Governor Edwards vetoes Louisiana’s proposed (TPLF) disclosure bill

June 23, 2023 / 22 min read

On June 15, 2023, Louisiana Governor John Bel Edwards (D) vetoed Louisiana S.B. 196 titled the “Litigation Financing Disclosure and Security Protection Act.”^[1]

S.B. 196, as outlined more fully below, called for the disclosure of Third-Party Litigation Funding agreements (TPLF), referred to as “litigation financing agreements”^[2]in the bill, in civil actions. One of the stated objectives of S.B. 196 was “to maintain integrity and establish transparency in our civil justice system.”^[3] In further support of the disclosure proposal, the bill also expressed concerns, in part, regarding TPLF’s potential encouragement of frivolous lawsuits, prolonged settlement efforts, and potential threats to “the integrity of our national security.”^[4] The full “purpose” of this bill, as stated in S.B. 196, is provided in the endnote to this sentence.^[5] As noted, Governor Edwards vetoed the bill citing certain concerns as referenced below.

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A general overview of this development is provided as follows:

Louisiana’s proposed litigation financing disclosure provision (S.B. 196)

Louisiana S.B. 196 proposed that a party, or a party’s attorney, would be required to disclose a litigation financing agreement to all parties, and insurers in civil actions, without a discovery request, where (i) the funder is “permitted to charge a contingent fee representing a party, has received or has a right to receive compensation or proceeds that are contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise”^[6]and where (ii) the funder “has received or is entitled to receive, proprietary information or information affecting national defense or security, obtained as a result of the civil action.”^[7] As was proposed under S.B. 196, the party, or party’s attorney, would have to disclose the agreement “upon the later of sixty days after the commencement of a civil action or sixty days after execution of the litigation financing agreement.”^[8] While S.B. 196 proposed automatic disclosure of the agreement, the bill permitted a party to redact the funding amount.^[9] S.B. 196 also proposed that litigation financing agreements would be subject to discovery.^[10] Further, the proposed bill would have also applied to class actions,^[11] while exempting certain nonprofit legal organizations from its requirements.^[12]

Governor Edwards vetoes S.B. 196 (and reaction)

In vetoing S.B. 196, Governor Edwards stated that the proposed law “would give large corporations and insurance companies a tactical advantage by allowing them to exploit their newfound knowledge of an individual or small business's litigation budget.”^[13] In addition, Governor Edwards commented that the bill “’is clearly a pretense designed to gain a litigation advantage under the guise of promoting transparency in litigation and protecting national security.’”^[14]

In response to Governor Edwards’s veto, one source reports that Louisiana State Senator Barrow Peacock (R), who sponsored S.B. 196,expressed concerns regarding potential threats to national security which may be heightened due to Louisiana’s natural resources and its resident army bases ^[15] Further, this source reports that Senator Peacock commented that “’[i]t’s disappointing that the governor did not reach out to me before he vetoed this legislation … He simply did not see the need for it even though nationally this is being seen as a problem in our federal courts and this would apply to our state courts. It’s simply a disclosure bill.”^[16]

Regarding industry reaction, Governor Edward’s veto was viewed positively, according to one media report, by the executive director of the Internal Legal Finance Association who commented that the Governor’s veto “’protects Louisiana’s business community from losing a vital financing tool used to mitigate risk and maintain sufficient operating capital in their business.’”^[17]

Meanwhile, the U.S. Chamber of Commerce Institute for Legal Reform (ILR), which supported the bill, commented that it will “’continue working with policymakers in Louisiana to guard litigants and the state’s courts against secretive outsiders who pour money into lawsuits.’”^[18] Another source noted that the executive director of Louisiana Lawsuit Abuse Watch commented that “’[t]his commonsense legislation sought to address the growing issue of … (TPLF), allowing hedge funds, sovereign/foreign wealth funds and other financiers to invest in lawsuits in exchange for a percentage of any settlement or judgment … Because funders are not required to disclose agreements, no one knows how much control or influence they have regarding strategic litigation decisions, like whether to settle or take a case to trial.’”^[19]

