Lisa A. Rickard's Commentary
Today, the the U.S. Chamber Institute for Legal Reform (ILR) and more than 30 state, national, and international business and advocacy groups sent a letter responding to guidance released by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) regarding their enforcement of the Foreign Corrupt Practices Act (FCPA).
The DOJ and SEC guidance was a positive step forward that clarifies many of the agencies’ enforcement positions, but critical issues remain unresolved. The agencies have provided clear rules of the road in some circumstances, but the business community is left guessing on others.
Specifically, the coalition’s letter praises the agencies for identifying components of an effective compliance program and acknowledging thresholds that must generally be met before an entity is considered a government instrumentality. The letter also applauds the guidance’s alignment of the agencies’ positions on subsidiary liability, its favorable treatment of voluntary reporting, its clear acceptance of a mens rea standard for corporate criminal liability, and its inclusion of specific examples of enforcement actions that the agencies declined to pursue, and why.
However, the letter also observes that the guidance fails to assure the business community that the agencies will give sufficient weight to strong compliance programs, falls short of clearly defining who is a “foreign official,” and introduces new uncertainty with respect to the agencies’ expectations in the wake of a merger or acquisition. Furthermore, the letter points out that the guidance does not illustrate, through examples or hypotheticals, the level of due diligence expected when businesses hire outside vendors and contractors to engage in foreign markets. Finally, the letter asks the DOJ and the SEC to make disclosure of their declination decisions a routine practice.
In February 2012, a similar business coalition sent a letter to the DOJ and the SEC that identified numerous areas of ambiguity, uncertainty, and inconsistency that the FCPA guidance could address. In April 2012, ILR hosted a roundtable discussion with officials from DOJ and the SEC to discuss the guidance and the business community’s need for certainty and clarity under the law.
The U.S. Chamber Institute for Legal Reform (ILR) today announced the release of a first-of-its-kind short film spotlighting the last week in business for portable gas can manufacturer Blitz USA before frivolous lawsuits forced it to close. The short film, viewable at FacesOfLawsuitAbuse.org, marks the campaign's most aggressive effort to date in chronicling the toll lawsuit abuse takes on American small businesses and jobs.
Blitz USA's closure is emblematic of the real life consequences of lawsuit abuse because it was the largest company in its field, an anchor in its community, and provided 117 American manufacturing jobs. Sadly, when plaintiffs' lawyers sense vulnerability, it can set off a feeding frenzy of lawsuits and settlements that can cripple an employer and cost people their livelihoods in the process."
The short film is the centerpiece of a national media campaign starting this month and running into 2013.
At its peak, Blitz USA, the 50-year-old producer of three out of every four portable gas cans nationwide, employed 350 people in the small town of Miami, Oklahoma. But over the last decade, a wave of costly litigation took its toll, and lawsuits finally drove the company out of business.
As the cases mounted and Blitz was forced to empty more than $30 million from its coffers in defense and damage fees, the company had to declare bankruptcy, forcing its 117 employees out of work and sending more than 400 people into the community without health insurance.
ILR initiated the Faces of Lawsuit Abuse campaign to make the public more aware of the personal consequences that litigation brings to communities.
Since the site launched, Faces of Lawsuit Abuse videos have been viewed more than 10 million times, and garnered over 500 million paid advertising impressions since the campaign began. Some videos will be reformatted to run as 30 second TV ads, and some have been featured as movie theater trailers to run before feature films on nearly 300 screens.
A first of its kind bill that would prevent “double dip” claims against asbestos bankruptcy trusts and in the tort system is currently on its way to Governor John Kasich for signature.
This is an enormous development as Ohio will be the first state to pass an asbestos bankruptcy trust law. ‘As Ohio goes, so goes the nation,’ and we hope this will result in a domino effect with other states passing legislation to ensure that the tort and trust systems work together fairly to compensate asbestos victims.
