Reckitt Benckiser goes into battle over funding of US lawsuits

Amid the courtroom drama of the US infant formula lawsuits that has rocked Reckitt Benckiser, one of the world’s largest consumer goods companies, a legal battle is also being waged to identify potential investors bankrolling the lucrative claims.
The FTSE 100 company suffered a shock ruling in an Illinois state court in March when a jury awarded $60 million in damages to a mother who claimed her premature baby died after consuming Enfamil premature formula.
Investor fears over greater liabilities facing Reckitt’s Mead Johnson business from hundreds of US product liability lawsuits alleging the formula caused necrotising enterocolitis (NEC), a potentially deadly bowel disease, triggered a sell-off in Reckitt’s shares in London.
Before a second trial against Reckitt, scheduled to begin at the end of the month in St Louis, Missouri, concerns deepened in July when a jury in the same court in a similar case awarded $495 million in damages against Abbott Laboratories, the New York-listed healthcare company and maker of the specialised premature formula Similac.
As well as stirring a critical debate over the future of the products and leading Berkshire-based Reckitt to pursue a significant restructuring, the lawsuits are raising questions over the role of America’s fast-growing, high-risk litigation finance industry and that of Keller Postman, a law firm at the centre of the claims.
The contentious multi-billion dollar market litigation funding market, where third parties provide financing for lawsuits in exchange for a cut of any profits, has become an increasingly popular investment class.
So-called “mass tort” action is propelled by “lead generators” who use television, billboards and social media advertisements to amass potential cases for law firms.
Keller Postman secured the $60 million verdict in the first trial against Mead Johnson in March and is representing thousands of families across the US, with cases filed in Illinois, California, Pennsylvania, and Missouri.
In a motion filed by Mead Johnson in Cook County, Illinois, in April, it sought disclosure of the funding of another claimant represented by Keller Postman. Similar motions are understood to have been filed by Mead Johnson in other cases.
“The legal profession has entered into a new world where we can no longer assume that the only interested parties are plaintiffs and their attorneys”, the motion stated.
“Mead Johnson has the right to know if ‘investors around the world’ have a financial interest in the resolution of this litigation.”
• Abbott baby formula ruling deals blow to Reckitt Benckiser
The 79-page filing explained litigation funders support claimants with their legal fees, advance costs and assess the likelihood of success at trial, and ultimately provide profits to investors who buy stakes in litigation.
“Without access to information about plaintiff’s funding agreements, defendants cannot know who they are negotiating with during settlement discussions, and whose assessment of the merits of the claim is animating the plaintiff’s decision-making,” the filing stated.
The transparency around funding is “especially relevant to this particular litigation”, Mead Johnson argued, partly because the lawyers in the case have “well-known business interests in the litigation funding space that (at least) raise significant questions about outside influence”.
Two lead partners at Keller Postman, Adam Gerchen and Ashley Keller, are also the chief executive and chief investment officer of Gerchen Capital Partners, which markets itself as providing “law firms, companies, and other investment firms with innovative capital solutions related to complex litigation and arbitration”.
Gerchen Capital Partners, launched in 2021, advertises its “access to vast resources”, its ability “to move with calculated speed to structure transactions that suit the needs of our clients” and its management of “more than $1 billion in assets on behalf of investors around the world”.
Keller, 45, and Gerchen, 42, co-founders of Keller Postman, previously formed the litigation finance firm Gerchen Keller Capital in 2013. The firm grew to more than $1.3 billion in assets under management before it was sold for up to $175 million in 2016 to London and New York-listed Burford Capital, a pioneer in litigation funding.
Gerchen went on to become president of Burford, and along with Keller was a founding director in 2019 of Keller Postman UK, incorporated in Chancery Lane, London’s legal centre. Both resigned as directors of the UK firm, now called KP Law, in June last year.
In the motion, Mead Johnson argued it was “entitled to know what investment agreements or financing agreements, if any, are implicated by this litigation”.
The claimant, though, argued the information was not relevant and the courts have rejected Mead Johnson’s calls for disclosure.
Contacted this week about whether Gerchen Capital Partners is involved in the financing of any of the NEC cases Keller Postman lawyers are bringing on behalf of claimants against Mead Johnson, Keller Postman said it could not comment. A spokeswoman said Keller Postman was involved with the impending Missouri trial and “the judge has recently implemented a gag order, the contours of which are still being discussed. Until the court resolves the contours of that order, we cannot comment”.
Gerchen Capital Partners was approached for comment. Reckitt declined to comment.
Keller Postman is also involved in a wave of lawsuits against another big UK company. The firm’s clients are among tens of thousands alleging Zantac, the blockbuster heartburn drug sold by GSK, and other multinationals, caused cancer, which have hit share prices.
Sherman Joyce, president of the American Tort Reform Association, a coalition campaigning to reform the civil justice system, said: “In the United States litigation has become an asset class and a path for return on investment.”
Another source, speaking confidentially, said: “The strategy of law firms in mass tort litigation is to just build up as big of an inventory as possible and then force a settlement.”
As well as preparing for the Missouri trial, Reckitt is battling to overturn the “incorrect” first verdict from March. The company has rejected any “causal link” between its pre-term formula and NEC. It has reassured the public that the products are safe and provide lifesaving nutrition for premature babies under the guidance of the doctors and nurses who administer its products.
Abbott, which has said it makes just $9 million in annual revenue from the specialised premature Similac formula, less than 1 per cent of group sales, also rejects the claims. Robert Ford, Abbott’s chief executive, warned in July that “if this product were no longer available” there “would be a public health crisis”.
The companies have found support from the NEC Society, a patient-led organisation in the US, which has warned that the verdicts “may result in unintended harmful consequences for babies and elimination of potentially beneficial therapy choices”.
Kris Licht, Reckitt’s chief executive, has said the company has “no plans to stop providing the product as that would be detrimental to the care for preterm babies and their families”.
In July, amid pressure from shareholders, Licht said Reckitt would “consider all strategic options” for Mead Johnson, raising the possibility of a sale of the formula business, seven years after its $18 billion acquisition, bigger than all Reckitt’s previous deals combined.
Analysts have cautioned that Reckitt’s options are complicated by the litigation. Those at Jefferies said last month that a US legal expert consulted by the brokerage believes a “significant award” is likely for the claimant in the Missouri trial.
The lawyer, though, expected an ultimate wider settlement next year for “amounts smaller than that discounted by the market”, which last month was about $21 billion based on the declines in the share prices of Reckitt and Abbott combined.