We’ve blogged a number of times about how litigation funding arrangements collide with various ethical and statutory obligations owed by either the funders or the lawyers they fund. But when the New York Times reported on the questionable funding arrangements that have occurred in Pelvic Mesh litigation in its 2018 article, “How Profiteers Lure Women Into Often-Unneeded Surgery,” we knew that something more was going on. Since, as the article revealed, “[p]eople are claiming the Fifth,” then an investigation of possible criminal activity was a definite possibility.
Now that’s happened.
Last month, the United States Attorney’s office in the Eastern District of New York (that’s Brooklyn) dropped a major indictment against a surgeon and a litigation funder concerning some of the misconduct reported in the New York Times. United States v. Barber, Cr. No. 19-0239 (filed May 23, 2019) (docket on PACER here).
The surgeon allegedly performed procedures on Pelvic Mesh plaintiffs that were solely for the purpose of increasing the settlement value of their lawsuits over their mesh implants. Indictment ¶¶1, 5(a), 5(c). The surgeon also “paid kickbacks and bribes in exchange for . . . referral of patients.” Id. ¶5(d). The indictment also recites dates, and amount of the payments for, three of the fraudulent surgeries.
The litigation funder allegedly “facilitated the coordination of removal surgeries and purchased and resold [the plaintiffs’] medical debts for profit.” The funder appears to be the key to how this scheme operated.
[T]he conspiracy facilitated the identification of victims − women throughout the United States who had the mesh insert . . . and might have been willing to undergo removal surgeries and commence lawsuits against the manufacturer of the mesh.
Indictment ¶5(a). It will be interesting to find out exactly how this “identification” occurred. Medical records are confidential under federal law (HIPAA), and deliberate violation of this confidentiality could be a whole new area of criminal charges.
Once the Victims were identified, individuals associated with medical funding facilitators . . . contacted the Victims to determine whether the Victims would . . . undergo removal surgeries. To entice the Victims to undergo a removal surgery that would lead to a higher settlement payment . . . , the defendants, together with others, falsely and fraudulently (i) described the risks of the [mesh] implants and the need for removal of the [mesh] implants, (ii) strongly implied that the women would need to travel out of state to use pre-selected doctors . . ., and (iii) misled the Victims about their ability (or inability) to rely upon their health insurance to cover any medical expenses associated with the removal surgery.
Id. So the litigation funders, according to the indictment: (1) scared these would-be plaintiffs by exaggerating the risk of the mesh, (2) told them that their lawsuits would be worth more with an explant, (3) encouraged them to hide what they were doing from their real doctors and health insurers, and (4) set them up with “pre-selected” surgeons who could be relied on – for a fee − to say what was necessary to maximize the settlement payout.
[The litigation funders] financed the removal surgeries for the Victims, either through Contingent Loans or by purchasing Medical Debts. Certain agreements entered into by the Victims included provisions in which the women agreed to repay the costs of the removal surgery plus interest, which accrued at exorbitant rates, if the women ultimately received a settlement or favorable judgment against the mesh manufacturer. In certain funding arrangements, the Victims were responsible for the medical bills associated with the removal surgeries even if they did not receive a settlement.
Indictment ¶5(b). Litigation funding by way of usurious “contingent loans”? Where have we heard that before? Try Colorado and Kentucky. Oasis Legal Finance Group, LLC v. Coffman, 361 P.3d 400 (Colo. 2015); Boling v. Prospect Funding Holdings, LLC, ___ F. Appx. ___, 2019 WL 1858506 (6th Cir. April 25, 2019). See also National Football League Players’ Concussion Injury Litigation, 923 F.3d 96, 112 (3d Cir. 2019) (mentioning “issues of unconscionability, fraud, or usury based on the high effective interest rates in the agreements”). And these are just the ones we know about. Litigation funders have fought tooth and nail against disclosure requirements that would prevent this kind dirty deeds (not done dirt cheap) from happening in the first place.
[O]nce surgical funding was secured, the Victims were contacted again and arrangements were made for the women to travel to visit a doctor who would perform the removal surgery (often by traveling hundreds of miles and with very little consultation in advance of the surgery).
These alleged facts give rise to the following criminal charges: (1) Wire fraud conspiracy – yes, emails count even though “wires” are anachronistic; (2) Wire fraud – three counts, one for each of the “victims” mentioned in the indictment. (3) Travel Act conspiracy – inducing the “victims” to cross state lines for “unlawful” purposes; and (4) Travel Act violation – the “bribes and kickbacks” paid to facilitate the surgeries.
Really, though, aren’t the mesh manufacturers also “victims”? There has to be money in the first place, before a “funder” could connive to steal it. The manufacturers are the ones intended to pay out inflated settlements that provided “money and property” that these alleged crooks ultimately “obtained.” Id. ¶9.
In addition the government is seeking criminal forfeiture of all “proceeds” of the above criminal activity “obtained directly or indirectly.” Id. ¶¶12-14. Apropos of the prior paragraph, if there is to be forfeiture, then any money that litigation funders received that was contingent on a manufacturer settlement ought to be returned to the manufacturers, since they were the ones that the funders’ activities actually cheated. The supposed “victim” plaintiffs just went along for the ride, hoping for a bigger payout for themselves.
According to the PACER docket, both of the defendants were arrested on May 24, 2019.
To add insult to the public’s injury, the litigation funder now claims to be impecunious and had a public defender appointed. See PACER Docket #5 (described as “Rule 5(c)(3) documents received”). Where did all the money mentioned in the New York Times article go? If we had mandatory disclosure of litigation funding agreements, then we might know, but we don’t. It will take these criminal proceedings (including forfeiture) to track it down.
Do all litigation funders engage in making usurious loans under false pretenses, as alleged here? We seriously doubt it. But, again, without disclosure, nobody can be absolutely sure. If litigation funding ever hopes to be as “respectable” as ordinary insurers, then that will require the same sort of routine disclosure that, as with insurance, keeps everything on the up and up through the disinfecting power of transparency.