Litigation Financing: Federal Judge Orders Disclosure of Funding Agreements in $6 Billion 3M Settlement

A federal judge overseeing a $6 billion settlement for military veterans affected by faulty 3M Co. earplugs has ordered the disclosure of funding agreements between plaintiffs and outside investors supporting the lawsuits, according to a post on the Bressler Risk Blog.

U.S. District Judge Wendy Beetlestone expressed concern about the role of third-party litigation funding entities in the settlement and wants to ensure that claimants are not exploited by predatory lending practices. The settlement aims to resolve approximately 260,000 lawsuits alleging that defective 3M combat earplugs caused hearing damage to troops. 3M has agreed to contribute $5 billion in cash and $1 billion in common stock through 2029.

Under the judge’s order, plaintiffs’ lawyers must disclose all funding agreements with claimants before or after the settlement within 30 days. Additionally, any new outside funding deals require court approval.

The disclosure will include lender names, loan amounts, interest rates, and other details, filed under seal. While this move aims to increase transparency in the litigation finance industry, it does not specify whether portfolio deals, where funders loan money to law firms against their entire caseload, must be disclosed.

This decision by Judge Beetlestone is considered unique and raises questions about its effectiveness in deterring funders and its potential impact on plaintiffs’ ability to secure funding. While concerns exist about high-interest rates charged by litigation funders, some believe that court approval of funders’ repayment processes could reduce the risk of plaintiffs trying to evade contractual obligations after receiving settlement funds.

The order aligns with broader efforts to address issues in the litigation finance industry, where investment firms provide funds in exchange for a share of lawsuit awards. Ultimately, the judge’s decision seeks to protect the interests of claimants in the 3M earplugs settlement while addressing concerns about third-party litigation funding practices.