Friend or Foe? Wall Street Targets Personal Injury Lawyers

I always say that, “One is a bad number”.

You should have more than just one marketing tactic to bring in cases. You should always get more than one supplier to give you a price. And you want to have more than one practice area.

If your personal injury practice has focused on mass tort cases over the last few years, I’m sure you’ve done well out of it. I know that many PILMMA members are riding the mass torts wave, making a healthy profit while helping their clients.

But mass tort cases can swallow a law firm’s resources wholesale. They require intense research, discovery and document diving and lots of man-hours to prepare for litigation and trial. Then the law firm has to contend with the defendant’s legal team, who can draw out a case for years if they have deep enough pockets.

One mass tort case can make the fortune of a smart law firm owner. But it can also consume the entire firm, crowding out any other potentially lucrative cases. Like I said, one is a bad number.

So it’s an interesting development that Wall Street has decided to jump on the mass torts bandwagon.

A couple of days ago, The New York Times reported that private equity firms and hedge funds are looking to invest in the financing of mass tort cases.

This can be a good thing or a bad thing, depending on how you look at it.

The Wall Street firms see an opportunity in mass torts. They see the cases and the payouts as largely immune from market cycles and considered a good hedge against that instability, paying out when other investments are down.

Lots of $$$

But they also see the huge potential payoff when the plaintiffs win a mass tort case. It’s not just dollar signs that interest them – it’s lots of dollar signs.

As the Times says, “Analysts estimate that litigation finance is at least a $10 billion industry, and they expect it to keep growing.”

These hedge funds and private equity outfits aren’t buying law firms, but they are lending large sums of money to mass tort practices to fund the costly cases and see them through to the end. Without the guaranteed financing, some firms just get outspent by the defendant’s legal team, forcing a premature end to the case, absent a victory.

This isn’t some fringe activity going on at the edges of the legal profession. One of the most famous mass tort lawyers, Tom Girardi from Girardi Keese (the “Erin Brockovich” law firm), says the funding is needed if you’re going to battle a company with deeper pockets. “If you are going to fight them, you better have the money to properly present these cases,” said Girardi.

Great News or a Disaster?

If you handle mass torts, or you’re thinking of handling mass torts, this could be great for your law firm, or it could spell disaster.

As Girardi says, the private equity financing enables law firms to fund their cases from start to finish and go toe-to-toe with their bigger opponents. So that’s good.

But if that financing goes to a different firm, it can push your law firm out of the running to handle a mass tort. If you’re wondering about how to finance a case, while your competitor has secured millions in private equity funding, you just lost.

In effect, the private financing is creating a two-tier mass tort arena: at the top are the law firms with funding in place. Below them are the underfinanced law firms who may battle for the scraps left behind.

High Stakes

The big financing options have raised the stakes and made mass torts an even more serious business. You have to ask yourself if you’re prepared to play at the high stakes table, or whether it’s time to focus on something else.

The involvement of private equity can actually complicate a case. As the Times explains:

“Federal prosecutors in Brooklyn recently opened an investigation into a network of lawyers, finance firms and others that may have lured women into getting unnecessary surgery to remove pelvic mesh implants, according to people familiar with the matter. Removing the implants improved the chances that the women would win large legal settlements from medical device manufacturers.”

The last thing a law firm needs is to be investigated by federal prosecutors. If you borrow big sums of money, you need to be able to pay them back. That makes you more determined to win the case, but it could also cloud your judgment and encourage you to stray into activity that might be deemed unethical.

Like I said, it’s a high stakes game.

Mass torts is like playing the stock market, don’t invest more than you can afford to lose. Some are big hits and some are flops. I never invest more than $50k on any one project.

And, like I said, one is a bad number. So it’s always wise to have more than one practice area, so that you can take the rough with the smooth, just like the Wall Street investors are trying to do.

 

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