The Yale Law Journal


Opaque Capital and Mass-Tort Financing

31 Oct 2023

abstract. Complex litigation is resource intensive and places a staggering burden on all litigants. Large-scale mass torts resolved through multidistrict litigation or bankruptcy radically amplify this burden. In order to pursue a mass-tort case to conclusion, most plaintiffs’ firms have to rely on third-party financiers to provide capital in exchange for a share of the fees that the firm ultimately realizes. Financiers have historically been passive partners. Because of this distance, courts rarely inquired about these relationships or reviewed funding agreements.

Mass-tort cases have grown in scale and frequency over the last decade, and plaintiffs’ firms have encountered escalating resource demands. Coinciding with this evolution is the entrance of opaque capital: uniquely aggressive financiers who offer attorneys and plaintiffs access to vast pools of capital in their battle of attrition with wealthy corporate defendants. The prospect of leveling the playing field is alluring. But there is a catch—these financiers will never be passive partners. Opaque capital is moving into mass-tort financing to dictate outcomes.

This Essay casts a light on the shadowed corners of litigation finance. All the tools necessary for a financier to create and control a mass-tort case are available and unregulated. The potential for distortion is most visible at two points in a case’s trajectory. Primarily, opaque capital pursues claim alchemy—the idea of employing unethical and potentially illegal tactics to create, enhance, and marshal apparently low-value claims and turn them into gold. I refer to this process as the Alchemist’s Inversion. Further, opaque capital has discovered the contractual means to seize an individual plaintiff’s right to decide when to settle their case. The luxury of choosing when to exercise this option creates sinister opportunities.

Scholars have underappreciated opaque capital’s entrance into the litigation-finance theater. This Essay asserts that resolution levers in future mass-tort cases will be pulled not by the spotlighted figures before the audience but the shadowed financiers behind them. The ultimate effect will push victims further away from financial recovery.

Are you familiar with the parable of the organ grinder’s monkey? Now, the organ grinder’s monkey is tiny in stature . . . [b]ut . . . [w]henever he ventures into the city to perform, he thinks, “What a powerful fellow I must be . . . . [W]here ever I go this music box must follow. And with it, this poor, downtrodden man . . . . And every time I do decide to dance, every time, he must play. Whether he wishes to or not.”

—Jack Fincher, Mank1


On December 8, 2019, Mikal Watts convened an emergency town hall meeting to assure his clients he was not a crook.2 Watts and his law firm, Watts Guerra LLP, represented 16,000 fire victims in the PG&E bankruptcy case, which was rapidly approaching resolution. There were two competing plans of reorganization, both of which offered significant compensation to victims and a small fortune to Watts and his law firm. The problem was that Will B. Abrams—an unexpectedly vigilant claimant in the case—had made a troublesome discovery.3 Watts Guerra was able to pursue protracted litigation because it had drawn down on a $100 million line of credit funded by a syndicate of investors that included private-equity firm Centerbridge Partners.4 Centerbridge was also part of a group that had proposed one of the competing settlement plans in the case. Watts had enthusiastically recommended that his clients support the Centerbridge plan, which proposed paying victims $13.5 billion. Unfortunately, half of this value came in the form of PG&E stock, a troubling feature that indefinitely tethered victim compensation to the company’s postbankruptcy performance.5 The competing bondholder plan avoided this potential pitfall, and—for that reason—many claimants and commentators believed that it was superior.6 Further complicating matters, Watts had not disclosed his convoluted relationship with Centerbridge to the court or his clients.

On April 20, 2020, Will Abrams filed a motion asking the bankruptcy court to disregard votes cast by Watts’s clients because of his apparent conflict.7 The court was clearly troubled by the possibility that Watts had undisclosed financial incentives for supporting the Centerbridge plan.8 The only defense Watts offered was his own assertion that the funding agreements did not authorize Centerbridge to control his litigation strategy, decision-making, or client representation. Based on this representation, the court concluded that the prepetition funding arrangement was not relevant to plan voting and denied the motion.9 The court reached this conclusion even though Watts never answered any specific questions about the funding relationship, and the capital-provision agreement (CPA) between Centerbridge and Watts’s firm was never provided to the court or opposing counsel.10 In fact, there was no legal requirement that Watts produce it.11

On July 1, 2020, PG&E emerged from bankruptcy and continued operating as a California utility. But its stock price has languished in the years that followed, and claimants have openly questioned whether they voted for the right plan.12 The frustration and confusion surrounding the legal process and the actors involved have culminated in one simple question: What if a third party had in fact controlled the outcome of the case and that possibility had been ignored?

