
A Growing Crisis in Mass Tort Law
Mass tort cases, typically large-scale lawsuits involving hundreds or thousands of plaintiffs, have long been a lucrative part of the legal landscape. Lawyers in these cases typically work on a contingency basis, meaning they don’t get paid unless their clients receive compensation. To cover the high costs of litigation—such as expert witnesses, depositions, and trial preparation—law firms often turn to litigation funders, who provide loans in exchange for a share of the eventual payout.
However, as the legal industry faces an increasingly crowded market, many firms are finding it difficult to navigate the financial pressure. The $15.2 billion litigation finance industry, which has seen significant growth over the past few years, has been particularly drawn to mass torts. Funders view these cases as high-potential investments, but the prolonged nature of these cases is beginning to reveal cracks in the system.
“The longer these cases go on, the more stressed everyone becomes,” said Michael Kelley, a partner at Parker Poe, which specializes in litigation funding deals. “All these loans have maturity dates, and when those come due, questions arise about how they will be paid back.”
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Two of the most notable ongoing cases in mass tort law are Johnson & Johnson’s talc lawsuits and the Roundup pesticide litigation. Johnson & Johnson has attempted multiple bankruptcies to delay a proposed $8 billion settlement over claims that its talc products cause cancer. Meanwhile, the Roundup case, which has been tied up in a legal battle over jurisdiction, may ultimately involve the U.S. Supreme Court.
With no resolution in sight, law firms are running into trouble. The loans taken out to fund these cases often carry high-interest rates, sometimes exceeding 20%, and come due within three to four years. When cases aren’t resolved on time, firms are forced to restructure or refinance their debt, often with steep concessions to lenders.
Andrew Sagliocca, CEO of Esquire Bank, a firm that specializes in lending to plaintiffs’ firms, explains, “Bad loans don’t happen overnight. They happen over time as cases drag on. The duration is creating a ‘refinance wave’.”
This financial strain is affecting not only the law firms but the individuals they represent. Mike Papantonio, a senior partner at Levin Papantonio in Florida, warns that this pressure could ultimately hurt clients. “The client is now a victim three times: first from the injury, then from the financing, and finally from the refinancing,” he says. Papantonio fears that some law firms, eager to secure funds for struggling cases, may be more focused on satisfying creditors than advocating for their clients.
An Overleveraged Market and Looming Financial Crisis
A significant influx of new players in the mass tort space has contributed to this overleveraged environment. Jim Onder, founder of OnderLaw, which handles large personal injury cases, claims that the market has expanded exponentially in recent years. “There are a lot of people entering the space who don’t really understand the risks involved. Many are borrowing large amounts of capital, fueling the financial strain,” he says.
As more lawyers and firms seek funding to pursue potentially lucrative cases, they risk overstretching their resources. According to Brandon Baer, founder of Contingency Capital, there’s growing concern that the mass tort sector will soon experience a “fallow period” of several years. “Once the current high-profile cases are played out, there could be a quiet period while firms reload,” he predicts.
This fallow period could last as long as three to five years, putting significant strain on firms that rely on a constant pipeline of big-ticket lawsuits.
New Risks: The Next Big Target?
With high-stakes cases like talc and Roundup dragging on, law firms are looking to find the next big mass tort. One possible target is lawsuits involving Depo-Provera, a contraceptive injection linked to brain tumors. As the number of potential cases grows, the cost to refer these cases to law firms has already surged, from $350 to $1,500 per case.
However, some seasoned attorneys warn that inexperienced firms may rush to pursue the next big thing without fully understanding the financial implications. Onder cautions, “Some lawyers are eager to deploy money without properly evaluating the risks. If they pick the wrong case, they could lose everything.”
What Does the Future Hold for Mass Tort Lawyers?
As the financial strain on mass tort lawyers continues to mount, experts predict that we could see a wave of consolidation in the industry. Many smaller, less experienced firms will likely struggle to survive, leaving the most established players to dominate the market.
The litigation finance industry is also expected to face significant challenges, with some funders already feeling the pressure to provide returns to their limited partners. Brian Roth, CEO of Rocade Capital, a major player in litigation finance, acknowledges that the market is in a “digestion phase” and that many investors are waiting to see when payouts from long-running cases will finally materialize.
Conclusion: The Future of Mass Tort Law
The mass tort industry is at a crossroads. As cases like the talc lawsuits and Roundup litigation drag on, law firms and funders are feeling the financial squeeze. With refinancing waves looming and new, inexperienced firms entering the market, the industry could face a period of turmoil. For now, mass tort lawyers will have to navigate a high-risk, high-reward landscape—where the financial stakes are higher than ever.
FAQ:
Q1: What is a mass tort?
A mass tort is a type of lawsuit where many plaintiffs come together to sue one or a few defendants, often over injuries caused by the same product or incident, such as defective drugs or toxic chemicals.
Q2: Why are mass tort cases taking so long?
Many mass tort cases involve complex legal and scientific issues. Additionally, some companies, like Johnson & Johnson, have used bankruptcy as a tool to delay settlements, further dragging out the process.
Q3: How do mass tort lawyers fund their cases?
Mass tort lawyers often use litigation financing, borrowing money from funders who expect a return on their investment if the case is successful.
Q4: How do high-interest loans affect law firms?
High-interest loans can create financial strain on law firms, especially when cases take longer to resolve. Firms may need to refinance loans or make costly concessions to lenders if cases aren’t resolved on time.
Q5: What are the risks for clients in mass tort cases?
Clients may face delays in receiving compensation due to the prolonged nature of mass tort cases. Additionally, the financial pressures on law firms could result in higher costs or reduced payouts to plaintiffs.