One of the many issues under discussion when the question of litigation financing regulation comes up is whether parties’ use of litigation financing must be disclosed. One federal district court has implemented provisions requiring the disclosure of litigation financing, and the state of Wisconsin recently adopted measures requiring litigation financing disclosure. The federal Advisory Committee on the Rules of Civil Procedure is separately studying measures that would require disclosure. In the meantime, other courts continue to struggle with the disclosure issue. The federal district court judge in Ohio presiding over the multidistrict opioid litigation has fashioned his own litigation financing disclosure approach; Northern District of Ohio Judge Dan Aaron Polster has ordered the litigants in the opioid litigation to provide litigation funding disclosure to the court itself, rather than to the parties. Interestingly, this approach has drawn praise from a leading third-party litigation funder, as discussed below. Judge Polster’s May 7, 2018 order can be found here.
As discussed in an interesting May 8, 2018 Wall Street Journal op-ed article written by Yale Law Professor Abbe Gluck entitled “Can a Judge Solve the Opioid Crisis?” (here), Judge Polster is the presiding judge in the national multidistrict litigation against opioid manufacturers. The op-ed article suggests Polster is taking an activist approach to try to produce a comprehensive settlement.
The op-ed article quotes a January statement by Polster as having said “What I am not interested in doing is just moving money around, because this is an ongoing crisis. What we’ve got to do is dramatically reduce the number of pills that are out there and make sure that the pills that are out there are being used properly … We don’t need a lot of briefs and we don’t need trials … None of those are going to solve what we’ve got.”
May 7 Order
Judge Polster seems to have brought this pragmatic, minimalist approach to the question of the possible involvement of litigation funding in the multidistrict litigation. In his May 7 order, Judge Polster said “It has come to the court’s attention that there may be attorneys who represent parties” in the MDL litigation “who have obtained (or are contemplating) third-party contingent litigation financing.”
For purposes of his order he abbreviated “third-party contingent litigation financing” as “3PCL financing,” which he defined as “any agreement under which any person, other than an attorney permitted to charge a contingent fee … has a right to receive compensation that is contingent on and source from any proceeds” of the MDL case, whether by settlement, judgment, or otherwise.
In his May 7 order, Judge Polster ordered any attorney in the case that may have obtained 3PCL financing to (1) provide a copy of the May 7 order with the lender or potential lender; (2) submit to the court for in camera review (a) a letter describing the financing; and (b) two sworn affirmations, one from counsel and one from the lender, that the 3PCL does not create any conflict of interest for counsel; undermine counsel’s obligation of vigorous advocacy; affect counsel’s independent judgment; give the lender any control over the litigation strategy or settlement decisions; or affect party control of the settlement.
The May 7 order goes on to say that the attorneys in the MDL action have a “continuing duty to inform the Court” if they obtain new or additional financing during the course of the action, as well as duty to update their disclosures and affirmations. The order says it “will deem unenforceable any 3PCL financing arrangements that are not compliant” with the order. Any attorney or lender whose affirmations proved to be untrue “will be subject to sanction by the Court.”
Finally, the order concludes by saying that “absent extraordinary circumstances, the Court will not allow discovery into 3CPL financing.” (In stating this conclusion, Judge Polster cited to a decision earlier this year in which a Western District of Pennsylvania judge held that the work-product doctrine shields discovery of 3PCL financing.)
Litigation Funding Firm Responds
In a May 7, 2018 post on the firm’s blog, Christopher Bogart, the CEO of Burford Capital, the world’s largest litigation funding firm, said Judge Polster’s order “provides a welcome example of litigation finance disclosure done right.”
After suggesting that some litigants pursue disclosure of litigation financing arrangements “seeking tactical advantage” with disclosure requests “framed in a discriminatory way.” If we are to have disclosure in some cases, Bogart says, “Judge Polster has gone about it in the right way.”
Judge Polster’s provision for in camera review of the funding arrangements ensure that the court will know about the funding arrangements, which, Bogart suggests is sufficient as “no defendant has yet come up with any justification for being told about a plaintiff’s sensitive financial arrangements other than pure voyeurism.” The “clear purpose” of Polster’s disclosure requirement is “simply to affirm to him that there is no conflict and the funder exercises no control over the matter.”
Bogart also cited Polster’s preemptive statement that absent extraordinary circumstances discovery of third party financing arrangements will not be permitted “is exactly right” and in fact addresses one of Burford’s principal objections to disclosure, which is that disclosure “is misused to create expensive and time-wasting frolics and detours in litigation as a tactical device by defendants.”
While praising Judge Polster’s litigation funding disclosure order, Bogart goes on to say that “routine disclosure of litigation finance arrangements, especially in single cases, remains both unjustified and unnecessary,” adding that proponents of litigation financing disclosure have failed to make the case why litigation financing is any different than other capital provision, such as bank loans.” But, Bogart adds, “in those special circumstances when some disclosure is desired, Judge Polster has created a model for other judges to follow.”
Judge Polster’s approach to litigation financing disclosure is interesting but for me the reaction to the order of Chris Bogart of Burford Capital is even more interesting. I think that as third-party litigation financing becomes an increasingly important part of the litigation environment, there are going to be increasing calls for some form of regulation; while nothing is certain, among the likeliest forms of regulation of some kind of disclosure requirement. I have long thought that the leading litigation financing firms would be well-served to try to get out in front of this issue, so in that respect it is very interesting to see the largest litigation funding firm’s CEO coming out in favor of one form of litigation funding disclosure.
I suspect there will be other voices in the dialog about litigation funding regulation who will argue that Judge Polster’s order does not go far enough. I can certainly imagine an argument that Judge Polster’s disclosure requirements should have included not only the requirements for affirmations from counsel and the lender, but also should have included a requirement for the filing under seal of the actual funding agreements. The filing of the agreement under seal would make the agreement freely and easily available to the court in the event that questions about the arrangement or the need for further discovery should arise.
One further objection to Judge Polster’s order that I can imagine is that there is no reason to limit the provision of the specified information just to the court; rather, it ought to be provided to all parties, just as under the federal rules of civil procedure parties to the litigation are required to make disclosure to opposing parties about available insurance. The parties and the litigation funders are protected from unnecessary discovery by the preemptive prohibition of discovery. However, the provision of the information to the other litigants allows them to make an informed decision whether or not they think there are extraordinary circumstance based upon which they might seek to petition the court in order to be able to undertake discovery.
My perception is that many of the loudest voices in the dialog about litigation financing regulation are those who think that litigation financing represents an inherent evil that should not be permitted. While they certainly would not put it this way, they are seeking to make the use of litigation financing difficult or cumbersome in order to discourage its use. The problem with this approach to litigation financing is that the train has already left the station. Litigation financing is an increasingly important part of the current litigation environment, and there is a very simple reason for that – complex litigation is expensive, and like any other kind of expensive activity, the cost can be managed with appropriate financing arrangements. As litigation funding becomes standard, there ought to be standard required disclosures, but further discovery should be limited only to extraordinary circumstances and strictly subject to court control.
I have long thought that this is a topic ripe for a full discussion. From all of the above, here are some discussion starting points. First, litigation financing is mainstream. Second, some form of standard litigation financing disclosure requirements seems reasonable. Third, a standing prohibition on further litigation funding discovery absent a requisite showing protects all litigants from possibly distracting and expensive side-shows.
I suspect many readers may have different perspectives; I invite readers to add their thoughts to this post using the blog’s comment feature.
For those who are interested, in March 2018, the New York Times published a lengthy biography of Judge Polster and of his role in the opioid litigation, here.