Litigation finance was popularized in Australia in the 1990s,13 and the diaspora reached the United States in 2010, drawn by the prospect of oversized returns.14 Today, the field is populated with a diverse group of actors—the most prominent of which focus on business-to-business disputes and market their services to wealthy corporate clients by appealing to notions of efficiency and cost smoothing.15 But this is not the area that is attracting the most aggressive financiers. The PG&E case and others like it have cast a light on the shadowed corners of litigation finance, and, in particular, the burgeoning field of mass-tort financing.16 Mass torts present resolution complexity that dwarfs all other litigation disputes.17 One of the most troublesome aspects of these cases is the recovery timeline. In order to run the elaborate gauntlet to recovery,18 plaintiffs’ firms must have large funding pools. This search for capital has forged unexpected alliances.

Hedge funds and private-equity firms chase yield regardless of industry.19 This chase has recently brought these new financiers—which I refer to as opaque capital20—onto the litigation-finance landscape and in conflict with existing market norms in the consumer mass-torts space. Historically, litigation-finance companies have been silent partners, content to sit on the periphery and allow attorneys to develop strategy and execute game plans. But opaque capital has never operated in this way and has no intention of playing by existing rules. These financiers dictate outcomes, and the mass-torts space is plagued by regulatory gaps and monitoring voids that accommodate shadowed practices.

Despite a vast cannon of scholarship exploring this field, I assert that scholars and commentators are not asking the questions necessary to understand the future trajectory of litigation finance, especially in the mass-torts sphere.21 The focus should not be on how the machinery works. Current literature has addressed this quandary exhaustively.22 The real question today is whether the machinery can be used to consistently achieve a distortive objective; if so, who could orchestrate this distortion and how would deployment occur? More specifically, can a litigation financier offering large pools of capital ostensibly create and control a multibillion-dollar mass-tort case? I argue that the answer is yes and that this possibility has been overlooked.

By conceptualizing the future of mass-tort financing and exploring the role that opaque capital will play, this Essay is the first to bridge the gap between current scholarship and the front lines of third-party litigation finance. A new breed of apex predator has moved into mass-tort financing and is pursuing something akin to claim alchemy—the process of employing unethical and potentially illegal tactics to create, enhance, and marshal apparently low-value claims with the hope of turning them into gold. I describe this process as the Alchemist’s Inversion. And once this transformation occurs, opaque capital must maintain control of its asset in order to maximize value. The means to effectuate this unique brand of distortion already exist and are entirely unregulated. I do not argue that these tactics are currently widespread. Instead, I argue that opaque capital’s objectives are clear based on how these actors operate in other markets. Recent cases demonstrate that the arsenal is available, and deployment is underway.

The Alchemist’s Inversion is most readily observable at two points in a nonclass, aggregate-litigation dispute. Primarily, opaque capital has the means to fuel and orchestrate the claim marshalling process in order to build—and in some instances create—a lucrative case. Lead generators and claim aggregators work with plaintiffs’ attorneys to identify and marshal claimants. Financiers then provide the capital necessary to pursue aggressive marketing strategies.23 These tactics ensure that all meritorious claimants have an opportunity to participate, but obscure how many nonmeritorious claims are allowed to enter the system. Corporate defendants with significant questions about claim integrity have begun exhibiting a reluctance to settle cases.

Second, private equity has a history of relying on contractual and relational leverage to control outcomes affecting their investments. Mass-tort cases are uniquely susceptible to these tactics. For example, opaque capital is able to extend financing to individual claimants in exchange for the contractual right to veto or compel acceptance of settlement offers. In contrast, there is no indication that the earlier referenced financing arrangement between Mikal Watts and Centerbridge afforded that financier contractual control over the case. These contracts—commonly referred to as CPAs—also allow opaque capital to control counsel and strategy through a combination of ambiguous provisions and relational leverage.24 The concern is that these financiers’ incentives will diverge wildly from those of actual victims.

This Essay presents a primarily descriptive assessment of an important new trend in mass-tort financing, setting the stage for a more normative discussion in future scholarship. Despite the hidden nature of opaque financing, this Essay draws on numerous, off-the-record interviews I conducted with professionals and insiders involved in the litigation-finance industry. Part I provides a brief overview of the litigation-finance landscape and identifies mass-tort financing as occupying a hybrid category in that unique ecosystem. Part II details how hedge funds and private-equity firms have clandestinely moved into mass-tort financing, lured by the promise of oversized returns and the ability to operate unmonitored. I define the contours of what opaque capital represents and provide an example of how misaligned incentives can harm mass-tort victims. Part III presents the Alchemist’s Inversion in full and explains how case creation and control are the governing dynamics. This Part unpacks various cases that demonstrate that the tools necessary to create and control a multibillion-dollar mass-tort case are readily available and unregulated.

