Exposing the underbelly of mass torts litigation

May 24, 2016

(Reuters) – On Monday, Harris County Judge Jeff Shadwick of Houston agreed to stay most discovery in a Vietnamese seafood industry worker’s fraud and conspiracy case against two noted Texas plaintiffs’ lawyers, Robert Hilliard of Hilliard Munoz Gonzales and John Cracken of the Cracken Law Firm.

That’s a shame. The worker, represented by the Tammy Tran Law Firm, alleges that Hilliard and Cracken secretly put up a combined $10 million to fund another Texas plaintiffs’ lawyer, Mikal Watts, when Watts hired investigators to drum up client leads after the 2010 BP Deepwater Horizon oil spill. Watts eventually brought claims against BP on behalf of about 40,000 seafood workers – almost all of whom turned out to be phantom clients. The workers either didn’t exist (one, famously, was actually a dog) or hadn’t authorized Watts’ firm to represent them.

Watts and several other people, including the investigators who supposedly fabricated his client list, have been indicted for attempting to defraud BP and the courts. They are scheduled for trial in July in federal court in Gulfport, Mississippi. Watts, who will be acting as his own defense counsel at the trial, has denied he or anyone else from his office knew their BP docket was a sham. “Generally, in mass tort cases, lawyers representing thousands of clients do not personally meet with, investigate and sign up the case of each individual client,” Watts and his former criminal defense lawyer said in a statement last October. “In the BP oil spill matter, the Watts firm clients were processed by an outside field team.”

The government’s indictment alleges that the outside field team was funded by two other lawyers who wanted a piece of the Watts docket. One invested $3.1 million, the other $7.8 million that was, in turn, supplied by a Texas businessman who regarded the BP litigation as an investment opportunity.

The indictment does not name the lawyers who funded Watts’ client expedition, but Tammy Tran, who represents workers who claim Watts misappropriated their identities, told me in March that she learned the lawyers’ identities from a criminal defense lawyer involved in the Watts prosecution. At the time, lead counsel for Hilliard and Cracken, Richard Mithoff of the Mithoff Law Firm, refused to confirm that his clients funded Watts.

It is now beyond dispute, though, that the two lawyers were somehow involved with Watts. Their motion to stay Tran’s civil suit discloses that Cracken and Hilliard will be called to testify this summer at Watts’ criminal trial. The stay motion uses the passive locution that the lawyers “have been notified” so it’s not clear whether Cracken and Hilliard will be witnesses for the government or for Watts at the Watts trial in Mississippi.

Cracken and Hilliard persuaded the judge in the Houston civil suit to delay most discovery until after he rules on a motion by Cracken and Hilliard to move the case to their home turf in Corpus Christi, Texas. For now, the Vietnamese workers who want to blame Cracken and Hilliard for supposedly enabling Watts’ misuse of their identities will have to wait to find out if evidence backs their accusations.

Why do I say that’s a shame? Because the civil case has the potential to expose the usually unseen mechanics of investing in mass tort litigation. At Watts’ criminal trial, the main event will be the extent to which he and his firm knew their docket was full of ghost claims. Cracken, Hilliard and their alleged investment in Watts’ BP claims will be, at most, a side issue.

But I’ve become increasingly convinced that mass tort litigation funding is profoundly influencing big personal injury cases. Look at the litigation over pelvic mesh, the biggest case – in terms of the raw number of plaintiffs – since asbestos. As my colleague Jessica Dye and I have been reporting for several months, the mesh litigation attracted all kinds of non-lawyer marketers, doctors and funders who saw an entrepreneurial opportunity in claims by women allegedly injured by the devices. Most recently, we reported that one mesh defendant is now claiming it has evidence of a sweeping conspiracy to lure women into needless surgery so that litigation funders could realize bigger returns when their cases settled.

And it’s not just humongous cases like the BP oil spill and the pelvic mesh litigation that have become investment vehicles. Take a look at an article that ran Tuesday in Investment News, discussing platforms for hedge funds and even individual investors to inject capital into personal injury suits. As plaintiffs’ lawyers themselves, Cracken and Hilliard were early to understand the potential upside from investing in Watts’ BP claims (assuming, of course, that they are indeed the unnamed lawyers in the BP indictment). But lots of non-lawyers have now seen the same light.

Maybe outside funding of personal injury claims is a good thing. The vast majority of people who are injured by, say, drugs and medical devices do not bring claims. Proponents of litigation funding argue that additional capital will enable more plaintiffs with legitimate injuries to become aware of litigation and find lawyers to prosecute their cases. Opponents say, of course, that outside money will lead to unfounded claims and further attenuate the relationship between lawyers and their clients. This is a hugely important discussion, especially with nearly 40 percent of all civil litigation in federal court taking place in multidistrict cases in which individual clients have little control over events.

The Houston litigation against Cracken and Hilliard might have added to our understanding of mass torts funding, but not without discovery. Too bad.

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