Columbia Law School’s blog on corporations and the public markets, The CLS Blue Sky Blog, recently featured the scholarly work on litigation finance written by Indiana University Business School Professor Suneal Bedi and Certum’s William C. Marra. In their blog post, Bedi and Marra discuss their article Litigation Finance in the Market Square , which was recently published in the Southern California Law Review. Their work reframes litigation finance as a capital markets innovation rather than solely a civil justice mechanism. While much of the public debate has centered on questions of disclosure, control, and settlement incentives, Bedi and Marra emphasize that legal claims often represent significant but illiquid contingent assets on a firm’s balance sheet. When policymakers regulate litigation finance, they are regulating not just the legal business but the capital markets. And they are regulating capital markets in a way that is more likely to harm small and medium-sized enterprises (SMEs) while protecting large companies from competition. The full blog post is available here.
You signed an NDA and shared case materials with your funder. Then you negotiated and signed a term sheet . Now it’s time to negotiate the litigation funding agreements. Funding agreements sit at the intersection of law, finance, and business. They’re not equity transactions, and they’re not debt transactions either. For most people, they’re new: Most funded parties we encounter—even the most experienced operators—have never before negotiated or signed a funding agreement. Here are some tips as you navigate the funding agreement process. Make Sure the Funding Agreement Tracks the Term Sheet The term sheet sets the commercial deal, but the funding agreement is the binding contract. The funding agreement should accurately reflect the economics and key terms you agreed to. Pay close attention to ensure the return structure, waterfall, and budget closely track what was agreed to in the term sheet. Small deviations from the term sheet can have big economic consequences. Confirm that the final agreement memorializes the deal you negotiated. Control and Decision-Making Litigation funders do not control litigation strategy or settlement decisions. Some court rules, including those in the District of New Jersey , request a disclosure that a funder’s approval is not necessary for case strategy or settlement. Certum’s contracts expressly disclaim control. Consider whether an express disclaimer of control, frequently tracking the language of the District of New Jersey rule, is appropriate. As repeat players in the litigation space , litigation funders can and do still provide valuable advice to funded parties, who are often involved in their first and only litigation. Thus although funders cannot control litigation, funded parties typically consult with funders for advice during the course of the litigation. Define “Case Proceeds” Clearly Litigation funding agreements are typically non-recourse, which means the funder recovers only if there are case proceeds. So the definition of “case proceeds” is quite important, and it’s something you should pay close attention to. Cash recoveries are straightforward, but not all litigations resolve solely or exclusively for cash. What happens if there is a non-cash settlement—for example, if the funded party receives stock, real estate, IP rights? What happens if the settlement is structured as a payment over time? Or if there is a sanctions award entered against the defendant? It’s best to address all these issues ex ante at the time of the funding agreement. Funding agreements typically provide a mechanism for valuing consideration other than an immediate payment of cash from the defendant to the plaintiff. Resolving this issue today can help avoid ambiguity tomorrow. Address Other Customary Provisions Several boilerplate provisions deserve attention: Representations and warranties: As with all financial transactions, the recipient of funds needs to provide certain customary representations and warranties. Make sure you study those reps and warranties, to ensure you can stand behind them. Termination rights: When can the funder withdraw? Funders typically have termination rights, for example in instances where the funded party commits a material breach of the agreement. Make sure you understand the consequences of a termination. Consider Hiring Experienced Deal Counsel Litigation funding agreements are specialized contracts. They combine elements of finance, litigation, and insurance. Most generalist lawyers—and even many litigators—have never negotiated one. Certum typically recommends that funded parties retain an independent deal counsel who understands the funding market. Experienced advisors can streamline the process and increase the likelihood that the deal will close. And you can typically negotiate with the funder to have the deal counsel’s fees covered as a closing cost of the investment.
