Parties in class action and multi-district litigation may have to disclose litigation funding agreements they enter, if a bill introduced May 10 by three GOP senators becomes law.
The U.S. Chamber of Commerce hailed the proposed legislation in a statement. But the bill does not go as far as some critics of the burgeoning litigation funding industry—including the Chamber—have advocated.
In particular, the bill’s disclosure provisions would only apply to two categories of cases: class actions and multi-district litigation cases. The Chamber and 29 other groups are currently pushing an amendment to the Federal Rules of Civil Procedure that would require disclosure of litigation funding in all civil cases.
There are also hurdles in front of both efforts to compel litigation funding disclosure: the newly-proposed legislation has no Democratic co-sponsors, and a previous Chamber-supported drive to amend the FRCP got no traction.
Absent those macro-level reforms, individual defendants will have a hard time unmasking third-party litigation funding. They can try to seek discovery of funding contracts in specific cases, but most courts have rebuffed such requests on attorney work product grounds.
There have been a few exceptions, including a May 7 order issued by U.S. District Judge Dan A. Polster, who is presiding over hundreds of lawsuits against opioid manufacturers.
But that order—which requires lawyers to disclose the existence of funding agreements to the judge, and says discovery into the arrangements won’t be allowed—does not go as far as backers of the new bill and proposed FRCP changes have urged.
‘Litigation Funding Transparency Act’
The bill, called the “Litigation Funding Transparency Act of 2018,” is sponsored by three members of the U.S. Senate Judiciary Committee: chairman Charles E. Grassley (R-Iowa), Thom Tillis (R-N.C.) and John Cornyn (R-Texas).
“For too long, obscure litigation funding agreements have secretly funneled money into our civil justice system, all for the purpose of profiting off someone else’s case,” Grassley said in a statement issued jointly with his co-sponsors.
The bill would require counsel in class actions and MDL cases to disclose to the court and other parties the identity of “any commercial enterprise” that has a contingent interest in settlements or judgments in the case. The bill would also require counsel to produce any funding agreements “for inspection and copying.”
Chamber vs. Funders
The Chamber’s statement describes the proposed legislation as a “landmark bill” and a signal that “key Senators realize the dangers that secretive lawsuit funding deals pose to fairness and justice in our courts.”
Christopher Bogart, CEO of Burford Capital, the world’s largest third-party funder, had a different take. In a May 10 statement posted to his company’s blog, Bogart described the bill as “an example of the wrong way to handle disclosure—mandating broad disclosure to the defendant.”
Bogart contrasted that approach with the one reflected in recent order issued in the opioid litigation. That order requires lawyers to submit, for in camera review, letters describing any third-party funding, and affirmations that it doesn’t create conflicts of interest for counsel or give lenders control over the litigation.
In an earlier blog post, Bogart praised the order as “a welcome example of litigation finance disclosure done right.” He said it was significant that the order only requires disclosure to the judge, and not defendants, who have no justification “other than pure voyeurism” for peeking into “a plaintiff’s sensitive financial arrangements.”
Bogart also praised a portion of the order that said: “Absent extraordinary circumstances, the Court will not allow discovery into [third-party] financing.”
Litigation funders and their proponents say that is significant because permitting discovery into the specifics of financing arrangements would give defendants important strategic information about the strength of a case and a plaintiff’s ability to withstand delays
“The Litigation Funding Transparency Act of 2018 is exemplary of calls for disclosure that talk about creating transparency but that are ultimately misused to create expensive and time-wasting frolics and detours in litigation and as a tactical device by defendants,” Bogart said in his May 10 statement.