This bill, HB 380, will go a long way toward eliminating fraud in asbestos litigation, discourage ‘double dipping’ by plaintiffs’ lawyers, and ensure that companies and bankruptcy trusts both pay their fair share of recoveries to claimants. It will also help Ohio manufacturing companies and protect jobs by ensuring that companies are not bankrupted by fraudulent claims.
We commend House Speaker Pro Tempore Louis Blessing, Jr. for introducing this legislation, as well as Senate President Tom Niehaus, Senate Judiciary Chair Mark Wagoner, and Senator Bill Seitz for their leadership on this issue. We are hopeful that Governor Kasich will promptly sign this bill into law.
Today, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) released guidance on enforcement of the Foreign Corrupt Practices Act (FCPA).
We commend DOJ and the SEC for upholding their commitment to issue guidance this year under the FCPA and for hearing out the business community’s concerns. This is the first time the key enforcement agencies have produced a unified document outlining interpretations, rationales and overall guidance for compliance. As such, this document represents an important step forward in an ongoing process of providing much-needed clarity and certainty to the business community.
While it will take some time to fully digest the guidance, it addresses several areas of concern outlined by ILR and more than 30 trade and business associations earlier this year. Particularly, the guidance includes helpful hypothetical scenarios, case studies, and policy statements covering de minimis thresholds, the meaning of an ‘instrumentality’ as a defined component of a foreign official, the mens rea standard for corporate criminal liability, and the extent of liability for successor companies. It also includes a number of examples of cases the enforcement agencies have declined to pursue to date.
While guidance by definition can never provide the same certainty as an affirmative statute, we’re hopeful that this document will help companies seeking to comply with the law in good faith and prosecutors charged with enforcing it. The business community will continue to engage with the DOJ and the SEC as they enforce the statute consistent with today’s guidance.
In February, ILR and more than 30 trade and business associations sent a letter to DOJ and the SEC that identified numerous critical areas that the FCPA guidance should address. In April, ILR hosted a roundtable discussion with officials from DOJ and the SEC about the guidance on FCPA enforcement and the business community’s related concerns.
At the U.S. Chamber Institute for Legal Reform’s (“ILR”) annual legal-reform summit, ILR released a proposal for the federal regulation of third-party investments in litigation, a type of third-party litigation financing (“TPLF”). ILR’s paper (available here) included commonsense suggestions for safeguards against the real risks to the administration of civil justice posed by TPLF.
Not surprisingly, Burford Group, a company that makes millions of dollars investing in other people’s lawsuits, has objected to ILR’s proposals. Also not surprisingly, Burford’s arguments are wildly inaccurate and misleading.
Burford claims that it provides “corporate finance to businesses with meritorious litigation claims.” This is an astonishingly incomplete statement from the finance company responsible for the most notorious investment of them all – the poster child for why TPLF is so dangerous for the administration of civil justice.
In October/November 2010, a Cayman Islands affiliate of Burford made a $4 million investment with the plaintiffs’ lawyers in an Ecuadorian lawsuit by individual plaintiffs against Chevron for alleged environmental contamination in Lago Agrio, Ecuador. In March 2011, after the plaintiffs won an $18 billion judgment against Chevron in Ecuador, a U.S. federal court issued an injunction against the plaintiffs trying to collect on the judgment because of what the court called “ample” evidence of fraud on the part of the plaintiffs’ lawyers, including fabricating evidence against Chevron.
Indeed, long before Burford had made its investment in the case, Chevron had conducted discovery into the conduct of the plaintiffs’ lawyers under a federal statute that authorizes district courts to compel U.S.-based discovery in connection with foreign proceedings, and at least four U.S. courts throughout the country had found that the Ecuadorian proceedings were tainted by evidence of fraud.
So: Which is it? Burford assures us it invests only in “strong and meritorious cases.” Did its due diligence simply fail to find all the fraud in the Lago Agrio case? (And if so, how can we be sure Burford or its fellow travelers won’t fail again?) Or did Burford know about the shady conduct of the plaintiffs’ lawyers and decide to play along in the hopes of making a killing? Neither answer is reassuring.
