By Nick Rowles-Davies

Introduction

In the modern American legal landscape, the growth of mass tort litigation and third-party litigation finance (TPLF) has converged to reshape the pursuit of civil justice. Once considered a niche mechanism, TPLF has emerged as a multi-billion dollar industry and nowhere is its influence more pronounced, or more contentious, than in the arena of U.S. mass torts.

This article reviews some recent scholarly analyses, including works by Glover, Parikh, Fitzpatrick and Engstrom, to assess the evolving contours of litigation finance in mass tort contexts. It examines, in brief, the benefits, ethical dilemmas, regulatory vacuum and future risks posed by this rapidly expanding form of financial intervention in complex litigation.

I. Understanding the Context: Mass Torts and the Funding Gap

Mass torts – litigation involving large numbers of plaintiffs harmed by the same product, drug, or event, are logistically and financially demanding. They often involve:

• High upfront litigation costs (e.g., expert testimony, discovery, investigations)
• Protracted timelines (sometimes a decade or more)
• Aggressive, well-funded corporate defendants

Against this backdrop, TPLF offers a lifeline to plaintiffs’ firms, enabling them to mount robust legal campaigns. Professor Maria Glover, in her comprehensive work, notes that TPLF mitigates asymmetries of power, allowing firms to act as David to the corporate Goliaths they face. Without such support, many mass tort claims would never make it to court.

II. The Rise of Opaque Capital: From Passive Investor to Puppeteer

While early litigation funders acted as passive backers, akin to silent venture capitalists, a new breed of funder, labelled by Samir Parikh as “opaque capital,” has entered the fray with far more aggressive motives and methods.

Parikh outlines his views on how these funders:

• Engineer litigation from the outset, sometimes identifying potential claims and organising advertising campaigns to find plaintiffs.
• Employ “claim alchemy”, using potentially unethical or illegal tactics to create, enhance, and marshal apparently low-value or non-meritorious claims in order to increase settlement leverage.
• Secure contractual leverage that can affect settlement dynamics (for example, provisions that effectively give a funder settlement-approval/veto power, or default/acceleration terms that can create pressure at key decision points).

In Parikh’s account of the PG&E wildfire bankruptcy, the plaintiffs’ firm Watts Guerra drew on a $100 million line of credit funded by a syndicate of investors that included Centerbridge Partners, while Centerbridge was also associated with a group proposing one of the competing reorganisation/settlement plans. Parikh suggests this overlap created a serious conflict-of-interest risk, raising concerns that financing relationships could influence client advice and voting dynamics, especially given that a significant portion of the recovery took the form of PG&E stock, tethering victims’ compensation to the company’s post-bankruptcy performance. The extent and timing of any disclosure of these relationships has been contested in contemporaneous reporting, but the episode illustrates the governance and transparency issues that opaque capital can introduce into mass-tort and aggregate-dispute contexts.

III. Funding and Ethics: Where Law Meets Business

The transformation of funders from silent sponsors to strategic influencers raises potential ethical concerns:

• Attorney-Client Loyalty and Client Autonomy: As Nora Freeman Engstrom explains, if a lawyer enters a funding arrangement that gives a funder influence over settlement, it can create a conflict of interest (Model Rule 1.7(a)(2)) and collide with the client’s exclusive authority to decide whether to settle (Model Rule 1.2(a)). Related issues can also arise under Model Rule 1.8(f) (third-party payment of fees) and Model Rule 5.4 (professional independence).
• Confidentiality: If lawyers provide funders with unrestricted access to litigation files without client consent, they violate Rule 1.6.
• Transparency Gaps: Most courts do not require disclosure of funding agreements, especially in MDL contexts, allowing these conflicts to go undetected and unremedied.

These risks might be magnified in mass torts, where hundreds or thousands of clients are represented by a handful of firms. The suggestion is that when those firms are financially beholden to opaque funders, the potential for systemic conflict and distortion is vast.

IV. Fitzpatrick’s Counterpoint: ‘Don’t Throw Out the Baby with the Bathwater’

Brian Fitzpatrick offers a compelling counterbalance. While acknowledging potential risks, he argues that TPLF has a powerful upside:

• It reduces early, suboptimal settlements by giving plaintiff-side lawyers the ability to absorb risk.
• It enhances the quality of legal representation, enabling firms to take on more cases and invest in litigation infrastructure.
• It may even improve deterrence and regulatory compliance by ensuring that viable mass tort claims reach adjudication.

Fitzpatrick’s analysis suggests that blanket suspicion of litigation finance – particularly in the class action context – is misplaced. Instead, he advocates for targeted safeguards, ensuring lawyers retain control and clients remain informed.

V. Market Forces and the Incentive Structure of Mass Torts

Engstrom and Glover both emphasise how litigation finance, especially in the mass tort space, alters the incentives of all players:

• Plaintiffs’ firms become portfolio managers, balancing litigation timelines with return profiles demanded by investors.
• Funders may prioritise aggregate resolution over individual justice, pressuring firms to settle ‘en masse’ even if some plaintiffs would be better served by continuing.
• Defendants facing well-capitalised, coordinated claimants may reassess settlement strategy, settling earlier to cap cost and risk, and sometimes litigating longer if they perceive that external funding reduces the claimant’s financial pressure to compromise or sustains a higher settlement demand.

