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.
When a claimant and a litigation funder agree that a case merits further consideration, the next step in the funding process is typically the issuance of a term sheet. Term sheets are familiar instruments in finance, M&A, and investment transactions. In litigation finance, they serve a similar function: outlining the key economic and structural terms of a proposed funding arrangement before the parties incur the time and expense of full diligence and documentation. Most litigation finance term sheets are short—often just a few pages—and non-binding. They are designed to confirm alignment on the principal terms of a transaction, not to finalize it. What a Term Sheet Is — and Is Not A term sheet is not a funding agreement. It does not obligate either party to proceed with a transaction. Instead, it provides a framework for diligence and negotiation by identifying the essential elements of a proposed deal. At a minimum, a litigation finance term sheet typically addresses: The parties to the proposed transaction The specific claims or cases to be funded The amount of capital to be committed How that capital will be used How proceeds will be distributed if the case resolves successfully While many provisions are later refined, the term sheet sets expectations that shape the remainder of the process. Scope of Funding One of the first items addressed is the scope of the funded matter. The term sheet will identify which claims or cases are included—particularly important where a claimant or law firm submits a portfolio for consideration. Not every case under review necessarily meets a funder’s underwriting criteria, and the term sheet should make clear which matters are included and which are not. Amount and Use of Capital The term sheet will specify the total amount of capital the funder proposes to commit and how that capital is allocated. In most funded matters, capital is earmarked for: Legal fees , often funded in part, with the law firm responsible for the balance (e.g., 50% of its fees) and subject to a cap. The law firm is typically responsible for all fees incurred above the cap. Case expenses , such as experts, discovery vendors, and court costs, often funded at a higher percentage but also subject to a cap. The claimant is usually responsible for all case expenses incurred above the cap. Claim monetization / working capital , in appropriate cases. This is non-recourse financing that may be used by the claimant for general corporate purposes, secured by the funded matter. The term sheet allocates both the amount of fees and costs, and responsibility for costs incurred above agreed caps. These provisions underscore the importance of a realistic litigation budget, as overruns are typically borne by the law firm or claimant rather than the funder. Returns and Waterfalls A central feature of any term sheet is the return structure—how proceeds will be distributed if the case resolves successfully. Most term sheets include a waterfall, a priority-based distribution mechanism commonly used in finance. While structures vary, waterfalls typically provide that: Funders recover their deployed capital before profits are distributed Law firms may recover deferred fees or earn contingent compensation Claimants receive the balance of proceeds, often representing the largest share of the recovery The precise sequencing and economics depend on the risk profile of the case, the amount of capital deployed, and the parties’ respective contributions. Importantly, waterfalls matter most in downside or mid-range outcomes. In strong recoveries, the parties often reach their target economics well before the waterfall’s final tiers come into play. Additional Common Provisions Term sheets may also address: Transaction or underwriting fees payable upon closing Exclusivity periods during diligence Rights of first refusal relating to future matters Circumstances under which either party may withdraw, and whether withdrawal results in a break fee payable by the claimant. These provisions are typically refined during diligence and documentation but are useful to surface early. From Term Sheet to Funding Agreement After a term sheet is executed, funders usually enter an exclusivity period—often 30 to 45 days—during which they conduct comprehensive diligence and negotiate a definitive funding agreement. That agreement, not the term sheet, governs the parties’ rights and obligations. Understanding the term sheet, however, is essential to navigating what follows. Closing Thought A well-drafted term sheet does not merely summarize economics. It reflects a shared understanding of risk, incentives, and strategy at an early—but critical—stage of the litigation. Approached thoughtfully, the term sheet process can set the foundation for a productive funding relationship aligned with the goals of both counsel and client.
Our legal system has long recognized that candid communication between client and counsel is essential to the fair administration of justice. The U.S. Supreme Court has recognized that the attorney-client privilege has a noble purpose—“to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice.” The same is true of the work product doctrine: the Supreme Court has recognized that it protects against “unwarranted inquiries into the files and the mental impressions of an attorney,” and that “the interests of the clients and the cause of justice would be poorly served” if the work-product doctrine were violated. These doctrines exist for a simple reason. Clients must be able to share complete and unvarnished information with their legal representatives in order to receive sound advice and effective representation. Attorney–client privilege and work-product protection are the legal mechanisms that make that possible. Extending Confidentiality to Litigation Funding As litigation finance has become a more established feature of the civil justice system, courts have increasingly recognized that communications between litigants and litigation funders warrant similar protection from disclosure. Courts have generally rejected attempts to obtain discovery into communications between funded parties and their capital providers, recognizing that confidentiality is essential to securing the resources necessary to retain top-tier counsel and prosecute complex claims. In this way, confidentiality in the funding process serves the same systemic function as privilege itself: it preserves access to justice. The Critical First Step: Non-Disclosure Agreements The foundation for protecting confidentiality in the funding process is laid at the very beginning of the relationship. Before any substantive information is exchanged, claimholders and prospective funders should enter into a non-disclosure agreement (NDA). An NDA establishes clear ground rules for how sensitive information will be treated and helps ensure that communications made during diligence do not later become targets of discovery. NDAs promote precisely the “full and frank communication” the Supreme Court has deemed essential to effective legal representation. They allow parties to speak openly while reducing the risk that defendants will later argue—often opportunistically—that confidentiality has been waived. Key Components of an Effective NDA: 1. A Precise Definition of “Confidential Information” At the core of any NDA is a clear definition of what constitutes confidential information. Most litigation finance NDAs are mutual, protecting information shared by both the claimholder and the funder. They may be limited to a single matter or drafted broadly to cover multiple cases under evaluation. Information shared under NDAs typically include: • Case theory and legal analysis • Evidence and documentation • Financial models and damage calculations • Settlement discussions and valuation • Funding terms and negotiations NDAs also typically exclude information that is already public or independently known to the receiving party. 2. Information Sharing Protocols. Effective NDAs address how confidential information may be shared in the ordinary course of diligence. They usually permit disclosure to affiliated entities, outside diligence counsel, and potential investors—provided those recipients are bound by confidentiality obligations at least as protective as those in the NDA itself. This allows funders to conduct thorough diligence without compromising the claimant’s confidentiality interests. 3. Provisions Tailored to the Litigation Context. Litigation finance NDAs often include provisions that would be unusual in a generic commercial NDA. For example, they may acknowledge that the parties share a common legal interest in the litigation, reinforcing arguments against waiver. They also typically allow disclosure if required by court order or law. Because of these litigation-specific considerations, experienced funders generally rely on bespoke NDAs rather than off-the-shelf templates. Moving Forward with Confidence NDAs rarely require extensive negotiation. In most cases, they reflect a shared understanding that confidentiality is a prerequisite to meaningful engagement—not a point of contention. When thoughtfully drafted and properly used, NDAs serve as the essential first step in a collaborative process aimed at evaluating risk, allocating capital, and pursuing a fair resolution on the merits. At Certum, we treat client information with the same seriousness we bring to legal and financial risk. Our approach to litigation finance is grounded in both capital discipline and information security—making us trusted partners throughout the litigation journey.