Initiative to Disclose Third Party Litigation Funders

LCJ urges 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 supports and has 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.

In November of 2017, the Advisory Committee on Civil Rules voted to form a subcommittee to examine the need for disclosure of TPLF agreements. The Committee’s decision is an important step forward. This was the third time the Committee considered a TPLF disclosure requirement proposal, and on both previous occasions the Committee tabled the proposal. It is important that the new subcommittee will gather information about TPLF in conjunction with its effort to understand the ways in which amendments to the FRCP could provide the same protections to parties to MDL cases that the FRCP provide in all other cases.

ORDERS and rules requiring TPLF disclosure

The Northern District of California has a standing order for all judges that requires 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.

The judge overseeing the opioid MDL issued this order requiring disclosure of all third party funding in that matter.

Effective July 1, 2018, Wisconsin state courts will mandate disclosure of third party financing agreements. View an in-depth analysis of the new statue by LCJ member firm Bowman and Brooke here.