It is unknown whether the Louisiana legislature will attempt to override the governor’s veto. On this point, Senator Peacock commented that he will decide whether to pursue an override attempt depending on the legislature’s plans for a possible July special session.^[20] It is noted that two-thirds of the Louisiana House and Senate would be needed to override the governor’s veto.^[21]

Other recent TPLF disclosure updates

Outside of Louisiana, it is noted that Indiana and Montana recently enacted TPLF disclosure provisions. Very generally, Indiana’s statute requires a claimant to provide written notice that he or she has entered into a TPLF agreement but does not require automatic disclosure of the TPLF agreement. However, Indiana’s new law makes the existence and contents of the TPLF agreement subject to discovery. Meanwhile, Montana’s new law, in general, requires a claimant to automatically produce the TPLF agreement without a discovery request and further provides that “the existence of the litigation financing contract and all participants or parties to a litigation financing contract are permissible subjects of discovery in any civil action, administrative proceeding, claim, or cause of action to which litigation financing is provided under the litigation financing contract, regardless of whether a civil action or an administrative proceeding has commenced.”^[22] In the bigger picture, Indiana and Montana now join West Virginia and Wisconsin which enacted TPLF disclosure statutes a few years back. West Virginia’s and Wisconsin’s statutes both require a claimant to automatically produce the TPLF agreement without a discovery request.^[23]

On the federal level, there has also been TPLF disclosure developments over the past few months. For example, The Highway Accident Fairness Act of 2023 (H.R. 2936) was recently re-introduced into Congress. H.R. 2936 contains a proposed TPLF disclosure provision which would require the plaintiff, in part, to produce information regarding TPLF and the TPLF agreement. Also, in early May, several industry groups renewed calls for a mandatory TPLF disclosure rule as part of the Federal Civil Rules of Procedure. As part of this current activity, it remains to be seen if the Litigation Funding Transparency Act (“LFTA”) will eventually be reintroduced into Congress. Very generally, prior versions of the LFTA proposed disclosure of TPLF information and the TPLF agreement as part of class action and MDL lawsuits.^[24]

Taking it a bit beyond these recent developments, it is noted, in general, that over the past few years several federal courts have promulgated their own “local” TPLF disclosure rules,^[25] with most of these rules reportedly focused more on disclosure for the purposes of helping courts assess potential judicial recusal or disqualification issues,^[26]rather than providing defendants with third-party funding information as part of litigation discovery. Noted exceptions falling in this latter category are local rules issued by the United States District Courts for the Northern District of California and New Jersey, and the recent Standing Order issued by Judge Colm F. Connolly for the United States District Court for the District of Delaware.

With regard to these three items, very generally, the Northern District of California’s rule, issued in 2017, requires plaintiffs to file a “Certification of Interested Entities or Persons” disclosing certain information regarding third-party funding and imparts a continuing duty to supplement this certification during the pendency of the case.^[27] Meanwhile, N.J. Civ. Rule 7.1.1 (June 21, 2021), states, in part, that all parties (including intervening parties) must file a “statement” disclosing certain information regarding TPLF and provides that a party “may seek additional discovery of the terms of any such agreement upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist, or such other disclosure is necessary to any issue in the case.”^[28]Last year, Chief Judge Colm F. Connolly for the United States District Court for the District of Delaware issued a Standing Order regarding TPLF disclosure patterned after N.J. Civ. Rule 7.1.1.

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Feel free to contact the author if you have any questions regarding the above or TPLF matters in general. Also, click here to view the author’s other TPLF articles.

