Court Advisory Committee Inches Forward on Transparency in Litigation Financing

The U.S. Supreme Court’s Advisory Committee on Civil Rules on Thursday addressed transparency in third-party litigation funding, proposing to create a subcommittee to further delve into the somewhat controversial issue.

Committee members, meeting in Washington. D.C., said they finally agreed to formally tackle the matter because of a strong call in the legal community—dating back about a decade—to create a federal civil rule requiring transparency into what outside groups are funding certain types of litigation. While the courts are proceeding slowly, groups representing big business, such as the U.S. Chamber of Commerce, have forcefully pushed for disclosure requirements, while third-party funders have defended the status quo.

“My view is that we have to take it on and study it and it probably deserves a careful look, if for no other reason than we don’t know what we don’t know,” said U.S. District Judge David Proctor, who sits in the Northern District of Alabama and is a committee member. “I think the landscape is so drastically changing and the products are so widespread and different.”

Earlier this month, more than 100 major companies spanning such industries as technology, pharmaceuticals and automotive sent a letter to the ACCR pushing for a national rule requiring full disclosure of third-party litigation funding.

U.S. District Judge RobBest Foreclosure Lawyers near me , Best Immigration Lawyers near me , Best Insurance claims Lawyers near mein Rosenberg of the Southern District of Florida, who chairs the committee, called third-party litigation funding transparency “an important issue,” and one that merits further study.

“I agree that it’s not one that is going away,” she said during the meeting. “It may be time to really focus all of our attention … on that issue and monitor it and actively seek input from knowledgeable parties—lawyers, organizations, financing institutions, maybe a survey—so we can explore those avenues.”

Another committee member called the issue a “theoretical problem,” but one worth exploring further to see if real-world problems arise from the failure to disclose funding sources.

Proctor, who was asked to chair the new subcommittee that will address transparency, said it’s somewhat unclear at this point whether, or to what extent, the issue is impacting litigation or possibly may in the future.

“We don’t know enough yet,” he said. “I think it would be good for transparency, since we’ve been asked to take this on for a while, that we commit to it and see what’s there with an open mind and open eyes.”

The issue of transparency in civil litigation financing has also caught the attention of federal lawmakers. In July, Rep. Darrell Issa, a Republican from California, introduced the Litigation Transparency Act of 2024.

The legislation would require disclosure of third-party litigation funding agreements in civil suits.

In a statement from his office, Issa said the proposal would target “serious abuses in our litigation system and achieve long-overdue transparency.”

“If a third-party investor is financing a lawsuit in federal court, it should be disclosed at the onset of the case,” he said in his statement issued this summer. “Awareness by all parties will help ensure fair and equal treatment by the justice system and deter bad actors from exploiting our courts.”

Those who urge lawmakers and the courts to revise rules governing disclosure in litigation funding point to a number of problems with anonymous financing.

“Allowing outsiders to secretly use courtrooms as a trading floor incentivizes the filing of non-meritorious litigation,” the U.S. Chamber of Commerce’s Institute for Legal Reform says on its website.

The American Lawyer could not immediately obtain additional comment from the organization elaborating on its position.

It also claims that third-party financing allows funders, which include hedge funds and other companies, to exercise control and influence over litigation “to the detriment of courts, defendants and plaintiffs.”

A third-party agreement, for example, might contain a provision that permits financiers to make decisions such as whether and when to settle a case, even if a plaintiff desires to proceed to trial.

Third-party funders, however, say opponents are off-base, and that this type of funding structure merely helps corporate clients manage the costs and risk of pursuing redress against alleged harms that have occurred.

They also note that these types of agreements are nonrecourse, meaning if a plaintiff loses a lawsuit, the funder receives no compensation.