Opaque capital’s influence is shifting mass-tort resolution and prompting polarizing countermeasures by corporate defendants.25 This Essay predicts that the logical evolution of these practices will upend traditional dynamics in nonclass, aggregate litigation and push victims further away from financial recovery.

I. the litigation-finance landscape

Litigation finance began in Australia in the 1990s.26 Australia prohibits contingency fees for attorneys but allows contingent returns for investors.27 Therefore, litigation finance filled a funding gap by acting as a vehicle to create contingency-fee arrangements for resource-intensive legal disputes.28 In a relatively short period of time, the practice has become a ubiquitous feature of litigation around the world with over $17 billion of third-party capital flowing to litigants and the professionals that represent them.29

The litigation-finance diaspora quickly reached the United States, which is now the center of the litigation-finance universe.30 In 2020, approximately $8.8 billion of the $17 billion invested into litigation funding globally involved litigation in the United States, more than six times the amount flowing into any other country.31 Today, it is estimated that litigation funders have $13.5 billion in assets under management in the United States alone.32 Annual investments are predicted to reach $31 billion by 2028.33

Litigation finance is arguably a mere extension of the model of shared ownership of legal claims.34 But despite its resemblance to existing constructs and many benefits,35 the practice’s divergent evolution introduces a litany of business, legal, and ethical complexities. Litigation-finance relationships exist in various permutations and derivations—some of which are outside this Essay’s scope—but all begin with the simple premise that a cause of action is property.36 And even valuable property can represent an illiquid asset, the monetization of which can be extremely protracted and resource intensive. To the extent that a cause of action can be equated to a home or commercial building, the corollary is that it can be collateralized in order to secure funding. Third-party financiers are merely the lenders and investors willing to play a role in unlocking these funds.37

Litigation financiers have historically played the role of lender or equity stakeholder and engaged with litigants in either commercial38 or consumer39 spheres. Financiers typically provide nonrecourse40 loans to individual and corporate plaintiffs as well as law firms, receiving a fixed payment upon a successful judgment or settlement.41 These loans are typically made against one pending case, but may be secured by a portfolio of cases where a law firm is the borrower.42 In litigation that offers the potential of a windfall recovery—including high-stakes intellectual property and personal-injury disputes—a financier may extend capital and receive the right to an “equity-like participation” in litigation proceeds upon resolution.43 In this regard, these finance relationships resemble contingency-fee arrangements.

Individual plaintiffs may be drawn to third-party funding as a way to pay down debts and other obligations during the pendency of the case or to receive an advance on a particularly strong cause of action. Various consumer rights are implicated in these types of lending arrangements, especially where a plaintiff’s debt obligations increase over time. As such, there is a material risk that a plaintiff may agree to accept a small up-front payment from a financier and unwittingly surrender a large settlement or judgment award that represents many multiples of the initial loan amount.

Corporate plaintiffs embroiled in business-to-business disputes have been attracted to litigation finance to avoid budget volatility caused by potentially staggering professional expenses and to access preeminent legal counsel with whom litigation financiers may enjoy strong relationships. In these types of financing relationships, CPAs invariably resemble complex loan documents, providing financiers with a suite of rights and powers.44

Thus, while litigation financing is not new, mass-tort financing certainly is45 and has received little attention.46 The need for third-party capital is particularly acute in complex mass-torts because these cases present staggering resource demands coupled with an extremely long resolution timeline. The burden on plaintiffs’ attorneys is unique,47 and the risk of materially underfunded litigation is daunting.48 In an apparent attempt to address this market deficiency, private equity49 and other aggressive financiers have moved into this space,50 providing law firms with funding and, in some cases, offering individual plaintiffs cash advances on a nonrecourse, fixed-interest basis.51 These arrangements do not fit neatly in either the commercial or consumer funding baskets noted above. Instead, mass-tort financing represents a hybrid model, drawing aspects from both classifications and presenting unique opportunities and dilemmas.

II. an overview of opaque capital

The previous Part provides an overview of third-party financing in general litigation. In this Part, I argue that opaque capital52 is moving into mass-tort financing53 and is discarding most of the staid dynamics and market norms that have proliferated in the general litigation space. Mass-tort financing is attractive for various reasons, including the promise of oversized returns.54 But its true value to an aggressive financier is the potential to clandestinely create and control a case.

There are three main types of funders: (i) dedicated, (ii) sporadic, and (iii) opaque capital.55 Dedicated funder describes large firms with an arguably transparent business model and willingness to engage in public debate about litigation finance. Burford Capital, one of the largest litigation funders in the world with approximately $4.5 billion in assets under management, is an example.56 These investors are involved in a wide array of diverse cases but often focus on business-to-business disputes. They are well known in the marketplace and, in some respects, represent the face of the industry.

