DC Hearing Exposes Corrupt Climate Litigation Financing by the Left
ANTI-DRILLING/FOSSIL FUEL | INDUSTRYWIDE ISSUES | LITIGATION September 18, 2023
DC Hearing Exposes Corrupt Climate Litigation Financing by the Left
ANTI-DRILLING/FOSSIL FUEL | INDUSTRYWIDE ISSUES | LITIGATION
September 18, 2023
There’s some major corruption going on in the world of the left, and it got exposed last Wednesday at a Congressional hearing on Capitol Hill. The House Committee on Oversight and Reform held the hearing, chaired by Rep. James Comer (Republican from Kentucky). It was a hearing about a distortion of the justice system called third-party litigation funding (TPLF). It is the practice of a party with no direct stake in a lawsuit funding the plaintiff and the plaintiff’s lawyers as they pursue litigation. Example: billionaires like Michael Bloomberg and Big Green groups (funded in part by foreign countries like China and Russia) paying for lawyers for smaller green groups and mom-and-pop plaintiffs to repeatedly sue the oil and gas industry to block drilling and pipelines, or to force a change in regulations. There are, believe it or not, investment funds set up to invest in lawsuits! And the investors (the people with the money) can control whether or not the plaintiffs they are backing can or cannot settle the lawsuit. It is no longer about justice but about money. It is a GROTESQUE bastardization of the entire justice system. And it MUST STOP.
Last week’s hearing was about the very broad topic of TPLF in all industries, not just oil and gas. It was the oil and gas aspect that caught our attention.
While not about oil and gas, the following story by The Hill is a good primer and background on the TPLF issue:
Imagine you were asked to write a courtroom scene for a new TV drama about a high-stakes lawsuit.
Chances are, you would begin by casting the traditional characters.
You need a judge, clerk, bailiff and jury members. You also need a plaintiff party bringing the case, and a defendant being sued. To establish the facts of the case, you add witnesses and experts to provide testimony, and then a court reporter to record what was said. Every courtroom drama needs lawyers, so you need a few of them too.
Then, to add a more modern feel to the drama, you cast a new type of star to the show: a multi-billion dollar hedge fund specializing in third-party litigation financing.
Wait, what?
Third-party litigation funding (TPLF) refers to the growing practice of a party with no direct stake in a lawsuit funding the plaintiff and the plaintiff’s lawyers as they pursue litigation.
Third-party litigation funders probably didn’t come to mind when you first envisioned a courtroom drama because the TPLF industry remains shrouded in mystery. That is by design, as funders want to draw as little attention to their large and growing role in America’s legal system as possible.
The TPLF industry is already a massive one, and it only accelerated its growth in recent years. According to a Government Accountability Office (GAO) report, for instance, the amount of TPLF provided by lenders to clients more than doubled between 2017 and 2021 alone. Because the TPLF industry remains free of federal regulation, it remains unknown exactly how much TPLF is shelled out each year. Conservative estimates, however, place the figure at $2.3 billion per year, while other studies have placed the number as high as $5 billion. And that’s exactly why The House Oversight Committee has scheduled a public hearing on the oversight of this financing.
Here’s where the problem arises.
Our legal system exists for the primary purpose of providing a venue for justice for the parties directly affected by the dispute. A courtroom is supposed to be where evidence is presented, facts are distinguished from fiction, and due process is awarded to all involved.
When the parties influencing a case are confined to those in the courtroom, our justice system tends to work well. Plaintiffs and defendants can present their cases to juries in a process overseen by a neutral judge.
When a third-party funder enters the equation, however, the overarching goal is no longer simply limited to achieving justice for the parties. Instead, maximizing the TPLF’s return on investment acquires significant or even primary importance.
The issue might be less worrisome if TPLFs merely provided money to finance litigation and then had no influence over the outcome. Since TPLF is provided as an investment and not a benign charity, however, funders often exert substantial control over the litigation they finance.
A recent case involving TPLF Burford Capital provides a textbook demonstration how the funders can exert undue influence over cases. Essentially, Burford invested $140 million in Sysco Corporation’s price-fixing litigation against meat producers. Although Burford claims that they “do not control strategy or settlement decision-making,” when Sysco tried to settle its claims with the meat producers without needlessly protracting the costly litigation, Burford objected and sought to block settlements that it considered insufficient.
You read that correctly: Although the parties involved in the litigation were ready to settle, Burford’s control over the litigation process prevented the cases from being resolved.
