By Darren Heitner
It may be hard to believe, but the litigation against the National Football League that concerned damages related to sustaining head injuries began almost eight years ago, in August 2011. While a broad settlement was reached on May 8, 2015, to the tune of $1 billion, the fighting surrounding payout of the monies promised to injured players and their spouses remains an important issue in 2019.
One ancillary dispute that involved the NFL concussion settlement revolved around cash advance agreements that many players and spouses entered into with third party litigation funders. Plaintiffs agreed to receive sums of money up-front in exchange for promising these litigation funders more money than their investments, down the line. Many plaintiffs were able to justify receiving cash, at a reduced amount, based on the likelihood that it would take years for any claims to be paid out by the NFL.
Typically, contracts are enforceable if they are compliant with relevant statutes and entered into by parties without coercion or duress. However, Judge Anita Brody, who had overseen the multi-district litigation surrounding the NFL concussion cases, made a ruling in December 2017 that invalidated the assignment agreements between the litigation funders and the plaintiffs. Judge Brody issued her order, essentially relying on public policy and a clause within the overall settlement agreement. She stated a concern that the plaintiffs were vulnerable and taken advantage of by predatory funding companies.
Judge Brody’s ruling could have had a very negative effect on the bottom lines of those companies that laid out money to the plaintiffs in the NFL concussion litigation. It could have also set a precedent that would have created many questions surrounding the extent to which a court of law can influence the enforceability of contracts entered into by third parties who are not attached to a lawsuit.
In what was probably a positive ruling for contract law, in general, the Third Circuit Court of Appeals reversed Judge Brody’s ruling on April 26, indicating that Judge Brody “went too far in voiding the cash advance agreements in their entirety and voiding contractual provisions that went only to a lender’s right to receive funds after the player acquired them.”
The Third Circuit sought to analyze an anti-assignment provision in the NFL concussion litigation settlement agreement. That provision states as follows:
Neither the Settlement Class nor any Class or Subclass Representative or Settlement Class Member has assigned, will assign, or will attempt to assign, to any person or entity other than the NFL Parties any rights or claims relating to the subject matter of the Class Action Complaint. Any such assignment, or attempt to assign, to any person or entity other than the NFL Parties any rights or claims relating to the subject matter of the Class Action Complaint will be void, invalid, and of no force and effect and the Claims Administrator shall not recognize any such action. Section 30.1 of the NFL Concussion litigation settlement agreement.
Did the assignment of settlement proceeds violate the aforesaid provision? Judge Brody said yes, but the Third Circuit said no, on appeal. The court of appeal’s opinion was that the district court exceeded its authority by voiding the cash advance agreements in their entirety.
The problem with Judge Brody’s ruling is that it simply stretched too far. The Third Circuit did not seem to have a problem with restricting litigation funders from stepping into the shoes of the plaintiffs if the plaintiffs were assigning claims rights to the funders. However, the Third Circuit distinguished that there was no foundation to go a step further and preclude the litigation funders from simply being assigned the rights to some of the proceeds.
The Third Circuit stated that, “although true assignments, which allow a litigation funding company to step into the shoes of a class member and pursue the class member’s rights through the claims process, would clearly violate the anti-assignment provision and would affect the administration of the settlement, something less than a true assignment may not.”
This may not be the end to challenges related to the enforceability of the cash advance agreements, but those will likely be resolved in private arbitrations where the plaintiffs may assert standard contract defenses, if they have any. A lack of capacity to enter into a contract defense may be used by some of the players who entered into the cash advance agreements.
Darren Heitner is the creator of The Sports Biz (https://www.thesports.biz/). He is the owner of the South Florida-based HEITNER LEGAL, P.L.L.C., which is a law firm that focuses on transactional, intellectual property and litigation work with a heavy emphasis on sports and entertainment issues. He is also the founder of Sports Agent Blog and an author of two books published by the American Bar Association — How to Play the Game: What Every Sports Attorney Needs to Know (1st and 2nd Editions). Heitner contributed to Forbes and Inc. for many years.