Sporadic funders are less systematic than dedicated ones. This group is comprised of various individual and institutional investors that engage in litigation financing haphazardly and opportunistically. These funders are often involved in low stakes, personal-injury suits.57 They are not high-profile participants and tend to receive public scrutiny only when they engage in some sort of malfeasance or unethical conduct.58

Opaque capital is the new breed of financier: aggressive hedge funds and private-equity firms that have established a litigation-finance group or have a group that acts as the functional equivalent. These financiers—flush with capital that needs to be deployed59—could exclusively invest in case portfolios through law firms and other intermediaries but understand that their chase for yield requires direct engagement in high-stakes, big-ticket disputes. They are less influenced by market norms.

I argue that opaque capital’s engagement is unique because it is willing to work with a variety of professionals and service providers in order to dictate outcomes. As witnessed in distressed debt markets, these parties are adept at exploiting arbitrage opportunities to secure premium recoveries.60 Opaque capital relies on intermediaries to contact potential mass-tort claimants and attempt to create and enhance claims.61 Opaque capital is also willing to extend financing directly to claimants in exchange for various privileges and powers, including the right to veto settlement offers. And these financiers fund plaintiffs’ attorneys for a specific case or through portfolio lending. By exerting leverage at each process point, opaque capital is pursuing a model that it has perfected in other markets.62

But opaque capital cannot be understood until one appreciates the multifaceted approach it takes to outcome maximization. Private-equity firms systematically employ a crossholder investment strategy. Crossholders are creditors who own debt at different levels of a firm’s capital structure and may even own equity in a firm’s parent company.63 These parties can appear to be aligned with a particular group but possess unique incentives. For a crossholder, a suboptimal settlement for one creditor group to which it belongs may be acceptable if it is necessary to secure an oversized return from a different position.64 This is what I call the crossholder’s luxury; a crossholder may lose a battle but still win the war. This phenomenon is regularly witnessed outside the mass-torts sphere,65 but we are now seeing it inside as well. For example, as noted in the Introduction, Centerbridge and Apollo funded mass-tort litigation against PG&E. As the bankruptcy case unfolded, Centerbridge accumulated 1.6% of PG&E stock, and Apollo purchased more than $500 million in PG&E debt.66 Both also held insurance claims against PG&E.67 Because these parties could profit from their crossholder positions, they may have been willing to accept a diminished recovery in one position if it was necessary to realize a recovery that was commensurately larger in another.

The primary concern with this strategy is that crossholder positions are rarely disclosed or fully appreciated.68 This dynamic allows clandestine maneuvering and influence that could undermine cases and litigants in unforeseen ways. Imagine that a litigation-finance division of an investment firm is funding large-scale, personal-injury, mass-tort litigation against a subsidiary of BigCo—a prominent publicly held company. The litigation financier has contracted for a veto right on any settlement offer that the mass-tort claimants in that case receive and enjoys leverage over counsel in the case because of an extensive lending relationship. An affiliated investment subsidiary of the same investment firm takes a significant short position on BigCo stock.

As the case progresses, the litigation financier strategically releases information about the litigation to various journalists, strongly indicating that the litigation will ultimately decimate BigCo’s profitability.69 This action supports the affiliated investment subsidiary’s short position. Further imagine that the financier takes a particularly aggressive posture in negotiations and, as the case drags on, this approach boosts its affiliated entity’s short. The litigation financier always knows that it can inform its affiliate when it decides to be less recalcitrant and settlement prospects improve. With this information, the affiliate would be able to exit its short position at the perfect time.

The litigation financier’s actions in this scenario may lead to a diminished recovery for plaintiffs and, thereby, a lower recovery for itself based on its contingency arrangement. But the investment firm has maximized its outcome if the delta based on the litigation financier’s maneuvering is more than offset by the increased return on the affiliated entity’s short.70

This is just one example of how opaque capital can create chaos in this space. The next Part provides a detailed analysis of the distortive power that opaque capital is in the process of seizing and the preliminary instances where it has already been used. Creation and control are the governing dynamics.

III. creation and control

Part II highlighted the confluence of factors that have drawn opaque capital into mass-tort financing and offers a glimpse of the potential harm. This Part unpacks two points in the trajectory of a mass-tort case where opaque capital’s influence can be most distortive.

A. The Alchemist’s Inversion

Financiers in general litigation bear the risk of claim infirmities and, therefore, must filter potential suits as part of their underwriting process. Only “investment grade” claims—ones that present an overwhelmingly high probability of success—are worth pursuing.71 These financiers must avoid frivolous claims, and their preliminary assessment can be a valuable signal to litigants.72 But game theory dynamics in nonclass aggregate litigation are unlike those in general litigation matters. In mass torts, opaque capital can perform a type of alchemy that makes claim volume—not merit—the guiding light. The Alchemist’s Inversion is the term I use to describe a litigation financier’s use of unethical and potentially illegal tactics to create, enhance, and marshal apparently low-value claims with the objective of turning them into gold.

