On May 10, Sen. Chuck Grassley (R-Iowa) and co-sponsors Sens. Thom Tillis (R-N.C.) and John Cornyn (R-Texas) introduced the Litigation Funding Transparency Act of 2018, which proposes to mandate the disclosure of all outside funding in class and multidistrict litigation in federal courts. I have two concerns about the proposed legislation.


My first concern is procedural. Arguably, this is a case where Congress should let lawmaking come from below. There is already movement to consider disclosure by federal district courts engaging in rule-making such as the Northern District of California’s ruling on disclosure of outside finance in class actions; by federal district courts issuing orders such as Judge Dan Polster’s order concerning in camera disclosure of outside funding to him in the opioid multidistrict litigation that he is overseeing; and finally the Rules Committee’s consideration of disclosure in MDLs as part of its review of Rule 26.

Secondly, I have significant substantive concerns about the proposed legislation. The justification for automatic, broad disclosure of complex funding agreements is not clear, but it is clear that the costs of disclosure as mandated in the Grassley-Tillis-Cornyn proposed legislation do not outweigh the benefits.

Consistent Opponents of Added Regulation

Sens. Grassley, Tillis and Cornyn are consistent opponents of federal regulations that are added without consideration to their cost to the targets of the regulation. (That’s the basis of their opposition to many of the consumer reporting regulations adopted by the Consumer Financial Protection Bureau, for example.) Likewise, I would urge them to examine the costs and benefits of what they are proposing. The costs of regulations for financial transactions and disclosure in litigation are easy to identify: Additional transaction costs, borne by legitimate users of the financial instruments, and satellite litigation generated by disclosure. In essence, an already slow and expensive process will become slower and more expensive. That’s not to the benefit of anyone (and similar concerns have been the basis of Republican-led effort to limit discovery in federal litigation).

Now let’s turn to the purported benefits of disclosure. To be sure, one benefit is so the court can be informed of potential personal conflicts of interest as soon as possible. For example, if a judge owns shares in a third party interested in the outcome of litigation, that could create a conflict. But it’s unlikely—and it does seem that there is an awful lot of worry about judicial conflict of interest based on their investment in companies that are not publicly traded, or, if they are, are publicly traded on stock exchanges outside the U.S. (Only two litigation finance companies are publicly traded; Burford is traded in London and Bentham IMF in Australia).

Purported BenefitsAnother purported benefit of disclosure is to prevent impermissible control of litigation by third parties—of which there are almost no real-world examples. Where the courts have had to deal with control of plaintiffs by third parties, it has typically been in the context of insurance companies exercising control as partial subrogees. Under FRCP Rule 17(a), if an insured brings a suit in federal court, and has a side-agreement that gives control over the suit to its insurer (as subrogee), that agreement does not have to be automatically disclosed. That’s a contingent financial interest. Why the difference in concern between insurers and funders when insurers are hidden plaintiffs?

On balance, the benefits of the proposed legislation are outweighed by the costs. A better balance is struck by Judge Polster’s order in the opioid MDL. In that order, the court forces the parties to address potential conflict of interest and the issue of control without allowing the adverse party to obtain details about the underlying agreements. Disclosure is made to the judge alone.

A reasonable person could conclude that the push for overly broad disclosure is purely voyeuristic. Some seem to believe that the public has an appetite to learn more about how class actions and MDLs are funded, and who benefits from them (other than the plaintiffs and their lawyers). Maybe so—but why the federal government should pass laws to feed this appetite has yet to be explained.

Author Information

Anthony Sebok is a professor at the Benjamin Cardozo School of Law and visiting professor at Cornell Law School. He is also an adviser to the global legal finance company Burford Capital.