Instead, a wasteful and unnecessary legal battle between Burford and Sysco ensued, with the ultimate result being that Burford took over Sysco’s remaining cases in court.
That an outside entity possessed any right to veto another corporation’s settlement agreement because it would not make them enough money may sound shocking, but such stipulations are now commonplace across the TPLF space. In fact, in a letter filed with the Administrative Office of the United States Courts, the Institute for Legal Reform stated: “we are not aware of any actual agreements that do not contain provisions affording funders some degree of control or influence over the litigation they are financing.”
Clearly, the TPLF trend is significantly impacting our legal system. Due to the troublesome lack of disclosure guidelines over the TPLF industry, however, it’s impossible to ascertain the extent of TPLF reach. That lack of transparency surrounding a practice affecting basic questions of justice and due process, not to mention excessive litigation and waste of limited judicial resources in America, is unacceptable.
A good first step toward remedying this growing threat would be mandatory disclosure rules for litigation funding agreements. Such a rule would give judges, juries, defendants and the public critical insight into all relevant facts throughout the litigation process while preserving the right of plaintiffs to accept outside funding.
We’re not calling for the end of litigation funding. Sunlight is the best disinfectant, however, and it’s long past time to shine a light on the murky and potentially corrupting practice of litigation financing.
While third-party funders may not be common characters in TV dramas, the impact they are having on America’s legal system is nothing short of dramatic. (1)
Reuters sent a reporter to the hearing. Big pharma is what caught that reporter’s attention:
A Johnson & Johnson attorney told the U.S. House Oversight and Accountability Committee on Wednesday that outside funding of mass torts personal injury claims has turned the civil justice system into “a money play: driven, funded and distorted by legal and financial entrepreneurs.”
In written testimony, J&J assistant general counsel Aviva Wein urged Congress to enact laws (or endorse proposed changes to the federal rules for civil litigation) to require disclosure when outside financiers are backing plaintiffs. She also asked lawmakers to take on the job of regulating the litigation finance industry and to curb allegedly misleading advertisements designed to generate mass tort claims.
A bevy of business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers and the Pharmaceutical Research and Manufacturers of America, also saw Wednesday’s oversight committee hearing as a chance to alert Congress to what they regard as the danger of third-party litigation funding. The groups submitted letters hailing the committee for convening the hearing and echoing J&J’s plea for intensified congressional scrutiny of the litigation finance industry. Both NAM and PhRMA joined J&J in calling on Congress to require disclosure from litigation financiers.
But based on questions from both sides of the aisle during Wednesday’s hearing, Congress is in no hurry to do so.
The three-hour hearing, entitled “Unsuitable Litigation: Oversight of Third-Party Litigation Funding,” featured testimony from, in addition to Wein, litigation finance scholar Maya Steinitz of Boston University, legal ethics expert Kathleen Clark of Washington University in St. Louis, and representatives from the offshore energy and Minnesota mining industries, who talked about how litigation by environmental groups has slowed business initiatives.
A few Republican representatives, notably Lisa McClain of Michigan, and William Timmons and Russell Fry, both of South Carolina, posed substantive questions, particularly to Steinitz and Wein about how Congress might regulate litigation funding. Timmons, for instance, asked whether lawmakers should consider imposing a “loser pays” model. Other Republicans highlighted the paucity of hard data on the magnitude of litigation finance and the risk that foreign countries like China might secretly be financing cases to advance their own geopolitical interests.
But oversight committee Democrats, starting with an opening statement from Jamie Raskin of Maryland, showed no interest in J&J’s assertion that litigation has run amok or in claims by their Republican colleagues that left-leaning activists have “hijacked” congressional and federal agency power by funding “sue and settle” impact cases that impose new regulations on businesses.
Oversight committee Democrats repeatedly defended litigation funding as a means for individual plaintiffs to access the court system to vindicate claims against big corporations like J&J, criticizing Republicans for suggesting that mass tort defendants need congressional help to ward off lawsuits.
“Shame on Republicans for holding this hearing,” said Florida Democrat Max Frost.
Illinois Congressman Raja Krishnamoorthi pressed J&J’s Wein on why her company had proposed an $8.9 billion settlement of claims by talc plaintiffs if all of their claims were meritless. (Wein said several times that J&J talc products do not contain asbestos and are safe. The proposed settlement, she said, was in the context of a global bankruptcy proposal.)
