Third-party litigation funding in 2022 -- three issues for your radar

January 31, 2022 / 41 min read

Third-party litigation funding (“TPLF” or “third-party funding)” is an issue that certainly warrants monitoring in 2022.[1] This rapidly expanding practice will continue to impact insurers, attorneys, and claims on several fronts in the new year.

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As many may recall, last Fall the author released a detailed report entitled Follow the New Money Trail: The Rise of Third-Party Litigation Funding. This prior report examined multiple TPLF issues including, TPLF background and origins, arguments for and against TPLF practices, issues regarding TPLF discovery, ethical questions, and TPLF’s claims impact in relation to the larger concept of social inflation. This report was then followed up by an article which focused solely on recent TPLF disclosure developments.

In this new article, the author combines certain information from these prior releases with some interesting new information to outline three key TPLF issues to watch in 2022 as follows: (1) continued TPLF growth; (2) regulatory trends; and (3) TPLF disclosure efforts, including the Litigation Funding Transparency Act currently pending in Congress.

1. Use of third-party funding continues to expand

To start, the evidence suggests that third-party litigation funding will continue to increase in the new year. As mentioned in the author’s prior report, while pinning an exact dollar amount invested yearly by third parties in U.S. lawsuits is unknown, one recent article conservatively estimated this figure around $2.3 billion.[2] Another source estimated the TPLF industry to be a $5 billion market in the U.S.[3]

Expanding on this point, the Swiss Re Institute recently released an interesting new report which, in part, further highlights the significant amounts being invested in TPLF funding. For example, this new study reports that more than half of the USD $17 billion investment globally in 2020 was invested by U.S. litigation funding companies.[4] This report also projects that global TPLF investment is expected to continue to grow strongly and estimates this investment could reach USD $31 billion by 2028.[5] Further, the Swiss Re authors commented that they see “TPLF as a contributing factor to the trend of social inflation … [noting that] U.S. general liability and commercial auto lawsuit data show a strong rise in the frequency of multi-million-dollar claims over the past decade [and that third party litigation funding companies] back[ed] claims in many of these areas, such as trucking accidents, bodily injury, product liability mass tort, medical liability claims, etc.”[6]

On this latter point, the author in his prior report noted one source reported that consumers with mass tort claims pending in MDL actions “constitute the fastest growing sector of those seeking assistance” from third-party funding.[7] As funding amounts continue to grow, it is not surprising that lawyer awareness and use of TPLF is also on the rise. For example, a recent survey found that in 2019 close to 70% of lawyers were “very familiar” with TPLF, representing an increase from around 50% a year earlier, and that use of third-party funding had increased by 105% since 2017.[8] Based on these findings, it seems reasonable to conclude that this trend toward increased TPLF funding and use will continue in 2022.

2. Keeping an eye on regulatory trends

While TPLF use continues to grow, another area to watch involves potential expanded TPLF regulation. Over the past several years, some states have taken steps to regulate TPLF focusing primarily on consumer protection type issues.

For example, Indiana, Maine, Nebraska, Nevada, Oklahoma, Tennessee, Vermont, and West Virginia require some form of TPLF registration or licensure,[9] while Ohio mandates that funders disclose certain contractual terms and information to the consumer.[10] In addition, some states like Arkansas, Indiana, Nevada, Tennessee, and West Virginia have enacted laws regulating TPLF interest rates or fees.[11] In Colorado, that state’s Supreme Court held, in part, that a TPLF company agreeing to advance money to tort plaintiffs in exchange for future litigation proceeds is the equivalent of making a loan, thereby subject to regulation under Colorado’s Uniform Consumer Credit Code.[12] Similarly, the South Carolina Department of Consumer affairs has issued a ruling that entities funding litigation in exchange for a portion of the recovery proceeds are providing loans subject to compliance under South Carolina’s laws governing lending.[13]

On this point, the authors of the recent Swiss Re report argue, in part, for stronger consumer protection measures regarding TPLF, including greater transparency of TPLF provisions and terms; restrictions against predatory interest rates; and considerations for “more targeted and efficient alternatives [to TPLF] such as legal aid and legal expense insurance.”[14] As part of their study, the Swiss Re report estimates that “up to 57% of TPLF-involved tort costs go to lawyers, funders, and others.”[15] Further, this report estimates that TPLF’s “returns are typically higher than long-run returns on venture capital” which, in their view, “result[s] [in] an opaque, bottom-up wealth transfer from consumers to sophisticated investors, and a less efficient legal system, paid for through higher prices and insurance premiums.”[16] As many states prepare to convene their 2022 legislative sessions, it will be interesting to see if, and to what extent, there are additional legislative efforts aimed at TPLF regulation in the new year.