1. The Grim Reality of Nonmeritorious Claims

In general product-liability litigation, an attorney considering representing an alleged victim on a contingency basis needs to verify that the individual actually used the product in question and suffered the injury alleged. These gatekeeper issues would customarily be resolved in the initial screening. The probability of the defendant and the court system discovering a nonmeritorious claim is material. The contingency attorney bears the risk of loss, and internalizing this risk prompts investigation. Class aggregation presents similar dynamics. Various procedural safeguards force attorneys to internalize the risk that their client may be undeserving of compensation. At the very least, “a plaintiffs’ lawyer must . . . overcome a motion to dismiss and stand a strong chance of prevailing on class certification in order to exert maximal settlement leverage.”73

These ubiquitous incentives diverge in nonclass aggregate litigation. As a result, nonmeritorious74 claims exist alongside meritorious ones in the claims pool of any large-scale mass-tort case.75 In some instances, a claimant has sensed an opportunity for an unverified distribution and freely thrown their hat in the ring. In cases with thousands of claims, false positives76 are unavoidable as convoluted causation inquiries77 mix with settlement imperatives.78

More recently, a staggering number of nonmeritorious claims have entered mass-tort cases not because an opportunistic claimant independently determined it was in their best interests to do so, but because some shadowed actor told them it was. In this sphere, opaque capital is focused on marshalling as many claims as possible—sometimes without regard to merit. The idea is to amplify claim volume by enhancing claims in some cases and actually creating claims in others. Policing this type of opportunistic behavior is extremely difficult and represents an intractable feature of the current system. Multidistrict litigation (MDL) and bankruptcy courts have historically encountered crippling obstacles in their attempts to filter unsupportable claims.79 Plaintiffs’ attorneys who originally interview potential claimants bear the burden of vetting claims, but many refuse to fulfill this obligation.80 Indeed, the potential benefit of adding a nonmeritorious claim is greater than the cost for a variety of reasons.81

Primarily, many practitioners believe that courts are not adept at filtering nonmeritorious claims,82 and even when detected there is no record of courts fining counsel when blatantly baseless claims have been discovered. “[T]he bigger an MDL . . . gets, the less individualized scrutiny each claim will realistically receive, creating incentives for ever more claims to be filed” with the hope the case settles before true claim assessment occurs.83 Many of the most famous mass-tort cases settled years before there was any scientific consensus about causation.84

Further, inventory volume is a powerful weapon because of the critical-mass effect. “[D]efendants reportedly feel more ‘pressure’ to settle when up against a lawyer with a large ‘volume of cases.’”85 A significant number of unresolved claims creates lingering uncertainty for a corporate defendant; this uncertainty can be seen as a black cloud that suppresses market capitalization by forcing investors to discount valuations to account for the potential litigation exposure.86 Therefore, once a critical mass of claims is secured, defendants may be forced to settle, merit notwithstanding.

Finally, attorneys87 are also reluctant to filter claims because “coveted and remunerative positions” on key steering committees in large cases are awarded based on the size of an attorney’s case inventory,88 and inventory volume provides leverage to dictate case trajectory.89 All of these factors lead to “exceptionally high rates of claim initiation” in mass-tort cases.90

A simple reality emerges against this backdrop: at the outset of a dispute, the probability of financial success is premised entirely on marshaling as many claims as possible—even if the vast majority of those claims prove to be baseless.

2. The Alchemist’s Process

Based on the critical-mass effect, opaque capital and plaintiffs’ attorneys have expanded their use of claim aggregators—also known as lead generators—to marshal claims.91 Television advertising alone has tripled in the past decade,92 and more than $145 million has already been spent in 2022 marshaling claims in the Camp Lejeune tainted water litigation—a number that is projected to double.93 “The industry tries to keep the network of marketers and financiers out of sight,” but the impact of these actors is glaring.94

Claim aggregators employ a litany of outreach tactics, including (i) direct calling; (ii) television advertising; (iii) television “infomercials”; (iv) online videos posted on Facebook and other social media platforms; (v) websites created specifically to engage with potential claimants; and (vi) direct emails.95 Sophisticated aggregators also maintain their own repository of claimants from other cases and will solicit from this group as well.96 These resource-intensive measures are “financed by large investors who view mass torts as an increasingly lucrative asset class, and are likely to bet even more money on similar cases to diversify their holdings.”97

A complaint filed by a finance broker98 who worked with a prominent plaintiffs’ firm recently described the process as