[1] See, https://legis.la.gov/legis/BillInfo.aspx?i=244620 and https://www.legis.la.gov/legis/VetoBills.aspx?sid=last

[2] As proposed under S.B. 196, the term “litigation financing” was defined as follows:

’Litigation financing’ means the financing, funding, advancing, or loaning of money to pay for fees, costs, expenses, or an agreement to pay expenses directly related to pursuing the legal claim, administrative proceeding, claim, or cause of action, if the financing, funding, advancing, or loaning of money is provided by any person other than a person who is any of the following: (i) A party to the civil action, administrative proceeding, claim, or cause of action. (ii) An attorney engaged, directly or indirectly through another legal representative, to represent a party in the civil action, administrative proceeding, claim, or cause of action. (iii) An entity or insurer with a preexisting contractual obligation to indemnify or defend a party to the civil action, administrative proceeding, claim, or cause of action or a health insurer which has paid, or is obligated to pay, any sums for health care for an injured person under the terms of any health insurance plan or agreement. S.B. 196 (§3580.2 (3)(a)).

In addition, the proposed bill defined “litigation financing or agreement” as follows:

‘Litigation financing contract or agreement’ means a transaction in which litigation financing is provided to a party or a party's attorney in return for assigning to the litigation financer a contingent right to receive an amount including payment of interest, fees or any other consideration for the financing provided out of the proceeds of any realized judgment, award, settlement, or verdict the party may receive on the underlying claim or action. The term “litigation financing contract or agreement" does not include: (a) Legal services provided to a party by an attorney on a contingency fee basis, or legal costs advanced by an attorney when such services or costs are provided to or on behalf of a party by an attorney in the dispute and in accordance with the Louisiana Rules of Professional Conduct. (b) The bills, receivables, or liens held by a healthcare provider or their assignee. (c) Secured or unsecured loans made directly to a party or a party's attorney when repayment of the loan is not contingent upon the judgment, award, settlement, or verdict in a claim or action. S.B. 196 (§3580.2 (4)).

[3] S.B. 196 (§3580.1).

[4] S.B. 196 (§3580.1).

[5] On this point, S.B. 196 (§3580.1) states as follows:

Purpose. The purpose of this Act is to maintain integrity and establish transparency in our civil justice system. The use of third-party litigation funding in civil actions is becoming more prevalent in our judicial system. The United States maintains one of the largest third-party litigation funding markets in the world. Investments are being made by foreign hedge funds, private equity funds, and in some cases, sovereign wealth funds connected to hostile governments. These nonparty participants have an impact on the speed and manner of resolution of a lawsuit. The entrance of both foreign and domestic actors in third party litigation funding has the potential to encourage frivolous lawsuits, prolong settlement efforts, and harm the sanctity of the client-attorney relationship, all with the intended goal of overwhelming our courts, weakening critical industries and draining the resources of both private and corporate citizens. The use of third-party litigation financing by agents of hostile governments can threaten the integrity of our national security by providing access to technological competitive information, trade secrets, and other confidential information. To guard against these threats, while maintaining legitimate access to third-party litigation funding, it is imperative that parties seeking to avail themselves of third-party litigation funding disclose such agreements, pursuant to the requirements of this Act, when such financing is used to support litigation.

[6] S.B. 196 (§3580.3 (A)) proposed the following:

Except as otherwise stipulated by the parties or ordered by the court, a party or a party's attorney shall, without awaiting a discovery request and upon the later of sixty days after the commencement of a civil action or sixty days after execution of the litigation financing agreement, provide to all parties to the civil action, including their insurer, if prior to litigation, any litigation financing contract or agreement under which anyone, other than a legal representative permitted to charge a contingent fee representing a party, has received or has a right to receive compensation or proceeds that are contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise. S.B. 196 (§3580.3 (A)).

[7] S.B. 196 (§3580.3 (B)) proposed the following:

Except as otherwise stipulated by the parties or ordered by the court, a party or a party's attorney shall, without awaiting a discovery request and upon the later of sixty days after the commencement of a civil action or sixty days after execution of the litigation financing agreement, provide to all parties to the litigation, including their insurer, if prior to litigation, any litigation financing contract or other agreement under which anyone, other than the party's attorney permitted to charge a contingent fee representing a party, has received or is entitled to receive, proprietary information or information affecting national defense or security, obtained as a result of the civil action. S.B. 196 (§3580.3 (B).

In addition, it is noted that S.B. 196 (§3580.2(5)) defined the term “national security” as follows: “’National security’ interests are those interests that encompass the national defense, foreign intelligence and counterintelligence, international and internal security, and foreign relations.”