Burford disputes that its practices pose serious risks for the administration of civil justice, as ILR detailed in its proposal. First, Burford claims it only “make[s] sense” for TPLF providers to back “strong and meritorious cases.” Again, what is Burford’s answer for Lago Agrio?
Second, Burford next claims it does not “control” litigation in which it invests. In fact, TPLF providers often structure their investment contracts to give them just such control, regardless of any disclaimers. Burford’s agreement with the Lago Agrio plaintiffs appoints Burford’s own longtime law firm (including the former law partner of Burford’s chairman) as lawyers for the plaintiffs, with complete control over how Burford’s money is to be spent. As part of the agreement, the plaintiffs agreed to instruct their new lawyers to keep Burford “fully and continually informed of all material developments and to provide [Burford] with copies of all material documents.” The agreement gave Burford approximately 5.5% of any award over $1 billion. But if the plaintiffs settled for anything less than $1 billion (which the agreement said was their right), Burford’s percentage would skyrocket – in fact, all the way down to a mathematical floor of about $70 million, Burford would get the same $55 million.
Burford’s own former chairman has been quoted as saying: “We’re doing less than control [the case], but doing more than was done before.” Burford’s claim that “our world-leading courts are perfectly capable of handling any issues in this regard” can’t be squared with the fact that Burford and other TPLF companies keep their investment agreements secret so that courts rarely ever find out about them.
Third, Burford denies that TPLF investments “interfere with the appropriate settlement of cases.” The so-called waterfall distribution scheme in Burford’s own Lago Agrio agreement contradicts this assertion. By giving Burford a much higher percentage of any award less than $1 billion, the agreement deterred the plaintiffs from accepting any settlement below that amount. Indeed, in Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217, 220-21 (Ohio 2003), the Supreme Court of Ohio held that owing money to a litigation-finance company is an “absolute disincentive” for plaintiffs to settle a case.
Fourth, Burford denies that third-party investments in litigation can lead to conflicts of interest for lawyers. The American Bar Association special commission that examines ethics issues strongly disagrees with Burford – and agrees with ILR – on this point. The ABA has noted that TPLF could result in violations of a number of ethical standards by lawyers and that lawyers should exercise extreme caution in cases involving TPLF. After all, the TPLF investor is the person paying the lawyer’s fees, and may also be a source of business for the lawyer – as happened for the plaintiffs’ lawyers’ – really Burford’s lawyers – in the Lago Agrio case.
Burford says ILR’s commonsense call to regulate TPLF means that ILR has “abandoned” its dedication to free-market principles. Not so. ILR is, and always will be, a champion of free enterprise. But the type of TPLF Burford practices is antithetical to all notions of free enterprise.
Burford, and other litigation funders like it, try to profit by using compulsory process and the threat of contempt to force defendants to appear in court and expend resources to engage in discovery and defend themselves. This isn’t free enterprise; it’s coercive enterprise. Since Burford uses government power to make its profits, it is entirely proper for the government to oversee and regulate the use of that power.
In order for American businesses to thrive, we need a reliable, predictable judicial system whose judgments all of us – plaintiffs, defendants, consumers, businesses – trust as impartial.
Burford says ILR’s proposed regulations aren’t necessary because it is “already subject to regulatory oversight in three different countries” – regulatory oversight that didn’t prevent Burford’s plunge into the Lago Agrio fraud. Whatever regulations Burford may be subject to in foreign countries apparently aren’t meaningful – and certainly weren’t crafted to protect the U.S. legal system and U.S. defendants from the pernicious effects of TPLF. But Burford doesn’t just operate in these foreign countries; it and other companies like it want to participate in and profit from the U.S. legal system. They should be subject to U.S. regulations like all other industries that do so.
