Disclosure of Litigation Funding Arrangements: Much Ado About Nothing

• Publication year: 2023
• Author: Written by Matthew D. Harrison & Doug D. Geyser

DISCLOSURE OF LITIGATION FUNDING ARRANGEMENTS: MUCH ADO ABOUT NOTHING

Written by Matthew D. Harrison & Doug D. Geyser^*

Commercial litigation finance has experienced a meteoric rise in the United States legal industry over the past decade. Yet it remains a fairly novel innovation in a field historically governed by tradition and precedent. It serves a panoply of legal risk-management purposes across law firms and companies of all sizes. In one typical scenario, the funder provides nonrecourse capital to support a litigant's claims or defenses. The funder recoups its investment and a return only if the case resolves favorably.

Funding inquiries have become almost routine by those seeking to ameliorate the uncertainty and expense associated with complex litigation. As with any innovation that rattles the foundations of a deep-rooted institution, the litigation finance industry has its detractors. A handful of heavily bankrolled lobbyists, most notably the U.S. Chamber of Commerce, have made it a central goal to extinguish or limit the industry's reach in the U.S. After onerous initial proposals gained no traction, industry opponents have focused their energy on the margins — namely, the call for blanket rules requiring the automatic disclosure of these arrangements in every civil case.

The parameters of the disclosure debate have been thoroughly documented elsewhere. This piece does not rehash them. Rather, it focuses on how these efforts have played out, and what lawyers should consider when advising clients about the current landscape.

CONGRESSIONAL AND REGULATORY EFFORTS: IT'S LIKE DÉJÀ VU ALL OVER AGAIN

The most visible attempts to chip away at funding industry progress have been the lobbying of Congress and the Advisory Committee on Civil Rules to mandate disclosure of litigation finance arrangements in every federal civil case. These endeavors have regularly fallen short since 2014, when the Chamber's Institute for Legal Reform (ILR) first sought (and failed) to amend Federal Rule of Civil Procedure, rule 26(a) in this respect. Undeterred, the ILR has renewed its proposal before the Advisory Committee almost every year, with nothing to show for it. Meanwhile, the Chamber's parallel congressional donations and lobbying have been reciprocated only by the introduction of the perpetually stalled Litigation Funding Transparency Act of 2018, 2019, and 2021. (See Sen. No. 840/H.R. No. 2025, 117th Cong., 1st Sess. (2021) [proposing automatic disclosure of third-party financing arrangements, including the parties' agreements, in any class action or multidistrict litigation].)

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These efforts have flopped for a host of reasons. As the Advisory Committee logically observed in 2014, the courts already have the power to secure information about litigation financing arrangements when it is relevant to the claims and defenses of the parties. (See David G. Campbell, Report of Advisory Committee on Civil Rules, Dec. 2, 2014, p. 4.) Which is to say, almost never. Absent exceptional circumstances, the courts themselves have routinely rejected attempts by litigants to delve into these issues in discovery. In October 2021, the Advisory Committee expressed further doubt about the need for, and feasibility of, both the proposed rule 26(a) automatic disclosure requirement and the Litigation Transparency Act. (See Advisory Committee on Civil Rules, Oct. 5, 2021, pp. 371-386.)

Yet the efforts persist. In early September 2022, ILR and the inaptly named Lawyers for Civil Justice (LCJ) asked both the Civil and Appellate Rules Advisory Committees to amend Federal Rule of...