Litigation funding deal threatens class action over US college financial aid

By Mike Scarcella

WASHINGTON, March 19 (Reuters) - An undisclosed litigation funding arrangement is threatening to derail a proposed class action accusing elite U.S. universities of suppressing competition for financial aid and favoring wealthy students in admissions.

The controversy over how the case is being financed emerged as U.S. District Judge Matthew Kennelly in Chicago considers whether to certify the lawsuit as a class action, which could increase pressure on the defendants to settle. Two of the plaintiffs' law firms — Berger Montague and Freedman Normand Friedland — apologized to Kennelly in a court filing on Thursday for failing to disclose that a third firm has worked with an outside litigation funder in the case.

They submitted an amendment to their class certification motion saying they should take the case forward. The third firm, Gilbert Litigators & Counselors, in a separate filing said it should be designated as supporting counsel.

The three firms brought the proposed class action on behalf of more than 200,000 current and former students, alleging they were overcharged tuition by top schools including Cornell University, Georgetown University and the University of Pennsylvania. Twelve universities, including Brown, Yale and Columbia, have already agreed to settlements with the plaintiffs worth nearly $320 million.

To grant class certification, Kennelly must determine that the law firms leading the antitrust case are adequately representing the interests of the proposed class. At a hearing on March 11, the judge expressed concern that he may have been misled because the firms did not describe the Gilbert firm's funding agreement.

Berger Montague and Freedman Normand Friedland said in their filing on Thursday that their statements to Kennelly in prior filings may have “unintentionally left the court with an inaccurate impression” about the relative risks faced by the three firms. Unlike the Gilbert firm, they said, neither firm partnered with a litigation funder.

Litigation funders provide financing to clients in exchange for a part of a case's proceeds, reducing some of the risk a firm takes in working on a lawsuit that may not guarantee any compensation by the end.

Berger Montague chairman Eric Cramer and Freedman Normand’s Ted Normand on Thursday asked Kennelly to appoint them as representatives of the proposed class and urged the court not to remove them from the litigation. In its filing, the Gilbert firm said it backed the proposal, asserting that removing the plaintiffs' firms would give the schools a "huge, unwarranted benefit."

Cramer declined to comment beyond his court filing. Normand and Bob Gilbert did not immediately respond to requests for comment.

Penn declined to comment. Cornell and Georgetown did not immediately respond to requests for comment. The schools that settled and the five remaining defendants have all denied participating in a conspiracy to artificially inflate the cost of enrollment.

At the hearing this month, Kennelly said he was not questioning the propriety of litigation funding itself but rather the accuracy of prior statements about risk and compensation. Gilbert apologized in court, saying there was no intent to mislead.

Berger Montague and Freedman Normand told the judge that they have handled most of the work so far, logging more than 68,500 combined hours.

They attributed the funding disclosure lapse to using recycled language from earlier cases and said they are adopting new internal policies to improve transparency in court filings about legal fees.

The case is Henry v. Brown University, U.S. District Court for the Northern District of Illinois, No. 1:22-cv-00125.

For plaintiffs: Ted Normand of Freedman Normand Friedland; Bob Gilbert of Gilbert Litigators & Counselors; and Eric Cramer of Berger Montague

For Cornell: Norman Armstrong, Emily Chen and Dan Laytin of Kirkland & Ellis

For Georgetown: Britt Miller and Dan Fenske of Mayer Brown

For Penn: Seth Waxman, David Gringer and Alan Schoenfeld of WilmerHale

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