Burford also mischaracterizes ILR’s proposed regulations as affecting the financial-services industry generally. Nothing could be further from the truth. ILR’s regulations are targeted against a specific type of company that, like Burford, invests money is particular lawsuits in exchange for a specific interest in any award in those suits. ILR’s proposed regulations do not affect traditional forms of credit that aren’t tied to the outcome of particular lawsuits.
Burford further impugns ILR’s proposal by saying it “attacked the competence and independence of courts across the country.” This is utterly false – and, given what ILR has actually called for, makes no sense. One of ILR’s proposals is to promulgate court rules requiring plaintiffs to disclose any TPLF investments (which the TPLF funders usually keep secret) so that the courts and all parties will be aware of them. Far from attacking the competence of our courts, ILR wants the courts to know when TPLF is involved in cases before them so they can administer justice.
Burford has called ILR’s proposal “plain silly.” Given the substantial risks to the justice system companies like Burford pose, ILR would have hoped for a more substantive dialogue. Burford also said ILR’s proposals are “probably not even legal.” In fact, ILR has proposed legislation – laws – to create a federal oversight system for TPLF. The claim that a law isn’t “legal” further shows that Burford has no interest in debating ILR on the merits.
When Americans think of their justice system, they might envision the heroic small town lawyer, Atticus Finch, in To Kill a Mockingbird. Or Perry Mason. Or the countless other movies, TV series and high school civics textbooks that depict the U.S. justice system as a pillar of American society.
Unfortunately, this glorified image is at odds with today’s reality. In too many areas, the U.S. justice system is becoming less a means for delivering justice and more a profit center for outside parties – less Atticus Finch and more Gordon Gekko.
How so? Let’s start with class actions. In an increasing number of cases, lawyers seem to be getting better deals than their clients. For instance, in one proposed settlement with a major internet company, the plaintiffs’ lawyers were awarded $3 million and two non-profit foundations received $6 million. And the 3.6 million class members? They didn’t get a single penny!
Or look at third-party litigation financing (TPLF). This is the practice by which hedge funds and other investment firms finance litigation. In many cases, it turns the justice system on its head by putting lenders, not litigants, in charge of litigation. One only has to look at the role of the funders in the corrupt litigation against Chevron in Ecuador to see the problems posed by this practice.
And then there’s lawyer advertising. I’m sure you’ve seen the endless TV ads for trial lawyers (like this one). It’s now a big business: according to the research firm Kantar Media, total spending on lawyer TV ads is expected to reach more than one billion dollars in 2012, an all-time record. Lawyers have also become adept at advertising for clients online, often under blatantly misleading premises.
In the past, plaintiffs who suffered a wrong would seek a lawyer. But increasingly, it’s the other way around: lawyers are seeking plaintiffs and convincing them they may have suffered a wrong. At a time when small businesses are struggling under the weight of lawsuit abuse, is this really the direction we want to go?
These examples show a justice system that is drifting away from its core principles and into dangerous new areas. By undermining justice and the rule of law, the practices I’ve described erode the principles and values we cherish as Americans. Going forward, we must move the justice system away from the values of Gordon Gekko and back towards those of Atticus Finch.
Trial lawyers seeking to enforce an ill-gotten $18 billion foreign judgment against Chevron today might feel one step closer to carrying out their plan to enforce the fraudulent judgment here and abroad, after the U.S. Supreme Court on Tuesday left in place a narrow, procedural ruling from a lower court. But the trial lawyers shouldn’t start counting their dólares just yet – those who respect the rule of law still have a number of arrows in the quiver to challenge one of the most blatant examples of “tort tourism,” ever.
As a quick refresher, here’s how Chamber CEO and President Tom Donohue recently explained this case to Investors Business Daily:
In 2003, Chevron Corporation was sued in Ecuador for environmental damage allegedly caused by Texaco's oil operations a decade earlier, even though Texaco — which Chevron acquired in 2001 — had ceased operations in Ecuador in 1992 and had settled any outstanding claims for environmental cleanup with the Ecuadorian government in 1994.