It’s notable that the lone witness called by Democrats at Wednesday’s hearing, ethics professor Clark, devoted most of her testimony not to third-party litigation at all but to what she called “the ethics crisis currently facing the U.S. Supreme Court,” after revelations that Republican-appointed justices failed to disclose travel and other gifts from wealthy patrons.
Democrats on the oversight committee pounded away at that theme, arguing that if there is a “dark money” crisis in civil litigation, it is rooted on the conservative side of the political spectrum, where activists have backed litigation to overturn abortion rights and affirmative action. (Indeed, last spring a group of Republican state attorneys general sent a letter to Republican lawmakers, opposing disclosure requirements for litigation funders because of the potential chilling effect on conservative activists. The letter was not mentioned at Wednesday’s hearing.)
“Our colleagues seem confused,” Raskin said in his opening statement. “No one has a right to bribe judges or load them up with fancy gratuities, but people do have every 1st Amendment, due process and equal protection right to raise money to make their case in court.”
South Carolina Republican Nancy Mace, filling in for committee chair Comer near the end of the hearing, expressed exasperation with Democrats’ insistence that “dark money” has tainted the Supreme Court.
“How many times is the left going to talk about dark money?” she said.
Mace proceeded to spend several minutes outlining the oversight committee’s broad-stroke “dark money” allegations against President Joe Biden. She then said she would “try to get back on topic,” and eventually called for the letters submitted by the business groups to be entered into the congressional record.
But her diversion to criticize Biden was telling: Republicans on the oversight committee, and their fellow congressional Republicans, are preoccupied with matters far afield from the disclosure of third-party litigation funding.
The oversight committee couldn’t keep a single hearing focused on the purported abuses described by J&J and its allies. That doesn’t bode well for any actual lawmaking.
I asked a J&J spokesperson after the hearing if the company thought the session was productive. J&J, she said, was “grateful for the opportunity to shine a light,” adding, “We applaud the chairman’s resolve to continue to investigate.” (2)
It was the oil and gas aspect of this issue that concerns us. Energy in Depth contributes the following article on that aspect and the overall thrust of the hearing:
In a wide-ranging, nearly four-hour hearing this Wednesday, members of the House Committee on Oversight and Reform took a deep dive into the shadowy third-party litigation financing industry and the ethical issues that arise when well-funded activists manipulate the civil justice system.
While some members of the Committee framed this potentially ethically-challenged financing method as providing greater access to the justice system for plaintiffs who otherwise may not be able to afford lengthy and costly litigation, the reality is that’s not typically what it’s used for. Third-party financing is more often used to bring frivolous or politically motivated lawsuits that enrich plaintiffs’ lawyers.
Committee Chair James Comer (R-KY) focused his opening statement on how third-party litigation funding allows left-wing nonprofits and donors to advance political agendas through costly litigation:
“We know that activist groups use this funding to push policies that they could not enact through the legislative process. Some left-wing groups funneled millions to law firms to sue companies across the country on questionable legal grounds. They’re trying to use the courts to put these companies out of business or limit their ability to bring new products to market.”
The energy sector is a common target of these donor-funded legal attacks. At Wednesday’s Oversight hearing, Erik Milito, President of the National Ocean Industries Association (NOIA), gave testimony on how activist opponents of American energy projects, from offshore oil to wind, “have managed to bypass Congress and their public regulatory process through what has become regulation through litigation.”
As Mr. Milito pointed out, just last month activist groups successfully deployed “sue and settle” tactics to pressure the Biden administration into withdrawing a massive region of the Gulf of Mexico from energy development. Another witness, Mining Minnesota’s Julie Lucas, testified about how the “near-constant act of litigation” from environmental groups opposing mining projects delays project investments and community improvements.
All of the witnesses called to testify at Wednesday’s hearing agreed that the lack of transparency in third-party litigation funding is a serious concern and that special interests can warp the incentives of the civil justice system.
Members Scrutinize Sher Edling’s Funding Sources
Rep. Jake LaTurner (R-KS) honed in on who stands to benefit from promoting climate lawsuits across the country, describing how the beneficiaries are wealthy progressive funders and foreign billionaires who have ideological and financial incentives to attack the American energy industry:
“In recent years, a number of investors including Arabella Advisors, George Soros, and Leonardo DiCaprio, as well as foreign funders like Christopher Hohn and Hansjörg Wyss, have funneled tens of millions of dollars into organizations that fund climate litigation targeting American energy producers.”
