LCJ has urged the Civil Rules Advisory Committee to adopt an amendment to Rule 26(a)(1)(A) to require disclosure of third-party investments in litigation (“TPLF”) at the outset of a lawsuit. TPLF occurs when a person or entity with no other connection to a lawsuit (usually a specialized investment company) acquires a right to an outcome-contingent payment from any proceeds produced by the case. Typically, the TPLF investor obtains that right by paying money to the plaintiff (or plaintiff’s counsel). In many instances, that money is used to finance prosecution of the case (e.g., discovery costs, attorneys’ fees, expert witness expenses). Often, plaintiff’s counsel takes the lead in securing the third-party investment; in addition, they sometimes receive the money and agree to make the specified outcome-contingent payment to the TPLF investor from their fee recovery.
LCJ has supported and partnered with the U.S. Chamber Institute for Legal Reform, a leader on this issue, to ensure that the federal rules require that TPLF be transparent. Please take a look at this letter signed jointly with ILR urging the Civil Rules Advisory to require disclosure of TPLF at the onset of litigation for more details.
Although the Civil Rules Advisory Committee has not yet taken action on this issue, in January of 2017, the Northern District of California amended its Standing Order for all judges to require disclosure of TPLF in class actions. In particular, the order now requires that “in any proposed class, collective, or representative action, the required disclosure includes any person or entity that is funding the prosecution of any claim or counterclaim.” You may view the order here.
For more information about this topic, please read this recent article written by LCJ Member Mark Behrens, Shook Hardy, and Lisa Rickard, President, ILR:
You may also visit http://www.instituteforlegalreform.com/issues/third-party-litigation-funding.