Nevertheless, in February 2011, an Ecuadorian judge ordered Chevron to pay $8.6 billion in damages. Incredibly, the judge increased that amount to $18.6 billion because the company refused to publicly apologize within 15 days of the judgment. It is the largest award ever by a foreign court against an American company.
Chevron has no assets in Ecuador, so the plaintiffs' lawyers engaged in some tort tourism. They devised a plan to collect the judgment wherever Chevron did business.
First stop — the United States. Chevron, with ample evidence that the Ecuadorian judgment had clearly been procured by fraud, won an injunction from a federal court in New York that would have, among other things, prevented collection of judgment in the United States. That injunction was overturned by a higher court [the U.S. Court of Appeals for the Second Circuit].
The Second Circuit’s decision basically required Chevron to wait to raise its arguments against enforcement of the ill-gotten $18 billion judgment until after the plaintiffs affirmatively attempt to enforce it. Last June, the Chamber’s litigation arm, the National Chamber Litigation Center, asked the U.S. Supreme Court to overturn the Second Circuit’s ruling, but yesterday, the U.S. Supreme Court “denied certiorari,” or declined to review the case.
There’s no doubt that the plaintiffs will move forward, full-steam, with their efforts to carry out a plan (which they have dubbed “Invictus”) to attempt to enforce the Ecuadorian judgment in foreign courts, and once they do, Chevron will have an opportunity to challenge
Nonetheless, this latest chapter in the soap-opera-like-lawsuit once again underscores the need for meaningful and timely relief for Chevron and other companies who are the victims of “tort tourism.” Tort tourism is a relatively recent trial lawyer strategy that involves filing lawsuits abroad against U.S. companies in countries with very little respect for the rule of law. The trial lawyers then hop from global jurisdiction to global jurisdiction attempting to enforce the foreign judgments. When I’m a tourist, I generally bring home t-shirts and mugs as souvenirs – trial lawyers bring home multi-billion-dollar judgments.
What can we do about this? The solution will require an effort on all fronts to fight fraud: the courts, Congress, you name it. The business community must continue to support efforts in the courts to prevent enforcements of fraudulent judgments. An important next step in the fight against tort tourism, such as the Ecuador case, should be federal legislation to eliminate the patchwork of inconsistent , permissive and conflicting state laws that currently govern recognition of foreign judgments. We need a single federal law that is clear, uniform, and modern — one that recognizes foreign judgments only when arrived at in a fair, reasonable and legal manner.
Tort tourism comes with tremendous costs – and not just those born by defendant companies and their shareholders. A fraudulently obtained $18 billion judgment in the pockets of trial lawyers means $18 billion that can’t be spent on adding value to the company, creating and maintain jobs, and other worthwhile investments. Another troubling cost of tort tourism is that it will only serve to further erode respect for the rule of law, a fundamental cornerstone of an effective and respected legal system – which is absolutely essential for companies around the globe to be able to conduct business.
Tuesday’s Supreme Court decision is another eye-opener to awaken all of us to the threats posed by tort tourism.
The problem is not going unnoticed. For a decade now, my organization, the U.S. Chamber Institute for Legal Reform, has been measuring how businesses view the litigation climates in the fifty states. In the latest survey, conducted by Harris Interactive, a leading global polling firm, Pennsylvania is ranked 40th out of 50, a six-place drop from 2010 and a record low for the Commonwealth. And most of the blame for this decline can be laid at the doorstep of Philadelphia’s courts, which are ranked as the fifth worst in the entire country.
The biggest problems in the Philadelphia court relate to lawsuits brought by out-of-state plaintiffs. It’s a general principle of the civil justice system that cases should be tried in the jurisdiction where the injury occurred or where the plaintiff or defendant resides. Yet in today’s Philadelphia courts, lawsuits are routinely filed by plaintiffs who have little or no connection to the city against defendants with only a tangential presence.
