Along with the recent rise in third-party litigation financing has come a widely-held perception that there is something vaguely shady about it. For example, a May 12, 2018 New York Times article, in what is nearly a compulsory formulation, described litigation funding as “unregulated and opaque.”  This common perception about litigation funding is one reason why I have long felt that eventually that some form of  litigation financing disclosure is going to be required – indeed, one state has already instituted rules requiring the disclosure. The possibility for more universal disclosure requirements moved one step closer last week, when three U.S. Senators introduced legislation that would make litigation financing disclosure mandatory in certain kinds of federal court lawsuits. The draft bill has predictably drawn praise and scorn from commentators with opposing viewpoints, but the key thing at this point is that the debate about litigation financing disclosure has moved from the fringes and has now taken center stage.


The Draft Legislation

On May 10, 2018, U.S. Senator Chuck Grassley, the Chairman of the Senate Judiciary Committee introduced The Litigation Funding Transparency Act of 2018, which would require the disclosure of litigation funding in class and multidistrict litigation in federal courts. The draft bill is co-sponsored by Senators Thom Tillis and John Cornyn. The Committee’s press release about the legislation can be found here. The draft bill itself can be found here.


The bill has two operative provisions, one applicable to class action litigation and the other applicable to multidistrict litigation. The gist of the bill is that it would require class counsel and counsel for a party asserting a claim in a multidistrict lawsuit to disclose to the court and all other parties “the identity of any commercial enterprise … that has a right to receive payment that is contingent on the receipt of monetary relief … by settlement, judgment, or otherwise.” The legislation also would require counsel to “produce for inspection or copying … any agreement creating the contingent right.” The mandated disclosure must take place not later than the later of ten days after execution of the agreement or the time of service of the action.


The Committee press release accompanying the bill says the existence of these agreements often is not disclosed, “creating the potential for conflicts of interest.” The press release quotes Senator Grassley as saying that “obscure litigation finding agreements have secretly funneled money into our civil justice system, all for the purpose of profiting off someone else’s case.” Senator Grassley is further quoted as saying that “the courts and opposing parties should know whether there are undue pressures and secret agreements at play that could unnecessarily drag out litigation or harm the interest of the claimants themselves.” He also is quotes as saying “a healthy dose of transparency is needed to ensure that these profiteers aren’t distorting our civil justice system.” The press release also quotes Senator Cornyn as saying “This bill gives us insight into where this money is going and keep the civil justice system honorable or fair.”


Public Comment About the Legislation

Among the voices supporting the legislation is long-time litigation funding foe Lisa Rickard, the President of the U.S. Chamber Institute for Legal Reform. In a May 10, 2018 post on the Institute’s blog (here), Rickard praised the bill, which she said will “help bring the multi-billion dollar litigation financing industry out of the shadows” and will “pull back the curtain on third-parties ‘gambling’ on the outcome of class action lawsuits and federal multi-district litigation,” a practice she says “turns our courtrooms into casinos and plaintiffs into little more than poker chips.”


She goes on to say that the proposed legislation will help curb “lawsuit lending abuses” by requiring parties to make funding arrangements transparent, justifying the transparency on the grounds that “courts should know when funders are involved to weigh potential conflicts of interest, include funders in settlement discussions, and assess discovery requests and other costs.”


On the other side of the debate, in a May 10, 2018 press release, Burford Capital, the world’s largest litigation funder, drew a contrast between the litigation funding disclosure approach in the draft legislation and the approach taken by Northern District of Ohio Judge Dan Polster in the multidistrict opioid litigation (which I discussed in detail in a blog post last week, here). In the opioid litigation, Judge Polster ordered the parties to disclose litigation funding ex parte and in camera to him, in order to determine whether or not there is a conflict or if the funder is exercising control in the litigation. More importantly, Judge Polster prohibited any further discovery litigation funding, in recognition that the agreements represent attorney work product.


By contrast, the proposed legislation, the Burford press release goes on to say, “is an example of the wrong way to handle disclosures” by mandating broad disclosures to the defendants, rather than just to the court. “No one,” the press release states, “has come up with any reasonable justification for a general rule requiring plaintiffs to disclosure their sensitive financial arrangements to defendants.” The legislation’s proponents “talk about disclosure creating transparency” but ultimately will be “misused to create expensive and time-wasting frolics and detours and as a tactical device by defendants.”



I think it is important at the outset in thinking about what might make sense in terms of litigation financing disclosure to emphasize the reason that litigation funding has so quickly become an important part of the current litigation environment. That is that in many kinds of lawsuits, the litigation is both complex and expensive. The ability to maintain expensive litigation for many years is beyond the means of many claimants and prospective claimants; litigation funding simply provides the means for claimants to pursue their claims.


While there certainly have been instances where the specifics of certain funding arrangements warrant the kind of negative rhetoric that is often used to describe the litigation financing, I think the likelihood of getting the disclosure requirements right as far as the respective interests of all parties involved is substantially diminished if the debate is built on a presumption that litigation financing as such is viewed as nefarious or a form of gambling; in most instances, it isn’t nefarious and it isn’t gambling, it is simply a form of financing, period. Depending on the specifics, there can be something wrong with it, but it is not inherently wrong.


As I said at the outset, I think it is inevitable that some form of litigation financing disclosure is going to be required. It is hardly surprising to me that Burford Capital doesn’t like the proposed legislation, but I think it is worth noting that the legislation isn’t as bad as it could have been, from the point of view of the funders. For example, the draft legislation could have made the disclosure requirements applicable to all federal civil litigation, rather than to just class action litigation and MDL litigation, two kinds of lawsuits where the courts do have an important supervisory role.


On the other hand, I think Burford Capital is right in arguing that the proposed legislation lacks an important safeguard necessary to prevent litigation funding disclosure from turning into a distracting and expensive sideshow. One particular aspect of Judge Polster’s order in the opioid litigation that makes sense was its presumption against further discovery about the litigation funding arrangements absent extraordinary circumstances. The inclusion in the draft legislation of a rebuttable presumption against further litigation financing disclosure, requiring court approval before any party could pursue further discovery on litigation financing arrangements, would help to prevent the litigation financing issues from becoming a distraction.


The most critical issue, and the one that will be the battleground as this legislation makes its way through Congress, is whether the mandated disclosure should include the production to opposing counsel of the actual financing agreements. I can certainly see the argument that without access to the actual details of the financing arrangement, opposing counsel will not be able to assess the agreement for signs of conflicts of interest or to have a basis on which to assess whether to seek further discovery. On the other hand, I can see the argument that claimants should not have to disclose the sensitive details of their private and confidential financial arrangements. This particular issue will have to be sorted out as the draft bill makes its way through the legislative process.


At this point the draft bill merely represents proposed legislation. Whether or not this bill will survive the legislative process and become law remains to be seen. But whether or not this particular bill will make its way through, sooner or later there is going to be some form of required litigation financing disclosure. Time will tell what form the required disclosure ultimately will take.