Column: Litigation funder's lawsuit exposes underside of mega class actions
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Oct 24 (Reuters) -I write all the time about class actions and multidistrict litigation. Class action complaints, dismissal motions, expert testimony, class certification, fee awards–they're all issues I've covered.
But a new lawsuit in Delaware Chancery Court has me wondering if I’ve failed to heed what appears to be an expanding segment of the class action ecosystem.
The plaintiff is an entity called CoreStream Capital, which was founded in January 2024 to purchase claims from class members in a 2019 $5.5 billion antitrust settlement with Visa and MasterCard.
The defendant is Managed Care Advisory Group, which describes itself as a “class action settlement recovery company.” CoreStream alleges that MCAG breached a deal to supply the litigation financier leads to class members interested in selling their claims rather than waiting for the long-gestating settlement to wrap up. (The claims deadline is in February 2025.)
CoreStream’s lawyers at Potter Anderson & Corroon claim in the complaint that MCAG agreed to introduce the claims purchaser to 200 of its “top clients” every 10 days and to vouch for CoreStream if MCAG clients asked about selling their claims. But according to CoreStream, MCAG didn’t follow through with the promised introductions, connecting the claims purchaser with only one member of the Visa/MasterCard class.
CoreStream also claims that when it made offers to other class members, the merchants said MCAG had estimated much higher payouts for them. CoreStream said in its complaint that if MCAG was, in fact, providing estimates to class members about their prospective recovery, it was violating its own rule against making such promises about settlement payouts that will ultimately be affected by the class participation rate and other factors.
CoreStream did not say whether it paid MCAG anything up front but said that their deal called for MCAG to receive a portion of CoreStream’s revenues from the claim purchasing program.
Neither CoreStream nor its lawyers responded to my email queries. CoreStream did not answer the phone at its Florida headquarters.
MCAG, which is represented by Blank Rome, declined to comment on the lawsuit but sent me a two-page memo on the benefits for class members that use MCAG to file their claims. In essence, it said, class members can avoid the hassle of filing their own claim and the risk of receiving less than they are entitled to by using MCAG’s contingency-fee services.
“By partnering with MCAG, class members can ensure their claims are handled by experts, allowing them to focus on their business or personal priorities while maximizing their recovery from class action settlements,” the company said.
It’s not news to me or anyone else who follows class actions and multidistrict litigation that there is a secondary market for claims. To cite just a few examples over the last 15 years, mass torts plaintiffs, pro football retirees, September 11 victims and defrauded Bernie Madoff clients have all been targeted by litigation funders offering immediate cash payments in exchange for claimants' anticipated payouts from global settlements.
I’m also aware of the existence of claims facilitators, thanks in part to my Reuters colleague Mike Scarcella, who earlier this year reported on a spate of fraudulent claims filed by Milberg Coleman Bryson Phillips Grossman in the Visa/MasterCard case. Milberg is not class counsel in the case, which is led by Robbins Geller Rudman & Dowd; Robins Kaplan; and Berger Montague. But it filed more than 115 fake claims on behalf of merchants it did not actually represent. (As Scarcella reported in July, Milberg blamed a “referral source" and averted sanctions by U.S. Magistrate Judge Joseph Marutollo of Brooklyn.)
I was nevertheless not aware of the scope of the claims-facilitator industry until – inspired by the CoreStream complaint – I took a closer look at the official, court-approved Visa/MasterCard settlement website operated by settlement administrator Epiq.
Epiq’s website makes clear that class members can file their own claims and don’t need an outside lawyer or facilitator to do so. But these facilitators have become so prevalent in the Visa/MasterCard case that Epiq has a whole page linking to court filings about third-party claim filers, including monthly reports by class counsel on facilitators that appear to violate a 2018 court order requiring these companies to follow a set of specific rules designed to protect members of the Visa/MasterCard class.
The monthly reports are dispiriting, to say the least. They reveal a litany of misleading websites and advertisements by businesses trying to seize a piece of a megafund settlement they had no role in obtaining. The most recent report, for instance, described three websites designed to look like the official settlement site but were “riddled with errors, false statements [and] invented merchants giving false testimonials.”
The sites all traced back to a claims facilitator called Certificate Clearing Corp, which also happens to be cited in CoreStream’s complaint as a competitor in the claims-buying business. (CCC, which agreed to shut down the websites and send notices to about 460 merchants who signed up on the sites, did not respond to my query.)
I absolutely don’t mean to suggest that every claims facilitator is breaking the rules. As MCAG said in its statement, class members may have good reasons to rely on businesses that specialize in maximizing recoveries from class action settlements. The September report from class counsel said their recent teleconference with these third-party claims filers was attended by 127 participants, the vast majority of which have not been accused of wrongdoing.
The report also said that at least 550,000 class members have filed claims through third-party facilitators. We don’t know the entire universe of claims in a case where the class is estimated to include more than 12 million retailers. But I was taken aback by the number of claims facilitators involved in the Visa/MasterCard case and the raw number of class members paying fees to these third parties.
That’s big business -- and now, thanks to CoreStream’s lawsuit, we also know claims facilitators may have an opportunity to make even more money by teaming up with litigation funders.
Read more:
Law firm Milberg skirts sanctions over fake claims in credit card fees case
Law firm defends work in $5.6 bln card fee case after disclosing fake claims
(Reporting By Alison Frankel)
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