Further, S.B. 196 (§3580.2(7)) defined the term “proprietary information” as follows:

’Proprietary information’ shall mean information developed, created, or discovered by a party, which became known by, or was conveyed to the party, which has commercial value in the party's business. "’Proprietary information’" shall include but not be limited to domain names, trade secrets, copyrights, ideas, techniques, inventions, whether patentable or not, and any other information of any type relating to designs, configurations, documentation, recorded data, schematics, circuits, mask works, layouts, source code, object code, master works, master databases, algorithms, flow charts, formulae, works of authorship, mechanisms, research, manufacture, improvements, assembly, installation, intellectual property including patents and patent applications, and the information concerning the entity's actual or anticipated business, research or development, or which is received in confidence by or for the entity from any other source.

[8] S.B. 196 (§3580.3 (A) and (B)).

[9] S.B. 196 (§3580.3(C)) proposed the following: “The existence of litigation financing, litigation financing contract or agreement, and all participants in such financing arrangements are permissible subjects of discovery in all civil actions, including personal injury litigation or claims arising out of personal injuries.” S.B. 196 (§3580.3(C).

[10] S.B. 196 (§3580.3(C)) proposed the following: “The existence of litigation financing, litigation financing contract or agreement, and all participants in such financing arrangements are permissible subjects of discovery in all civil actions, including personal injury litigation or claims arising out of personal injuries.” S.B. 196 (§3580.3(C)).

[11] S.B. 196 (§3580.4)) proposed as follows: “This Chapter shall apply to any action filed or certified as a class action. In addition to the disclosure requirements set forth in R.S. 9:3580.3, the attorney of the putative class shall disclose to all parties, putative class members, and the court, any legal, financial, or other relationship between the attorney and the litigation financer.”

[12] S.B. 196 (§3580.3(D)) proposed the following: “This Chapter shall not apply to nonprofit legal organizations funded by private donors that represent clients on a pro bono, no-cost basis provided that the nonprofit legal organization seeks only injunctive relief on behalf of its clients. Awards of costs or attorney fees to nonprofit legal organizations shall not be affected by this Chapter. This Chapter shall not be interpreted to require a nonprofit legal organization to disclose its donors or sources of funding.”

[13] See, Gov. Edwards vetoes bill requiring disclosure of litigation-financing agreements

[14] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

[15] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

[16] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

[17] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

[18] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

With regard to ILR’s support of S.B. 196, see Louisiana advances legislation on mandatory disclosure of TPLF

Another group supporting the bill was the American Tort Reform Association, see ATRA Calls on Governor Edwards to Sign SB 196, Promoting Accountability and Transparency in the Civil Justice System

[19] See, Gov. Edwards vetoes bill requiring disclosure of litigation-financing agreements

[20] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

[21] See, Litigation Finance Disclosure Legislation Vetoed in Louisiana

[22] Montana S.B. 269 (Section 6), (1) and (4).

[23] These statutes read as follows:

Wis. Stat. Ann. § 804.01(2)(bg) – “Third party agreements. Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.”

Va. Code Ann. § 46A-6N-6: “Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any litigation financier, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.”

[24] On this point, it is noted that the Litigation Funding Transparency Act of 2021 was introduced in the House as H.R. 2025 and in the Senate as S. 840 on March 18, 2021. These bills proposed to amend Chapter 114 of title 28, United States Code. As noted above, the LFTA proposed TPLF disclosure in relation to class action suits and MDL actions.

In terms of disclosure, the LFTA contained the following proposals:

Sec. 2 Transparency and Oversight of Third-Party Litigation Funding in Class Actions

(a) In General. Chapter 114 of title 28, United States Code, is amended by adding at the end the following:

Sec. 1716. Third-party litigation funding disclosure

(a) In General. In any class action, class counsel shall-

(1) disclose in writing to the court and all other named parties to the class action the identity of any commercial enterprise, other than a class member or class counsel of record, that has a right to receive payment that is contingent on the receipt of monetary relief in the class action by settlement, judgment, or otherwise; and

(2) produce for inspection and copying, except as otherwise stipulated or ordered by the court, any agreement creating the contingent right.

