After more than a decade of litigation, the lawyers who peddled a theory that talcum powder causes cancer finally called it quits. They’d suffered a crippling loss when a federal court in New Jersey struck two experts who were prepared to testify that Johnson & Johnson’s Baby Powder caused ovarian cancer through a mysterious process they couldn’t quite explain.
More ominously, they were betrayed by one of their own when a plaintiff attorney told a judge his firm wasn’t the only one talking to a former J&J lawyer who had switched sides in violation of legal ethics rules. That admission threatened hundreds of millions of dollars in fees if the New Jersey court threw the other law firms off the case. They called J&J’s lawyers and agreed to a $5.5 billion settlement, more than $3 billion less than J&J previously had offered in an unsuccessful attempt to wrap up the talc litigation through the bankruptcy of a special-purpose subsidiary.
When the dust clears, the lawyers who promoted the highly questionable theory that talc causes cancer will walk away with some $2 billion in fees. Much of that money will flow to hedge funds and other outside entities that financed the television and internet ads that facilitated the recruitment of more than 70,000 claimants. The plaintiffs will probably take home $50,000 each or less—minus the usurious interest rates they will be paying lawsuit lenders who advanced them cash against their settlement proceeds.
This is the mass-tort industry today. Come up with a theory, hire scientific experts to testify about it in court, mount an advertising blitz financed by outside funders, settle for a few billion dollars and move on to the next alleged tort. The same thing is happening with lawsuits over Roundup herbicide, which Bayer purchased along with its ill-fated acquisition of Monsanto in 2018. The U.S. EPA and other international regulators state glyphosate is not a cancer risk, and epidemiological studies involving tens of thousands of agricultural workers show no increased rates of cancer. But a few experts linked Roundup to non-Hodgkin’s lymphoma, a common cancer associated with aging, and a multibillion- dollar tort was born.
HELP FROM HEDGE FUNDS
The U.S. Supreme Court delivered a seemingly crushing blow to Roundup litigation in June when it ruled that federal labeling law preempted claims that Bayer failed to warn consumers of the nonexistent—according to U.S. regulators— cancer risk. Bayer hopes to wrap the litigation up with a $7 billion settlement, showering the losing lawyers with another couple of billion dollars in fees.
By now the picture should be clear: Mass-tort litigation is an industry in America, and an astoundingly lucrative one. Once financed out of lawyers’ own pockets, these cases are now one of the hottest investments in the hedgefund world. An estimated $16 billion is invested in litigation finance in the U.S., with another $3 billion a year pouring in. Pitches by firms who play in this market tout 50 percent returns over two-tothree year cycles. Protected by laws in many states exempting lawsuit loans from interest-rate caps, lenders charge consumer plaintiffs rates of 40 percent a year or more.
These money flows are raising concerns that U.S. litigation is being sold to the highest bidder, which might be a foreign actor interested in hobbling American companies. Fortress Investment Group has billions invested in litigation, including Roundup-related charges and intellectual property disputes. It’s also majority-owned by Abu Dhabi’s sovereign wealth fund. That’s raising concerns that a foreign actor might use the U.S. courts not for profit alone, but to advance its own interests. A major oil exporting nation, for example, might find it useful to finance the climate lawsuits against U.S. energy companies. There’s no solid evidence to support this last scenario, but with billions at work in the U.S. litigation industry, it’s not hard to imagine
