Last month, drug manufacturers Johnson & Johnson and Bayer Pharmaceuticals filed a motion in Philadelphia County Court of Common Pleas to compel plaintiff counsel to disclose whether their litigation against the makers of Xarelto is being financed by outside interests.
They want to know if any third party “has the right to control or be consulted about the plaintiffs’ litigation and whether there is a third-party source of funding for the plaintiffs’ litigation,” in addition to seeking the identities of any such funders and production of documents detailing any agreements involving same.
It's not an idle question. Pennsylvania has a law against third-party financing of lawsuits. The financing of someone else’s litigation in exchange for a share of the settlement is considered a crime, the crime of champerty.
The negative effects of champerty and the bad incentives it creates are well-documented and have been known for centuries.
Nevertheless, it has its appeal for attorneys hoping to profit by it without being challenged and held accountable. The idea of discouraging frivolous lawsuits, protecting the integrity of our judicial system, and keeping unscrupulous lenders from preying on potential plaintiffs is of no concern to them.
But champerty is illegal in Pennsylvania, and a state appellate court overturned a decision last year because of it.
“Under Pennsylvania law, if an assignment is champertous, it is invalid,” the Superior Court noted in WFIC, LLC v. Labarre. “The requisite elements of champerty have all clearly been met.”
The court emphasized that the financiers in question were “completely unrelated parties who had no legitimate interest” in the issue at trial and that they “loaned their own money simply to aid in the cost of the litigation, and in return were promised to be paid ‘principal, interest, and incentive’ out of the proceeds of the litigation.”
If the attorneys suing Johnson & Johnson and Bayer have a similar funding arrangement, any judgment they obtain against the companies can and should be invalidated.
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