(i) borrow as much money as possible; (ii) buy as many television ads and/or faceless clients as possible; (iii) wait on real lawyers somewhere to establish liability against somebody or something; (iv) use those faceless clients to borrow even more money or buy even more cases; (v) hire attorneys to settle the cases for whatever they can get; (vi) take a plump 40% [contingency fee]; and (vii) lather, rinse, and repeat.99

The idea of aggressively marshalling nonmeritorious claims is well known,100 but this practice is the precursor to a more sinister one: claim alchemy—the idea of creating or enhancing claims. I describe this as the Alchemist’s Inversion, a phenomenon where opaque capital employs unethical and potentially illegal tactics to create, enhance, and marshal apparently low-value claims with the hope of turning them into gold. The pelvic mesh dispute is an example.

In the late 1990s, mesh implants designed to correct pelvic organ prolapse were surgically inserted into millions of women worldwide.101 In 2008, many recipients began complaining that the implants were causing bleeding and discomfort.102 Soon there were around 100,000 suits pending in state and federal court.103 Plaintiffs claimed that the implants “were poorly designed and made from materials not intended to be implanted in the vaginal area.”104

Plaintiffs’ attorneys soon realized that the value of a claim increased dramatically if the implant had been removed from a plaintiff’s body.105 Removing the mesh, however, can be extremely complicated because the device is made of material that is designed to bond with human tissue.106 Only half of all plaintiffs had had the implant removed.107 Therefore, the presumption was that a plaintiff who received a doctor’s approval to have the implant removed must have been suffering serious complications and would be entitled to a much larger recovery.108 Seizing on this idea, litigation financiers engaged firms to call mesh recipients who had not had the device removed and convince them to do so.109

Preying on often times “desperate and unsophisticated patients,” these firms began calling women who had not had their mesh implants removed.110 In some instances, the caller would tell victims that they needed to remove the mesh implant immediately because any delay could lead to their death.111 But there was good news: a financier could pay for the procedure and had already contracted with a surgeon willing to remove the implant.112 The financier could further cover the victim’s travel expenses and connect them with an attorney.113 But for many who accepted this offer, no determination was ever made that the plaintiff needed to have the mesh implant removed. In many cases, there was no basis for removal, which could itself cause extreme complications.114 The claim-alchemy process was shockingly corrupt. “[W]omen [were] sucked into [an] assembly-line-like system . . . fueled by banks, private equity firms and hedge funds [that] provide[d] financial backing” and then manipulated into having a radically invasive procedure that few needed.115

The pelvic-mesh case demonstrates that opaque capital has the means and the inclination to create and enhance causes of action through unethical and potentially criminal means. Though this case is over two decades old, it reflects ways that opaque capital may exploit claimants today. Nonmeritorious claims entering a given case undermine the judiciary and harm various stakeholders, including actual victims.116 As with any limited-fund case, nonmeritorious claimants usurp scarce funds. Every dollar received by a false victim is one less dollar received by a meritorious one. Further, plaintiffs’ attorneys have believed for years that aggressive claim aggregation was a shortcut to settlement; a means to place extreme pressure on a corporate defendant who would be desperate to settle. Unfortunately, as questionable claims enter the system, they artificially inflate resolution values. And corporate defendants are now beginning to balk at settlement price tags. Volume still creates various public, investor, and judicial pressures that can compel settlement.117 However, based on my conversations with industry insiders,118 I believe that corporate defendants will become even more reluctant to settle as new cases are infected with a disproportionately large number of nonmeritorious claims. If realized, this phenomenon would push out resolution timelines as defendants feel exploited and begin to more frequently jump from state court to federal court, from MDL to bankruptcy, trying to find a venue they believe will see through the fog to the merits of these cases.119 Opaque capital is built for the decade-long slog, but actual victims rarely are. In the long run, these tactics will only prolong cases and diminish recoveries.

Various industry insiders I spoke with believe that opaque capital is employing a unique brand of alchemy that ostensibly requires the reckless—perhaps illegal—marketing described above.120 But winning the race for inventory is only half of the equation.

B. Settlement Levers and the Corollary to the Alchemist’s Inversion

The litigation-finance industry has consistently propounded the premise that financiers do not manage attorneys, oversee litigation strategy, or control settlement in any form. And this may be true for the vast majority of engagements.121 But the quaint notion of the passive investor evaporates in the mass-torts sphere; the capital commitments and potential recoveries are too monumental for a financier to blithely cede control. The true value of claim alchemy is only realized if the financier can dictate resolution. Therefore, I argue that a corollary to the Alchemist’s Inversion is that the litigation financier must maintain control over the asset it has created in order to maximize value when it is sold.

