Does easy financing spur more litigation? It’s a big talking point for the people at the U.S. Chamber’s Institute for Legal Reform, and they may have their best example in pelvic mesh litigation, where hedge funds and specialized litigation finance firms have bankrolled a wave of television advertising and online marketing that has helped stimulate tens of thousands of lawsuits against
In a court filing earlier this year, J&J said “a steady stream of attorney advertising” amounting to $45 million in the first 10 months of 2014, combined with aggressive telemarketing including calls to women who had received pelvic surgery, generated 24,000 lawsuits against the company, many of them by women who may not have received a J&J device. One firm active in the pelvic implant litigation market, Houston-based AkinMears, spent more than $25 million on television advertising last year, the most of any U.S. law firm, according to a forthcoming study by the ILR. The figure is especially remarkable since AkinMears has only four partners listed on its website.
Much of the money is coming from hedge funds and litigation-finance firms like Gerchen Keller, the Chicago company that an ex-employee of AkinMears says lent the law firm $90 million to advertise and acquire interests in some 14,000 pelvic-mesh lawsuits. Other big players in the mass-tort business include Carlyle Group, whose portfolio company Lead Generation Technology owns Relion Group, one of the most prolific advertisers seeking clients for mass-tort lawsuits.
“In total, we think the amount spent on lawyers and other advertisers targeting pharmaceutical companies and medical device makers has doubled in the past five years,” said Rustin Silverstein of X Ante, a consulting firm that tracks lawyer advertising spending.
There’s no way to track exactly how much money outside financiers are pumping into the mass-torts business, but Silverstein thinks it has helped fuel the increase in marketing.
“Traditionally you’d think plaintiff-lawyer financing is to cover the costs of preparing a case, expert witnesses and the like, but what they’re offering is financing for advertising,” he told me.
One litigation finance company, Counsel Financial, even has a program called Enter Mass Torts that is specifically designed to provide money for smaller law firms trying to break into the business. The Williamsville, N.Y. firm’s lending program “is designed to provide non-Mass Tort lawyers the opportunity to learn this highly specialized area of litigation while avoiding common mistakes often made by those not conversant in the field.” To help clients get going, Counsel even provides “mentors” like Perry Weitz and Arthur Luxenberg, who are Counsel Financial directors and name partners at the asbestos law firm Weitz & Luxenberg.
Some of the money flowing into mass torts may be getting spent in unethical ways. Johnson & Johnson, in a January filing in the West Virginia federal court overseeing pelvic mesh litigation, said some lawyers may have resorted to using offshore call centers to recruit women for lawsuits in a potential violation of the federal Health Insurance Portability and Accountability Act or HIPAA.
In one call that was recorded by the recipient, an operator told the woman “we are helping women who had a surgery in the past” and seemed undeterred when the woman said she’d never had bladder sling or mesh surgery.
“I know,” he said, referring to her by name, “you never had done this surgery, but if you are interested to receive 30 up to 40 thousand dollars, you just have to tell my compensation officer that I had a bladder sling surgery and after that I had a complication.”
“That would be lying though,” the woman said.
“I do understand, but you have to tell a lie if you want to get the 30 up to 40 thousand dollars,” the caller told her.
Another woman who submitted an affidavit was the wife of a Johnson & Johnson lawyer. She said the caller told her he had gotten her name and phone number from a “U.S. commercial database.” Another who had received J&J’s Ethicon mesh implant in 2010 said she had gotten more than 50 phone calls since Jan. 30, 2014 from people who said they knew she’d been implanted with a J&J device and should file a lawsuit.
Johnson & Johnson later withdrew the filing as it negotiates with plaintiff attorneys over the claims it made in it. It has a mixed record in the multidistrict litigation, losing several multimillion-dollar verdicts and settling many cases, while winning in others.
“We continue to work with plaintiffs’ counsel to investigate the issues raised,” said Matthew Johnson, spokesman for J&J’s Ethicon unit. No one from the plaintiffs’ steering committee was immediately available to comment.
Some of the calls appeared to be scams, where the callers asked recipients to wire them $150 or $200 to cover “costs” before they could receive a settlement for much more. But others may have been from lead-generating firms seeking potential clients to sell to U.S. lawyers.
There is a vigorous trade in such lawsuits, if the claims of the former AkinMears employee are to be believed. (AkinMears, through an outside attorney, declined comment on the lawsuit, which has been sealed with the assent of plaintiff and defendant.)
In that lawsuit, former banker and attorney Amir Shenaq says he made $1.4 million and is owed $4 million more for a brief stint in which he arranged some $90 million in financing for the firm. Some of the money, Shenaq says in his lawsuit, was used to refinance $25 million in debt that a Houston firm had loaned at 24% interest. Gerchen Keller lent at a little less than 16%, Shenaq says, saving the firm $4 million a year in interest. Neither Shenaq nor Gerchen Keller would comment.
In the lawsuit, Shenaq says AkinMears used another $40 million to buy interests in almost 14,000 pelvic mesh cases brought by other law firms. This was a shift in strategy for the law firm, which rose to prominence by advertising heavily for clients and referring them to law firms that actually litigate cases. (AkinMears name partner Truett Akin IV has only a handful of cases under his name in the past decade on the PACER system for federal court filings; in his lawsuit, Shenaq says AkinMears lawyers “do not do the things that regular trial lawyers do.”)
One person familiar with the law firm’s finances and strategy told me AkinMears described a bold change in how it would do business. Instead of accepting the traditional 10-25% referral fee for forwarding clients to litigating firms, it demanded as much as 40%, exchanging a higher percentage of the fees for up-front financing. It was in essence arbitraging its access to capital by extending money to other firms in hopes of earning a higher rate from the fees.
“AkinMears decided to change the game,” this person said. “They changed the back-end economics.”
In his lawsuit, Shenaq explains the potential payoff. In exchange for $40 million up front for 13,837 mesh cases. Shenaq estimates AkinMears could reap $130 milllion to $200 million in fees at $14,000 to $16,000 per case.
The flood of money into plaintiff firms raises difficult legal and ethical questions. Most states have rules prohibiting fee-splitting, to prevent lawyers from charging clients money for work unrelated to their case. Texas bar rules allow fees to be split “ in proportion to the professional services performed by each lawyer,” or “between lawyers who assume joint responsibility for the representation.” While the second option allows referring firms to keep a percentage of the fees, it is not clear how Akin Mears, which the State Bar Association says has six to 10 attorneys, can assume responsibility for representing nearly 14,000 pelvic mesh clients.
In any case, all such arrangements must be disclosed in advance to the clients, including the name of the attorneys receiving fees, the work they are performing, and the share of the fee each one receives. Presumably the hedge funds extending credit to these firms are aware of that.