As Energy In Depth has previously discussed, these wealthy donors bankroll both the outside counsel and the purported “in-house” counsel bringing the lawsuits on behalf of states and municipalities. Rep. LaTurner explained that even though climate lawsuits are kept afloat by millions of dollars in grant funding, Sher Edling, the private law firm engaged on dozens of the cases, hinges its legal representation on generous contingency fee agreements that would result in a windfall for the firm if even one of the lawsuits is successful:
“The Soros backed New Venture Fund and the DiCaprio-backed Resources Legacy Fund have given millions to the California law firm Sher Edling, which is responsible for bringing over a dozen climate litigation cases. In addition to this special interest funding, Sher Edling is entering into fee agreements, where it stands to make tens of millions of dollars.
“And it doesn’t end there. Michael Bloomberg is funding a program through NYU Law, where they place attorneys in state attorneys general offices, where those embedded attorneys are working on the same climate litigation where Sher Edling is also receiving a contingency fee.”
Importantly, these channels of influence weren’t apparent at the start. Since third-party litigation funding is almost entirely unregulated, the respective roles of Michael Bloomberg, Leonardo DiCaprio, Chris Hohn, and other actors were revealed over several years through investigative journalism, litigation proceedings, and Freedom of Information Act requests.
There are active efforts in Congress to shed light on the third-party litigation financing system. In 2021, Sen. Chuck Grassley (R-Iowa) and Rep. Darrell Issa (R-California) introduced the “Litigation Funding Transparency Act” which would create a uniform disclosure rule for all class action and multi-district lawsuits in federal courts.
Sen. Grassley has been particularly attentive to how litigation funders target the American energy industry. During a Senate Budget Committee hearing in June, Ranking Member Grassley questioned Harvard professor and longtime climate litigation proponent Naomi Oreskes about Sher Edling’s funding sources and whether Ms. Oreskes herself had ever been retained by Sher Edling (spoiler alert: she has).
Litigation Supporters Pushing “Fundamental Systems Change” in Colorado
Rep. Lauren Boebert (R-CO), who represents the energy-rich West Slope region of Colorado, also took issue with the out-of-state environmental activist groups that use litigation and other tactics to attack the state’s oil and natural gas industry:
“The Communities I represent – Colorado’s third district – are literally being regulated into poverty because of these extremist environmental organizations that are circumventing our jobs here in Congress.” (emphasis added)
As Rep. Boebert explained, ideological billionaires and wealthy foundations fund environmental groups, which pursue climate lawsuits that “deprive communities of employment opportunities, improvements to outdated infrastructure, cheaper products, corporate tax revenue and economic certainty.”
In the case of Boulder’s climate suit, nonprofit attorneys from Earth Rights International representing Boulder County pro bono are receiving hundreds of thousands of dollars from the Rockefellers and dark money pass-through organizations like the Tides Foundation, “attempting to circumvent this body [Congress] by legislation via lawsuit,” according to Rep. Boebert.
The Boulder plaintiffs’ own words back up Rep. Boebert’s claims. As a Boulder City official admitted, the goal of climate litigation is to push “fundamental systems change” to drive oil and natural gas companies out of business; an idea that would never pass through legislative means.
The Boulder lawsuit isn’t just an unpopular strategy among Republicans – the Democratic Governor of Colorado, Jared Polis, and the state’s Democratic Attorney General, Phil Weiser, both refuse to support lawsuits against energy companies, with Weiser stating clearly, “our carbon footprint has been reduced by substituting natural gas for coal.”
Bottom Line: The climate litigation campaign wasn’t the only example of third-party litigation funding examined at this week’s Oversight hearing, but it was a particularly egregious one. Reps. Boebert and LaTurner put an essential spotlight on the wealthy foundations and foreign billionaires attempting to bypass congressional authority by pushing radical policy through litigation that attacks American energy and with it, the many jobs, livelihoods, and benefits it produces. (3)
(1) Washington (DC) The Hill (Sep 13, 2023) – Third-party litigation financing requires greater disclosure
(2) Reuters (Sep 13, 2023) – J&J wants Congress to halt litigation-funded mass torts ‘money play.’ Are lawmakers listening?
(3) Energy in Depth – Climate & Environment (Sep 15, 2023) – Oversight Hearing Puts Spotlight on Climate Litigation Financing