This reconfiguration of incentives doesn’t necessarily harm plaintiffs. In some cases, it may enable more victims to receive compensation. But without disclosure, consent and judicial oversight, these systemic shifts may occur in the shadows, possibly without the knowledge of the very people whose interests are ostensibly being served.

VI. Regulatory Gaps and Legislative Inertia

Despite its massive implications, litigation funding in the U.S. remains largely unregulated:

• The Federal Rules of Civil Procedure do not mandate disclosure of TPLF arrangements.
• Only a few district courts (e.g., the Northern District of California) disclosure of litigation funders with a financial interest in the outcome (and clarifies that disclosure of existence does not itself require production of the agreement absent a court order). No comprehensive federal statute governs the industry.
• Attempts to mandate litigation-funding disclosure at the federal level have persisted e.g., S.840 (Litigation Funding Transparency Act of 2021), which would have required disclosure in certain cases (notably class actions), was introduced but did not advance. No uniform, comprehensive federal disclosure statute has been enacted to date, and the policy debate remains contested, with the Judicial Conference’s Civil Rules process continuing to examine whether a nationwide disclosure rule is warranted.

This regulatory vacuum may allow opaque capital to dictate case strategy, settlement timelines and financial outcomes without judicial scrutiny. Parikh argues that these structural gaps must be filled before the industry becomes irreversibly entrenched.

VII. The Road Ahead: A Call for Balanced Reform

The answer is not to eliminate litigation funding altogether. As Glover and Fitzpatrick show, TPLF is a vital tool, especially in mass tort litigation, where cases are expensive, long, and complex.

Instead, it is suggested that reform should focus on:

1. Mandatory Disclosure: All TPLF arrangements should be disclosed to courts and, where appropriate, to clients.
2. Ethical Guardrails: Bar associations and judicial councils should develop model rules clarifying when funding contracts cross ethical lines.
3. Client Consent Protocols: Plaintiffs must be fully informed if funders are involved and should retain the right to override settlement vetoes.
4. Funding Oversight Committees: In MDLs, courts could appoint neutral funding auditors to review contracts and monitor funder influence.

Conclusion

Mass tort litigation and third-party funding are now inextricably intertwined. While the infusion of capital has enhanced access to justice and improved litigation quality, it has also created fertile ground for conflicts, distortions and exploitation.

As the industry matures, stakeholders must resist both overcorrection and complacency. The key lies in recognising the promise and peril of opaque capital and crafting a framework that maximises the former while minimising the latter.

The next decade will determine whether mass tort finance serves the public interest or merely the bottom line.

Summary of Author Views

1. J. Maria Glover (SSRN #5176067): “Asking the Right Questions About Legal Finance in United States Aggregate Dispute Resolution”

• Glover sees third-party litigation finance (TPLF) as a potentially transformative tool in aggregate litigation (e.g., class actions and multidistrict litigation [MDL]).
• She argues that TPLF increases access to justice by levelling the playing field between under-resourced plaintiffs and well-funded defendants.
• However, Glover emphasises the need for transparency, ethical safeguards, and appropriate regulation.
• She warns that without oversight, TPLF may exacerbate existing power imbalances or even undermine the fiduciary duty lawyers owe to their clients, particularly in complex aggregate litigation.

2. Samir D. Parikh (Yale L.J. Forum, SSRN #4476937): “Opaque Capital and Mass-Tort Financing”

• Parikh introduces the concept of “opaque capital”: aggressive, private equity-style funders who not only fund mass tort litigation but control its direction and outcomes.
• He identifies a disturbing trend where such funders pursue unethical “claim alchemy” – artificially inflating or manufacturing claims for financial gain.
• Parikh critiques the lack of regulation, highlighting real-world cases like Watts Guerra LLP in the PG&E litigation, where financial conflicts and non-disclosure arguably compromised client interests.
• He calls for urgent reform and transparency before opaque capital fundamentally reshapes the landscape to the detriment of plaintiffs.

3. Brian T. Fitzpatrick (Vanderbilt Law Research Paper No. 18-07): “Can and Should the New Third-Party Litigation Financing Come to Class Actions?”

• Fitzpatrick challenges the assumption that class actions are immune or unsuited for TPLF.
• He argues that while individual class members are risk-neutral (due to the small value of their claims), their lawyers are not and may settle early out of risk aversion.
• TPLF, he suggests, can encourage lawyers to litigate more robustly, aligning outcomes more closely with substantive justice.
• He acknowledges potential social costs but finds them relatively modest compared to the benefits of increased litigation quality and deterrence.

4. Nora Freeman Engstrom (“Shining a Light on Opaque Capital”)

• Engstrom praises Parikh’s work but adds nuance.
• She distinguishes between lawyer lending and plaintiff-side financing, noting that the ethical and regulatory implications differ substantially.
• She agrees that opaque capital threatens the integrity of the tort system but stresses that not all funding is predatory.
• Engstrom underscores the ethical risks when funding contracts give financiers veto rights over settlements or access to sensitive case files.
• Her commentary suggests the need for sophisticated, differentiated regulation that targets harmful practices without choking off beneficial financing.