Last week we participated in a panel addressing judicial scrutiny and transparency in class action settlements. While our regular drug and device litigation is typically mass torts rather than class actions, a couple of the topics seemed blogworthy.
One of our fellow panelists was a federal judge with a growing reputation for casting sunshine on third-party litigation funding (“TPLF”) and private equity’s involvement in class actions and mass torts. We’ve blogged repeatedly about TPLF (for example, here, here, and here), and the effort for adoption of a uniform federal rule requiring TPLF disclosure continues (most recently, 214 companies submitted a joint letter to the Advisory Committee requesting the adoption of a uniform Federal Rule of Civil Procedure requiring the disclosure of third-party litigation funding agreements – the press release from LCJ is here).
But the involvement of private equity and investment in our country’s litigation system goes much deeper than traditional TPLF. One example is the current MDL involving claims against banks and settlement administrators alleging that certain settlement administrators (some of which are owned or controlled by private equity) worked with settlement banks to receive millions of dollars in undisclosed amounts. Essentially, kickbacks. See Consolidated Class Action Complaint, In re Class Action Settlement Administration Litigation, MDL No. 3162 (D.D.C. May 18, 2026), ECF No. 123. The allegations in that MDL were a significant topic of discussion by the panel, and that spun off some tangential discussion about the impacts of Arizona’s Alternative Business Structure (“ABS”) rule. If you’re not familiar with the ABS model, it permits non-lawyer ownership of law firms and generated a rush by mass tort firms to establish firms in which private equity interests could own a stake in a law firm. A good summary of some of the problems associated with ABS is here, and the directory of entities registered as ABSs in Arizona is here. Indeed, even a publicly traded Australian plaintiff’s class action firm (Shine) registered to do business in the United States as an ABS. The American Bar Association’s Model Rule 5.4—which prohibits attorneys from providing services through a professional corporation or association in which a nonlawyer either owns an interest or has a right to control the lawyer’s professional judgment—precluded non-lawyer ownership of law firms. But the ABS structure in Arizona, which ostensibly was intended to improve access to justice in the state, explicitly removes that prohibition and opens the gates to non-lawyer ownership.
The discussion of the implications of ABS across the mass torts spectrum led us to a law review article by Samir Parikh about the potential vertical integration of the components of plaintiff-side mass torts infrastructure by private equity. Samir D. Parikh, Crossing the Rubicon: Assembling a Litigation Colossus in Mass Torts, 124 Mich. L. Rev. Online 1 (2025). It’s a very good summary of the implications of private equity ownership in the machinery of plaintiff-side mass torts. Parikh describes the impact of Arizona’s ABS system as follows:
Arizona recently eliminated the impact of Rule 5.4 within its borders and opened the floodgates. The actors who have entered are focused on premium recoveries in mass-tort cases, not access to justice issues. We are at the forefront of what could be a transformative era for the legal profession and dispute resolution. Indeed, nonattorneys entering the ownership and governance ranks of law firms is crossing the Rubicon—a point of no return that will shift the fundamental tenets of the legal profession and mass-tort cases in particular.
Id. at 3. The potential involvement of third-party funders in the ABS model is readily apparent. Investors can avoid the funding contracts that create typical TPLF arrangements and instead take an ownership interest in the law firm litigating a mass tort. But that is not the most problematic aspect of the ABS structure:
The real threat that Arizona’s new rule poses is that nonattorneys who gain ownership and decision-making authority within a law firm will then proceed to restructure the world of litigation by vertically integrating the entire mass-torts machinery. The endgame is a corporate entity owned and run by nonattorneys that rolls up law firms, financiers, inventory builders, marketers, vendors and medical clinics. The firm could provide all essential services. Naturally, this paradigm would displace the current hub-and-spoke model and redistribute recoveries; attorneys would no longer be the center of the mass-torts universe.
Id. at 12. Parikh identifies two main concerns from such a vertically integrated mass torts machine. First, the owner of such a structure would be able to marshal non-meritorious claims with meritorious ones more easily, thus increasing pressures on defendants to pay premiums to settle. Second, and with reference to the misconduct that occurred in the pelvic mesh implant litigation (which we blogged about here), Parikh fears such a mass-torts machine owned by private equity would be incentivized to encourage medical procedures or take other steps to enhance claim values to maximize profits. Id. at 15-17. We’re not saying none of that goes on in mass torts already. It does. But what Parikh is forecasting would take it to an unprecedented level.
Given that the Rules Advisory Committee has not yet adopted a federal rule requiring disclosure of basic third-party funding, we wonder how litigants could possibly discover that counsel opposite in a mass tort was controlled by a non-lawyer that also owned the advertising firm or lead generator that solicited the cases and started the tort, the administrator that processed plaintiff intake and collected records, medical clinics that plaintiffs were directed to for diagnosis and treatment, and potentially even the bank that could act as escrow agent for any settlement. If, as Parikh suggests, this is our new reality where private equity turns mass-tort litigation into a fully packaged, one-stop-shop investment vehicle, that is bad news for our clients and our judicial system.
Recognizing the potential negative impacts of ABS on litigation, California passed legislation prohibiting California lawyers and law firms from sharing any fees with an out-of-state ABS. Cal. Bus. & Prof. Code § 6156 (2026). The fact that California took that step—to protect its consumers from the impact of ABS—is telling. Defense practitioners should be mindful of the impact of private equity investment in mass-torts litigation.
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