When Americans think about civil litigation, we tend to imagine its bilateral form: Company A sues Company B, or John Roe sues Jane Doe. That model works when disputes are discrete, parties are evenly matched, and harms are easily traced. It breaks down, however, when injuries are widespread, claims are too small to justify individual pursuit, and thousands of plaintiffs confront a single, well-resourced defendant. Those conditions gave rise to what we now call mass actions—procedural mechanisms that aggregate claims without extinguishing individual rights. This post traces the evolution of American mass actions from their equitable origins, through Rule 23 class actions, to the modern dominance of multidistrict litigation (“MDL”). Its purpose is to explain how, across each stage of its development, the system moved and evolved in order to tackle the same core problem: how to capture the efficiencies of collective adjudication while preserving individualized justice. The Equitable Origins of Mass Actions For roughly the first 150 years of American civil practice, what we would now recognize as class actions existed in equity, borrowing from English Chancery traditions. Former Equity Rule 48 permitted representative litigation where a common or general interest affected a class so numerous that joinder was impracticable. Courts used these bills in equity to cluster related claims, creating an early—if imperfect—form of aggregation. These tools, however, were ill-suited to large-scale disputes. Among other things, they offered no uniform standard for representation, limited mechanisms for managing individualized issues, and little guidance for balancing efficiency against fairness, including whether absent parties would be bound. As collective harms grew larger and more complex, these limitations became more pronounced. The Adoption of Rule 23 and the Birth of the Class Action The adoption of Federal Rule of Civil Procedure 23 in 1938 marked a turning point. Rule 23 replaced ad hoc equitable practices with a codified framework defining when a small number of plaintiffs could litigate on behalf of many. Rule 23 introduced a new codified framework in 1938, later refined by the 1966 amendments into today’s familiar certification requirements—numerosity, commonality, typicality, adequacy, predominance, and superiority—meant to ensure that aggregation serves both efficiency and fairness. Rule 23 works best where common questions truly drive the case. But as mass disputes expanded—particularly in products liability and antitrust—its limitations became apparent. Variations in exposure, injury, causation, damages, and governing law strain the class model. Under Rule 23(b)(3), courts certify a class only if common questions predominate—a demanding standard that frequently defeats certification in mass torts. Beyond doctrine, this mismatch raises fairness and due-process concerns, as aggregation risks resolving individualized questions of liability and damages through procedural shortcuts ill-suited to protect either side’s substantive rights. The Creation of the JPML and the Rise of the MDL Congress responded in 1968 by creating the Judicial Panel on Multidistrict Litigation. That structure authorizes transfer of civil actions with common factual questions to a single federal court for coordinated pretrial proceedings. Unlike class actions, MDLs preserve the separateness of each plaintiff’s case while centralizing work that benefits from scale, including motions to dismiss, summary judgment, and Daubert proceedings. In practice, transferee judges appoint leadership counsel, coordinate discovery, resolve common dispositive and evidentiary motions, conduct bellwether trials, and facilitate global settlement discussions. The MDL’s central innovation is procedural coordination without substantive consolidation. Each plaintiff formally retains an individual claim, remedy, and trial right, while the system avoids duplicative rulings and inconsistent outcomes and preserves Article III adjudication of individual disputes. Amchem, Ortiz , and the Limits of Settlement-Only Class Actions Supreme Court decisions in Amchem Products, Inc. v. Windsor and Ortiz v. Fibreboard Corp. sharply limited the availability of settlement-only mass tort class actions . The Court held that Rule 23’s requirements apply with full force even when certification is sought solely to effect a global settlement, emphasizing rigorous scrutiny of adequacy, predominance, and intra-class conflicts in heterogeneous litigations. In other words, settlement convenience could not cure structural mismatches between the class device and the individualized nature of mass tort claims. These decisions did not eliminate class actions. But they underscored why mass torts rarely fit comfortably within them—and why MDLs emerged as the system’s primary alternative. Their practical import was to effectively close the door to using Rule 23 as a vehicle for mandatory, one-shot global peace in tort, channeling resolution toward MDL-based private ordering—bellwethers, negotiated matrices, and opt-in inventory settlements—while preserving each plaintiff’s trial right. They also shifted innovation elsewhere: toward issue classes under Rule 23(c)(4) , parens patriae actions by sovereigns, and, in some instances, bankruptcy or “Texas two-step” strategies to obtain non-class global resolutions—developments that further entrenched the MDL as the central forum for mass tort resolution. Why MDL Endures MDL’s durability reflects institutional alignment rather than doctrinal accident. For plaintiffs, MDLs offer scale—shared discovery, coordinated motion practice, and settlement leverage—without forfeiting individual claims or trial rights. For defendants, they provide predictability and efficiency by centralizing pretrial proceedings, reducing duplicative costs, and mitigating inconsistent rulings across jurisdictions. For courts, MDLs conserve scarce judicial resources while preserving adjudicatory limits by restricting consolidation to the pretrial phase. For the justice system, MDLs supply a flexible framework that absorbs heterogeneity without collapsing into either unmanageable fragmentation or overinclusive aggregation. That convergence explains why the MDL has become the default architecture for modern mass tort litigation—and why it has proven resilient despite critique. The Design Challenge That Endures Modern practice selects among procedural tools based on fit. Class actions remain essential where common issues predominate. MDLs dominate where common facts justify coordination but individualized harms demand separation. Together, these mechanisms keep the civil justice system workable—and meaningful—when harms scale beyond the individual case. The enduring challenge is deploying these tools with discipline, judiciously retaining the benefits of individual justice, while capitalizing on the benefits of aggregation.