In fact, a few years ago, some Philadelphia judges publicly encouraged out-of-state plaintiffs to file in Philadelphia. As a result, in 2011, nearly half of all asbestos cases and more than 80% of pharmaceutical cases filed in Philadelphia were from out-of-state plaintiffs.
The contrast could not be more dramatic from the courts just a short drive away in Delaware. For the ninth straight time, Delaware’s lawsuit climate was ranked as the nation’s best in the Harris survey. The state’s courts received high marks in many areas, including overall fairness and enforcing venue requirements.
At the opposite end of the spectrum is another state bordering Pennsylvania, West Virginia. That state, ranked dead last in our past four surveys, has been plagued by a legal system that features massive verdicts and no meaningful appellate review for civil cases.
So Pennsylvania has the unique distinction of bordering both the highest and lowest ranked states in the survey. Unfortunately, because of the problems in the Philadelphia court, the Commonwealth’s legal climate has more similarities to last-ranked West Virginia than top-ranked Delaware.
A bad lawsuit environment has real costs for states trying to grow their economies and create jobs. Seventy percent of those questioned in this year’s survey said their companies look at a state’s legal environment as one of the factors when deciding where to locate or expand their business, the highest percentage in five years.
Luckily, there are many ways for Pennsylvania to improve its legal climate. Already, the new leadership of the Philadelphia court has taken initial steps to limit out-of-state cases, though much more needs to be done. In addition, the Pennsylvania legislature is considering a variety of legal reforms that could lead to a fairer legal system.
A better legal environment could produce a real dividend for Pennsylvania. According to a study conducted last year by NERA Economic Consulting, improving Pennsylvania’s legal climate to the level of Delaware could reduce tort costs by up to $1.7 billion per year, translating to as many as 90,000 new jobs.
Those benefits are real and substantial. But they will not be realized unless Pennsylvania takes action to improve its legal environment. Only then will the birthplace of the American republic have a justice system that would make the Founders proud.
When we think of our system of justice, we might envision the heroic small town lawyer, Atticus Finch, in To Kill a Mockingbird. Or the jury deliberations in 12 Angry Men. Or the countless other movies, TV series, and high school civics textbooks that depict the U.S. justice system as a uniquely virtuous pillar of American society.
Unfortunately, that glorified image of the U.S. justice system is at odds with today's reality. In far too many instances, today's civil justice system is utilized not as a means for delivering justice but as a potential profit center -- in other words, less Atticus Finch and more Gordon Gekko, the rapacious investor in Oliver Stone's Wall Street.
We see this play out in some class action lawsuits, where the class members receive token awards while their lawyers walk away with millions. It is also visible in the millions of dollars spent every year by the plaintiffs' bar on advertising, a practice once prohibited for lawyers.
And this troubling trend could be accelerated by a new development: the spread of third-party litigation financing, or TPLF.
You probably haven't heard of TPLF. It's a fairly recent creation, originating in Australia and now landing on the shores of the U.S. In essence, TPLF is the practice of hedge funds and other investment firms providing funds to plaintiffs' lawyers in order to conduct litigation. If the case is won in court or settled, the investor is repaid out of the proceeds of the lawsuit, usually with an extremely high rate of return. The investors, therefore, have a direct stake in the outcome of the case.
Proponents of TPLF say that providing this new funding stream increases access to the courts. But U.S. courts are already widely accessible. For instance, a plaintiff can hire an attorney on a contingency fee basis, a practice that is prohibited in most other developed countries.
While TPLF is not necessary to increase access to U.S. courts, it does create a whole new set of problems and conflicts of interest for litigants, their attorneys, and society at large.
Let's start with the litigants. TPLF supporters allege that the practice is risk-free for plaintiffs, since, if they lose, they typically don't have to repay the investor. But more than 95 percent of U.S. civil cases end in settlements rather than going to trial. And a closer look at one recent case demonstrates major dangers for plaintiffs if they accept a settlement that's less than that demanded by the investor.
