Lawmakers Reintroduce Litigation Funding Transparency Bill

Press Release

Lawmakers in both chambers of Congress reintroduced legislation requiring disclosure of third-party litigation financing agreements in civil lawsuits. The bills, which are designed to shine a light on the financial interests or potential conflicts involving third-party lawsuit funders is led by Judiciary Committee Ranking Member Chuck Grassley (R-Iowa) and Congressman Darrell Issa (R-Calif.-50). Senate cosponsors include senators Thom Tillis (R-N.C.), John Cornyn (R-Texas) and Ben Sasse (R-Neb.), members of the Senate Judiciary Committee.

Hedge funds and other commercial lenders are increasingly financing the cost of civil litigation in return for a portion of any recovery. However, the existence and terms of such agreements are rarely disclosed to the court or opposing parties, creating the potential for conflicts of interest. The?Litigation Funding Transparency Act of 2021?would require disclosure at the outset of any class action lawsuit filed in federal courts, or in any claim that is aggregated into a federal multi-district litigation (MDL) proceeding, of any agreement between a party to the case and any third-party commercial enterprise that has a contingent interest in the outcome of the case.?

"Transparency brings accountability. It's true for Congress, the Executive and our courts. For too long, obscure third-party litigation funding arrangements have secretly funneled money into our civil justice system, without any meaningful oversight, all for the purpose of profiting off someone else's case. We should know whether there are undue pressures at play that could needlessly prolong litigation or harm the interests of the claimants themselves. A healthy dose of transparency is needed to ensure that profiteers aren't distorting our civil justice system for their own benefit. Our bill strikes the appropriate balance in getting certain information out in the open while allowing courts to craft necessary protections," Grassley said.

"This legislation is an uncomplicated but long-overdue transparency measure. If a third party is financing a class action lawsuit in federal court, it should be declared at the onset of the case. Awareness by all parties will help ensure fair and equal treatment by the justice system, as our system is designed to guarantee," Issa said.

"This commonsense legislation will shed light on third-party litigation financing agreements to ensure that the court and opposing parties are made aware of who is financing the litigation and whether or not there are any conflicts of interest. I am proud to join Senator Grassley to re-introduce this bill, and I hope we can pass it out of Congress quickly," Tillis said.

Third-party litigation funding is estimated to be a multi-billion dollar industry but is largely unregulated and subject to little oversight, fueling concerns about conflicts of interest that may distort the civil justice system. In 2015, Grassley and Cornyn?sought details?on the types of cases that funders will finance, the structure and terms of the agreements they enter into, and whether the court or interested parties are ever made aware of any such agreement. Since then, third-party litigation funding has skyrocketed. For example, litigation financier Burford Capital reported profits up 75% in 2016. And according to?Burford's own 2018 survey, "nearly one in three interviewees (32%) and an even larger percentage of survey respondents said their firms or companies had used litigation finance--a 237% increase since 2012."

To improve transparency and oversight, the?Litigation Funding Transparency Act?provides a simple, uniform rule that would apply to all class actions and MDL proceedings in federal courts. Specifically, it requires class counsel, in any class action filed in a U.S. district court, to disclose in writing to the court and all other named parties to the case the identity of any commercial enterprise (other than a class member or class counsel) that has a right to receive payment that is contingent on the receipt of monetary relief in the case. Such disclosure may be limited by stipulation or order by the court to protect certain information. The bill imposes the same disclosure obligations for MDL proceedings.

Source