1. The Capital-Provision Agreement

Capital-provision agreements (CPAs) are the means by which opaque capital secures control.122 Unfortunately, “litigation financing contracts are confidential, and only . . . a few [have] come to light.”123 Financiers aggressively guard these agreements and can be quite defiant even when compelled to divulge information pursuant to court order.124 In an effort to demystify the funding process, a number of financiers have willingly released examples of past work and contract templates over the years.125 All of these agreements describe a benign relationship where the financier is a passive investor, attorneys have absolute autonomy, and the plaintiff has unquestioned, decision-making authority.126 But we know that many cases do not exhibit these dynamics. The few agreements that parties have been compelled to release provide a glimpse into the shadows.

2. Seizing Decision-Making Power

Litigation-finance firms will oftentimes directly provide capital to plaintiffs on a nonrecourse basis in exchange for securing various rights and benefits through a CPA.127 An attorney working on a contingency basis can absorb certain court-filing fees and other related fees but cannot provide financial assistance to a client128 nor acquire an interest in the client’s cause of action, aside from her contingency fee.129 Mass-tort plaintiffs facing a potential decade-long litigation battle may be desperate for bridge financing to cover basic health-care expenses and other costs. Opaque capital—invariably brought in by plaintiffs’ counsel—can provide this unique and elusive funding but has the right to demand a suite of powers and benefits in return. Indeed, opaque capital can require a plaintiff to assign all decision-making authority regarding her claim.130 With such authority, opaque capital would have the affirmative right to accept or reject a settlement offer as long as its decision was made in good faith.131

Boling v. Prospect Funding Holdings, LLC demonstrates how an aggressive financier can use its leverage to control a suit.132 In Boling, plaintiff Christopher Boling had been injured by a gas can manufactured by Blitz USA. Boling filed suit in 2009 and subsequently entered into four CPAs (collectively, the “Boling Funding Agreements”).133 The Boling Funding Agreements provided a nonrecourse loan to the plaintiff but contained arguably usurious rates of interest.134 After settlement of the dispute with Blitz USA, the litigation funder in the case asserted that Boling owed it over $300,000.135 Boling brought suit in federal district court alleging that the Boling Funding Agreements were void and unenforceable based in large part on their usurious provisions, and the district court ruled in his favor. The litigation funder appealed.

The circuit court reviewed key provisions in the Boling Funding Agreements and found that the funder had a troubling level of control over the plaintiff’s litigation with Blitz USA. The Boling Funding Agreements:

  • Identified all of Boling’s case files—including his medical records, litigation documents, and anything relating to his case—as “collateral” that could be reviewed by the funder without restriction;
  • Allowed the funder to seek specific performance if Boling defaulted on any of the covenants in the agreements;
  • Precluded Boling from changing attorneys unless (i) he secured the funder’s consent; or (ii) repaid all funds owed under the four agreements immediately;
  • Made Boling liable for the full amount of the loan plus all interest and fees upon default in performance of any obligation required to protect and preserve the litigation.136
  • In affirming the district court’s ruling that the interest rates charged were usurious, the circuit court noted that the agreements raised questions about whether the plaintiff could act independently. The agreements appeared to give the funder power to “interfere with or discourage settlement . . . .”137

    Similar control provisions were discovered in other cases where the plaintiff was compelled to disclose the governing CPA.138 Even without explicit control, a financier can have de facto control through various provisions. Indirect control is apparent through attorney-selection clauses139 and attorney “ombudsmen” provisions, which allow the financier to have an agent overseeing all litigation decisions.140 Further, the CPA could have a clause that requires the client to reimburse the financier for all litigation expenses if she rejects counsel’s advice to settle and ultimately loses at trial or accepts a subsequent settlement for less than the initial one.141 This would create a Hobson’s choice for the plaintiff who disagrees with its financier.

    Boling offers a glimpse of the Alchemist’s Inversion. Sysco v. Burford Capital reveals the full picture. In that case, an antitrust class action alleging price fixing was filed in 2016 on behalf of various injured parties, including Sysco, against more than a dozen chicken suppliers.142 Two years later, Sysco opted out of the class action and filed its own direct-action complaints.143

    Sysco’s causes of action were valuable but illiquid. Scott E. Gant at Boies Schiller Flexner was Sysco’s outside counsel at the time.144 Gant suggested that his client consider collateralizing its potential litigation-revenue stream.145 Burford Capital, a third-party financier, was willing to provide nonrecourse financing for the litigation in exchange for a portion of the ultimate recovery in the case.146 If the lawsuits failed to produce a damages award, Sysco owed Burford nothing.147 This financing proposal was particularly attractive because it could provide Sysco much-needed liquidity.