(b) Timing. The disclosure required by subsection (a) shall be made not later than the later of-

(1) 10 days after execution of any agreement described in subsection (a)(2); or

(2) the time of service of the action.’

(b) Technical and Conforming Amendment. The table of sections for chapter 114 of title 28, United States Code, is amended by adding at the end the following: 1716. Third-part litigation funding disclosure.

Sec. 3 Transparency and Oversight of Third-Party Litigation Funding in Multidistrict Litigation

Section 1407 of title 28, United States Code is amended

(1) by redesignating subsections (g) and (h) as subsections (h) and (i), respectively; and

(2) by inserting after subsection (f) the following:

(g)(1) In any coordinated or consolidated pretrial proceedings conducted pursuant to this section, counsel for a party asserting a claim whose civil action is assigned to or directly filed in the proceedings shall-

(A) disclose in writing to the court and all other parties the identity of any commercial enterprise, other than the named parties or counsel, that has a right to receive payment that is contingent on the receipt of monetary relief in the civil action by settlement, judgment, or otherwise; and

(B) produce for inspection and copying, except as otherwise stipulated or ordered by the court, any agreement creating the contingent right.

(2) The disclosure required by paragraph (1) shall be made not later than the later of-

(A) 10 days after execution of any agreement described in paragraph (1)(B); or

(B) the time the civil action becomes subject to this section.

[25] On this point, a well-researched memorandum prepared for the Federal Advisory Committee’s April 2018 meeting noted that, as of late 2017, six U.S. Courts of Appeals 24 out of the 94 federal district courts had formulated local rules requiring identification of litigation funders. Regarding the U.S. Court of Appeals, see, Patrick A. Tighe, Survey of Federal and State Disclosure Rules Regarding Litigation Funding, February 7, 2018, at 210, as contained in the Advisory Committee on Civil Rules Booklet, April 10, 2018. In Appendix A, Mr. Tighe provides the following listing of local circuit court rules regarding disclosure of TPLF finance arrangements, with the scope and type of disclosure varying by circuit: “Third Circuit (3^rd Cir. L.R. 26.1.1(b); Fourth Circuit (4^th Cir. L.R. 26.1(2)(B); Fifth Circuit (5^th Cir. L.R. 28.2.1); Sixth Circuit (6^th Cir. L.R. 26.1(b)(2)); Tenth Circuit (10^th Cir. L.R. 46.1(D)); and Eleventh Circuit (11^th Cir. L.R. 26.1-1(a)(1); 11^th Cir. L.R. 26.1-2(a).” Id. at 220. Regarding the United States District Court, see, Patrick A. Tighe, Survey of Federal and State Disclosure Rules Regarding Litigation Funding, February 7, 2018, at 210, as contained in the Advisory Committee on Civil Rules Booklet, April 10, 2018. In Appendix B, Mr. Tighe provides the following listing of local district court rules regarding disclosure of TPLF finance arrangements, with the scope and type of disclosure varying by district: “Arizona (no local rule, but corporate disclosure statement); C.D. California (C.D. L.R. 7.1-1); N.D. of California (N.D. Cal. L.R. 3-15; Standing Order for All Judges of the N.D. Cal (1/17/2017); M.D. Florida (Interested Persons Order for Civil Cases 6/14/2013, only applies to some judges; no local rule or order applicable to all district court judges); N.D. Georgia (N.D. Ga. L.3.3); S.D. Georgia (S.D. Ga. L.R. 7.1); N.D. Iowa (N.D. Iowa L.R. 7.1); S.D. Iowa (S.D. Iowa L.R. 7.1); Maryland (M.D. L.R. 103.3(b)); E.D. Michigan (E.D. Mich. L.R. 83.4); W.D. Michigan (Form-Corporate Disclosure Statement; No local rule order); Nevada (Nev. L.R. 7.1-1);E.D. North Carolina (E.D. N.C. L.R. 7.3); M.D. North Carolina (Form-Disclosure of Corporate Affiliations; No local rule order); W.D. North Carolina (Form-Entities with a Direct Financial Interest in Litigation Form, No local rule or order); N.D. Ohio (N.D. Ohio L. Civ. R. 3.13(b); Form – Corporate Disclosure Statement); S.D. Ohio (S.D. Ohio L.R. 7.1); E.D. Oklahoma (Form-Corporate Disclosure Statement, No local rule order); N.D. Oklahoma (Form-Corporate Disclosure Statement; No local rule or order); N.D. Texas (N.D. Tex. L.R. 3.1(c), 3.2(c), 7.4, 81.1); W.D. Texas (W.D. Tex. L.R. CV-33); W.D. Virginia (Form-Disclosure of Corporate Affiliations and Other Entities with a Direct Financial Interest in Litigation; No local rule order); and W.D. Wisconsin (Form-Disclosure of Corporate Affiliations and Financial Interest; No local rule or order).” Id. at 223-229.

