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One of the lead lawyers in the Chinese drywall litigation owned stock in and served on the board of litigation funder Esquire Bank, which handled about $200 million in settlement funds in the case. Other attorneys contended he was conflicted as he had a personal interest in seeing the bank hold onto the settlement funding for the bank’s benefit at the expense of the parties to the case. The judge eventually ordered the money to be transferred away from Esquire into a court-administered account. This shows how conflicts of interest can arise and impede or corrupt the legal process when disclosure of third-party funding is not required.

Burford Capital, a large litigation funder, entered into a financing arrangement supporting a number of antitrust suits filed by Sysco, a food distributor. Sysco has contended that Burford obstructed their ability to accept reasonable settlements in their antitrust cases as the funder believed Sysco could obtain higher-value settlements. The contract establishing the funding explicitly provided Burford the option to effectively veto settlement agreements. Burford even went so far as to file a temporary restraining order to prevent Sysco from making settlement decisions in the company’s own litigation. As a result of these disagreements, Burford created a subsidiary and moved to replace Sysco as the plaintiff with its new subsidiary in order to directly control the litigation without the original plaintiff. A U.S. District Court ultimately ruled that Burford’s subsidiary could not replace Sysco as a plaintiff. This is a clear example of a litigation funder, which is not a party to a case, improperly exerting control over the litigation.

Plaintiff Christopher Boling entered into a series of litigation funding agreements with Prospect Funding Holdings, a litigation funder, in his personal injury suit against Blitz USA. After Boling’s suit against Blitz concluded, he filed another suit against his litigation funder claiming that the funding agreement violated Kentucky law prohibiting champerty and usury. A district court agreed and found the agreements unenforceable. The Sixth Circuit heard defendant’s appeal but upheld the lower court’s decision, noting that the contracts’ clauses ceded control over the underlying litigation to the funder. The court noted that the funder would require a full refund if the plaintiff changed attorneys and the funder had a right to examine all records related to the claim as well as relevant court documents. This demonstrates that even the formulation of contracts can provide indirect control to funders.

Women with vaginal mesh implants — who had not experienced complications — were encouraged to undergo unnecessary surgery to remove the implants to make them more valuable potential plaintiffs in suits against the mesh’s manufacturer. Lawyers leading such cases turned to marketing firms who contacted clients and encouraged them to have their implants removed regardless of whether the women experienced complications. Litigation financers provided high-interest loans to cover this unnecessary and potentially dangerous surgery which would only have to be repaid if their clients prevailed. There are multiple conflicts of interest in this case which arose from the financial incentives that motivated litigation funders to push women into unnecessary surgeries to increase the monetary value of potential judgments at the expense of the wellbeing of the actual plaintiffs.

Purplevine IP, a Chinese third-party litigation investment firm, has financed multiple intellectual property (IP) lawsuits in U.S. courts against Samsung, a competitor to Chinese tech firms. The funder’s involvement was revealed as the result of a standing order which required the disclosure of all litigation funding in this courtroom. Legal experts have raised concerns that confidential documents containing trade secrets could be turned over to international adversaries as part of the discovery process, effectively enabling industrial espionage. Protective orders can be used to prevent such information from being obtained by third-party funders, but judges cannot determine the scope of such orders and the parties to whom they must apply without knowledge of the funder’s involvement. Disclosure should be standard practice in courtrooms across the U.S., and concerns about confidentiality are clearly compounded when a foreign funder is involved and may have access to confidential or proprietary information. Foreign companies shouldn’t be able to gain access to potentially sensitive documents through litigation.

A group of plaintiffs funded by a third-party litigation partner sued LA Fitness claiming the defendant deceived plaintiffs and breached their contract when they were interested in canceling memberships. LA Fitness was ordered to produce potentially millions of documents during discovery, which involved significant costs. Plaintiffs sought further discovery in the case, which would incur additional costs. Because of the asymmetry in discovery costs — and the fact that plaintiffs were funded by a third-party, the judge in the case ruled that the cost for future discovery were to be paid by the plaintiffs in this case.

In this case, a Florida court found that plaintiffs’ litigation funders were liable for defense attorneys’ fees because the court determined that the funders were essentially a party to the litigation. The court found the funders liable for opposing counsels’ fees given that plaintiffs brought a civil suit that “lacked substantial legal support.”