    In 2019, Sysco and Burford agreed to a CPA, pursuant to which Burford provided approximately $140 million to finance the antitrust litigation in return for a significant portion of any potential recovery Sysco received.148 The agreement established Burford and its affiliates as “passive providers of external capital” for the litigation.149 Sysco would make all key decisions and Gant would execute the company’s directives. This arrangement captured the historical dynamic between litigation-finance companies and their clients.

    In December 2020, however, the parties entered into an amended CPA, which was subsequently followed by additional amendments (collectively, the “New Sysco CPA”).150 These new provisions effectuated a subtle but dramatic shift. Under the revised agreements, Sysco was still deemed to have “control” over the antitrust litigation, but the new language gave Burford unilateral power to veto any settlement offer in the case.151

    In 2022, Sysco decided to settle the antitrust suits, and Barrett G. Flynn— Sysco’s associate general counsel—and Gant were able to reach tentative settlements in many cases. Flynn set up a conference call to tell Burford the good news.152 Unfortunately, representatives from Burford did not share Flynn’s excitement, informing him that the amounts were unreasonably low and would cause Burford to “lose hundreds of millions of dollars.”153 Invoking its power under the New Sysco CPA, Burford’s representatives informed Flynn that he was not allowed to settle the cases and instructed him to continue litigating.154 Flynn was shocked by the response and asked Gant to confirm that the settlement numbers were lucrative and reasonable under the circumstances. But Gant refused, stating that he agreed that Flynn had undervalued the claims.155

    Many attorneys scoffed at the notion that a litigation financier could veto a plaintiff’s good-faith decision to settle an action. But an arbitration panel ultimately ruled in Burford’s favor, finding that the New Sysco CPA afforded Burford a consent right to make “the initial determination on whether to accept or reject a settlement offer.”156

    Sysco—a Fortune 100 behemoth—was rendered helpless by a litigation-finance company that bludgeoned it with the provisions of a carefully drafted CPA.157 Burford cannot be described as opaque capital,158 but its dispute with Sysco crystalizes the power inherent in CPAs for those seeking control. Burford demonstrated that it could seize decision-making power in exceptional cases to protect its investment. Why not seize that power in all cases?

    A financier with enough leverage can dictate outcomes. Capital can be used to provide upfront funding to victims in exchange for these individuals signing a CPA in which they abdicate key decision-making authority in the case. The agreement could also be used to secure a suite of powers and privileges for the financier. If a significant number of claimants in an attorney’s claim inventory accepts this deal, the financier enjoys veto power over that collective; if the subset represents a large enough portion of the overall outstanding claims, the financier has an unknown blocking position in settlement discussions. Coupled with a potential funding relationship with counsel—not unlike what we saw with Mikal Watts and Centerbridge—the financier would have the power to control the contours and timing of settlement for their benefit rather than that of claimants. These dynamics highlight the crossholder’s luxury discussed in Part II, supra. Case control is certainly valuable to opaque capital, but to affiliated entities speculating on the stock price of corporate defendants, the nonpublic information that accompanies this power is perhaps even more valuable.159


    The Alchemist’s Inversion is the most important trend in mass-tort financing. Over the last few years, opaque capital has begun surreptitiously deploying an unregulated arsenal and asserting leverage at various process points in order to create and control mass-tort cases. The extent of distortion remains a mystery, but the ultimate effect on the judiciary and actual victims will be decidedly negative.

    This Essay offers a primarily descriptive treatment in order to spotlight the challenges posed by opaque capital. I argue that uncovering opaque capital’s objectives and arsenal helps clarify the dynamics and risks these new actors present. Insight into the opaque capital topography allows for a discussion of the measures necessary for systemic reform. Proposals may focus on (i) requiring disclosure of financing relationships, (ii) enhancing regulation of claims marshalling, (iii) imposing a fee to file a claim, (iv) reassessing the ways courts and attorneys verify claims, or (v) imposing fiduciary duties on financiers. Perhaps more than a few systemic changes are necessary to address the multi-faceted issues in this space.

    Professor of Law, Lewis & Clark Law School. For helpful comments and conversations, I am grateful to John Abegg, Suneal Bedi, John Beisner, Andrew Bradt, Elizabeth Cabraser, Sergio Campos, Zachary Clopton, Alex Dahl, Page Faulk, Peter Gardner, Maria Glover, Alexi Lahav, Lily Jamali, Jessica Lauria, Hon. Dennis Montali, Edward Neiger, Leigh O’Dell, Billy Organek, Robert Rasmussen, Emily Siegel, Brennan Torregrossa, and participants at Northwestern Pritzker School of Law’s Contemporary Issues in Complex Litigation Conference. I also want to thank members of the Yale Law Journal for their helpful comments and corrections. Finally, I thank my family for their unwavering support.