case study
Camp Lejeune
Overview
Camp Lejeune is a Marine Corps base located near Jacksonville, North Carolina. Between August 1, 1953, and December 31, 1987, three treatment plants on the base supplying water to individual and family housing units were contaminated by harmful chemicals, including PCE, TCE, benzene, and vinyl chloride. Exposure to these harmful chemicals has been associated with a range of cancers, diseases, and medical conditions. The water contamination was due to waste disposal practices and industrial spills, leaking underground storage tanks, and spills from an off-base dry-cleaning company.
Until August 10th, 2022 when the Honoring our PACT Act of 2022 passed, individuals were unable to exercise their legal rights to seek damages relating to water contamination at Camp Lejeune. As part of the PACT Act, Congress has authorized those who were exposed to water contamination at Camp Lejeune between August 1, 1953, and December 31, 1987, for not less than 30 days to sue the United States to recover appropriate relief.
Thesis
The opportunity was to finance the purchasing of these cases by Milberg and then share in economics on settlement. Our cost per case is quite low and the potential settlements are predicted to be quite high. We continue to believe that properly managing our average price for cases that have settlement potential of up to $300k or more in less than four years creates a compelling IRR.
Cases fall into three Tiers: 1,2, and 3. In general, Tier 1 cases are various cancers tied to the toxins at Lejeune (Bladder, Breast, Esophageal, Renal, etc) and Tier 2s are also cancers (Ovarian, Pancreatic, Prostate, etc) but carry higher burdens of proof, lower settlements on average, and longer timelines. On several of our campaigns recently, we pursued only Tier 1 cases. Although these cases cost more, there are many advantages, including a more streamlined timeline to settlement, lower burden of proof as these cases are tied directly to the chemicals found at Lejeune, and much higher overall settlements. At present, many of our campaigns are nearing completion, we have nearly 60% Tier 1 cases in the overall pool, and we kept our average price well below our target of $1,500/case.
Structure
ACI provides the capital for financing multiple qualified campaigns to purchase cases and then splits the gross attorney fees (50/50) post settlement with Milberg.
Return Profile
We believe there are many scenarios which would enhance the return profile of the investment and these include our base assumptions shown below. Presently in our Base case, we have used 40% attrition for both Tier 1 and 2 cases and 100% attrition (no value) for Tier 3 cases. As we have stated above, we estimate that we have 57% Tier 1 cases, expect to have 25% Tier 2 cases, and the residual, 18%, are Tier 3 cases. By applying these attrition rates to our three tiers, we have arrived at an attrition rate of 51% overall for our Base case. Despite being advised of much higher lawyer fees since the beginning of our investment and much shorter timelines, we have kept our payback month at 42 months and our fees at 20% consistently.
The mass tort community on average is using 30% attorney fee and 25% case attrition as their base rate.
| Estimated Recovery | $200,000 |
$250,000 |
$300,000 |
|||
|---|---|---|---|---|---|---|
| Gross Attorneys Fees | $40,000 | 20% | $50,000 | 20% | $60,000 | 20% |
| 50/50 Split | $20,000 | $25,000 | $30,000 | |||
| Amount Invested | $24,500,000 | $24,500,000 | $24,500,000 | |||
| Cost Per Case | $1,316.39 | $1,316.39 | $1,316.39 | |||
| Cases Purchased | 18,612 | 18,612 | 18,612 | |||
| Less Case Attrition | 9,492 | 51% | 9,492 | 51% | 9,492 | 51% |
| Net Cases | 9,120 | Multiple | 9,120 | Multiple | 9,120 | Multiple |
| Gross Figure | $182,392,756 | 7.44 | $227,990,945 | 9.31 | $273,589,134 | 11.17 |
| Payback Month | 42 | 42 | 42 | |||
| IRR | 79.80% | 91.91% | 102.41% | |||
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ |
| Base Assumptions | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ |
| Attrition | 51% | |||||
| Payback Month | 42 | |||||
| Average Settlement | $200k-$300k | |||||
| Gross Fees | 20% |
The Edge
Our relationship with Milberg and our early involvement in this investment allowed for higher-quality case campaigns and lower per-case costs.
ACI was involved in an aggressive way, even before the PACT Act passed in 2022. We evaluated the opportunity cost of this investment with the IRRs of many others and decided that Camp Lejeune offered a return that was uncorrelated with the broad markets and presented a very favorable return profile early last year when the public markets were suffering.