[26] See, Patrick A. Tighe, Survey of Federal and State Disclosure Rules Regarding Litigation Funding, February 7, 2018, at 209, as contained in the Federal Advisory Committee on Civil Rules Booklet, April 10, 2018, two references cited include Fifth Circuit’s local rule, 5^th Cir. L.R. 28.2.1 at 213, citing, C.D. Cal. L. R. 7.1-1. Id. at 209.

[27] The United States District Court for the Northern District of California local rule is Rule 3-15, cited as U.S.Dist.Ct.Rules N.D. Cal., Civil L.R. 3-15. This local rule states, in full, as follows:

3-15. Disclosure of Conflicts and Interested Entities and Persons

(a) Each non-governmental party must:
1. (1) file a “Certification of Conflicts and Interested Entities or Persons” with its first appearance, filing, or other request addressed to the court;
2. (2) file such Certification as a separate document; and
3. (3) promptly file a supplemental Certification if any required information changes.
(b) Contents
1. (1) The Certification must disclose whether the party is aware of any conflict, financial or otherwise, that the presiding judge may have with the parties to the litigation.
2. (2) The Certification must also disclose any persons, associations of persons, firms, partnerships, corporations (including, but not limited to, parent corporations), or any other entities, other than the parties themselves, known by the party to have either: (i) a financial interest of any kind in the subject matter in controversy or in a party to the proceeding; or (ii) any other kind of interest that could be substantially affected by the outcome of the proceeding.
3. (3) For purposes of this Rule, the terms “proceeding” and “financial interest” shall have the meaning assigned by 28 U.S.C. § 455 (d)(1), (3) and (4), respectively.
(c) Form of Certification.
1. (1) If there is a conflict about which the party is aware, the Certification shall state:
  “Pursuant to Civil L.R. 3-15, the undersigned certifies that it is believed that the court has a conflict with (List names). Signature, Attorney of Record or Pro Se Party.”
2. (2) If there is an interest to be disclosed, the Certification shall state: “Pursuant to Civil L.R. 3-15, the undersigned certifies that the following listed persons, associations of persons, firms, partnerships, corporations (including, but not limited to, parent corporations), or other entities (i) have a financial interest in the subject matter in controversy or in a party to the proceeding, or (ii) have a non-financial interest in that subject matter or in a party that could be substantially affected by the outcome of this proceeding: (List names and identify their connection and interest). Signature, Attorney of Record or Pro Se Party.”
3. (3) If there is no conflict or interest to be disclosed, the Certification shall state: “Pursuant to Civil L.R. 3-15, the undersigned certifies that as of this date, there is no conflict or interest (other than the named parties) to report. Signature, Attorney of Record or Pro Se Party.”

[28] N.J. Civ. Rule 7.1.1(b).

Governor Edwards vetoes Louisiana’s proposed Third-Party Litigation Funding (TPLF) disclosure bill

Louisiana’s proposed litigation financing disclosure provision (S.B. 196)

Governor Edwards vetoes S.B. 196 (and reaction)

Other recent TPLF disclosure updates

Questions?