In this case, a Texas-based security company, DeepNines, obtained an $8 million loan from a TPLF firm to fund patent litigation against a competitor. In the end, DeepNines received a $25 million settlement. However, because of the terms of the TPLF contract, the investor received $10.1 million of the settlement, while DeepNines, after paying attorneys' fees, netted less than $800,000 -- only about 3 percent of the total settlement amount.
To add insult to injury, the investor then turned around and sued DeepNines for settling for an amount below what the investor's financial models suggested they could receive. The case was eventually resolved through a confidential settlement.
Like Gordon Gekko's insider trading machinations, the DeepNines example shows that many TPLF contracts are rigged in favor of investors. For instance, the contracts often provide for "waterfall" payouts -- meaning that the TPLF investors take a higher percentage of the first dollars of settlement, while the plaintiff's share only rises as the total settlement figure reaches an amount pre-set by the investors. Thus, plaintiffs are pressured to hold out for settlements or judgments far above what they would have accepted otherwise in order to satisfy their investors. And defendants suffer as well, since they are forced to contend with longer and costlier litigation. This scenario stands the justice system on its head by putting the investor in the driver's seat while hurting the primary parties in the case.
In the DeepNines case, the plaintiff still had substantial control of the lawsuit. But when it comes to class actions and other multi-plaintiff lawsuits, it is the investment firms, not the plaintiffs, that often appear to be in control.
For example, a leading TPLF firm invested $4 million in a high-profile, controversial lawsuit brought by Ecuadoran plaintiffs against the Chevron Corporation. The firm's contract stipulated that it would have veto power over the choice of attorneys and also receive precedence over the plaintiffs in the disbursement of any settlement or judgment funds. In all, the firm stood to earn tens of millions of dollars in the event of a successful settlement or judgment.
As for the Ecuadoran plaintiffs, their contract specified that they would receive the balance of any settlement or judgment only after eight different tiers of funders, attorneys, and "advisers" were paid first. It is unclear whether they knew what they were signing up for; according to Fortune magazine, several plaintiffs acknowledged their approval of the 75-page TPLF contract with merely a fingerprint.
Late last year, the funder announced it was ending its involvement in the Chevron case. This occurred months after a U.S. District Court judge in New York issued an opinion finding ample evidence of fraud by the plaintiffs' attorneys in the case.
All this suggests that the Chevron Ecuador case is being primarily driven by funders and plaintiffs' attorneys, not the actual plaintiffs. As with the DeepNines case, this situation makes a mockery of our system of justice by placing the profiteering of outside investors ahead of the interests of the parties in court.
TPLF also creates significant problems for lawyers. Lawyer Ethics 101 states that lawyers have a fiduciary duty to their clients. But this fundamental relationship is jeopardized when a third-party funder enters the picture. For one thing, when TPLF investors get involved in a case, they often front the plaintiffs' attorneys' fees. So when an attorney is managing a case, will they act in the best interests of their client, as they are supposed to do, or in the interests of the third-party funder paying their salary?
In addition, at least one court has determined that attorney-client privilege doesn't apply to communications between third-party investors and attorneys. So if an investor asks an attorney for sensitive information about a case it is funding, that information could be subpoenaed by the opposing party and used against the plaintiff.
So we've seen how TPLF benefits funders and hurt litigants. But the biggest loser from TPLF might be society at large. This is because we all rely on an impartial civil justice system to resolve disputes in a fair and expeditious manner. When TPLF debases that system by putting investor profits ahead of justice, society is the loser.
It's time for policymakers to step up to the plate and curtail this practice, particularly in the context of class action litigation. While by no means a cure-all for the problems facing the U.S. justice system, it can help nudge the system away from the values of Gordon Gekko and back toward those of Atticus Finch. Because when it comes to the delivery of justice, greed is not good.
This op-ed was originally published by TheAtlantic.com on July 3, 2012 as part of its “America the Fixable” series in partnership with Common Good.