3. TPLF disclosure and discovery issues

Whether plaintiffs should be required to disclose TPLF agreements to defendant insurers will remain a key issue on both the federal and state levels going into the new year. To help set the stage for 2022, the following provides a general overview and status of the current TPLF disclosure issue:

Proposed changes to Federal Rule 26, Litigation Funding Transparency Act, and related items

At the federal level, whether a copy of the TPLF agreement should be disclosed to defendants is an issue which has been brewing over the past several years following the United States Chamber Institute for Legal Reform’s (the Chamber’s) 2014 and 2017 proposals to amend the Federal Rules of Civil Procedure to require TPLF disclosure. The Chamber submitted these proposals to the Federal Advisory Committee on Civil Rules (Advisory Committee or Committee)[17] which is an entity that, in part, recommends changes to federal rules of practice and procedure.[18]

As part of its proposals, the Chamber seeks to amend Fed. R. Civ. P. 26(a)(1)(A) to require automatic disclosure of TPLF agreements in all federal civil cases.[19] This provision currently requires, in part, the production of various documents and information, including a defendant’s insurance agreement, without a specific discovery request, unless otherwise exempted under the rules, or stipulated or ordered by the court.[20]

Very generally, the Chamber argues that TPLF’s proliferation and expansion raises a number of concerns calling for transparency, including potential legal and ethical conflict of interest issues for counsel and judges; questions regarding funder control and influence over a plaintiff’s litigation and settlement decisions; promoting consistency with the federal court’s interest in safeguarding legitimate, ethical civil litigation practices; identifying potential violations of state champerty laws; and creating “parity of financial disclosure” under Rule 26.[21]

Echoing similar concerns, the authors of the new Swiss Re report voiced “support [for] uniform disclosure of litigation funding” stating, in part, that “[i]n our view, parties have a right to know who has a legal and financial claim against them. Disclosing funding arrangements to courts, opposing parties, arbitration tribunals and counsel would facilitate the assessment of potential conflicts of interest; discussion of cost shifting and allow all parties to realistically assess the prospects for settlement of the case. Disclosure also enables litigants to transparently assess parties’ fiduciary duties and calculate attorneys’ fees.”[22]

From the other side, the American Association for Justice (AAJ) is one group challenging the Chamber’s proposal. In January 2018, the AAJ submitted a letter to the Advisory Committee refuting what it referred to as the Chamber’s “one sided” proposal on several grounds.[23] For example, the AAJ argued, in part, that the proposed TPLF disclosure rule would not solve the alleged conflict of interests concerns; that state ethics commissions were the “most appropriate” bodies to consider TPLF ethical concerns; and that there was no evidence that third-party funders were “dictat[ing] the litigation strategy or decisions,” or undermining attorney attorney-client privilege protections.[24] From the AAJ’s view, the Chamber’s effort to amend Rule 26 is “just an attempt to unbalance the playing field.”[25]

In response to the Chamber’s proposals, the Advisory Committee has discussed TPLF issues at various points over the past several years as part of their regular committee meetings. However, to date, the Committee has not recommended any action toward formal rulemaking to amend the federal rules and has essentially elected to continue to “monitor” developments.[26]

More recently, the Advisory Committee revisited the TPLF disclosure issue as part of its October 5, 2021 meeting. It is noted that the Committee’s October agenda booklet contained more than 40 pages of material on the Committee’s historical activity regarding TPLF and a 20 page compilation of research prepared by successive Rules Law Clerks.[27] The Committee’s decision to place TPLF back on the agenda at the October meeting was prompted, in large part, by a joint letter sent to the Committee from Senator Charles E. Grassley (R-IA) and Representative Darrell Issa (R-CA) who requested a status update on the TPLF disclosure issue.[28] As part of their letter, Sen. Grassley and Rep. Issa informed the Committee of current Congressional activity on this topic, most notably their re-introduction of the Litigation Funding Transparency Act (“LFTA”) in the House and Senate.[29] Very generally, the LFTA would require plaintiff lawyers to disclose outside funding agreements in federal class action and MDL lawsuits.[30] As of January 2022, this bill currently has four Senate co-sponsors,[31] and has been referred to the Senate Committee on the Judiciary[32] and the House Committee on the Judiciary and the Subcommittee on Courts, Intellectual Property, and the Internet.[33]

However, the Advisory Committee as part of it's October 2021 meeting ultimately declined to recommend any immediate action toward formal rulemaking, opting instead to continue monitoring TPLF developments.[34] As part of this decision, the Committee shared some interesting insights into the challenges they may see in amending Rule 26 as specifically proposed, and TPLF disclosure more generally. In this regard, some points raised by the Committee included determining to which cases a disclosure rule should apply and the type of information to be disclosed.[35]

At its recent January 4, 2022 meeting, the Advisory Committee touched on the TPLF disclosure more generally than it did in October, but, again, did not recommend any steps toward formulating a formal disclosure rule. As part of this review, the Committee presented brief anecdotal observations and comments on TPLF usage from various judges and magistrate judges.[36] Interestingly, the Committee also noted that it had recently received a proposal (from an unnamed source) proposing that TPLF be tested via a pilot project.[37] While no details were provided regarding this proposal, the Committee made general reference to the Northern District of California’s local rule requiring disclosure for certain class action cases and the District of New Jersey’s recent TPLF disclosure local rule (both discussed by the author in the next section below).[38] It is unclear if the Committee’s specific reference to these examples of local court rules was intended to suggest that they may be considered as part of any pilot project. It will be interesting to see if the Committee further discusses the possibility of a pilot project at upcoming meetings.

Some federal courts have issued local TPLF disclosure rules

As mentioned above, the Northern District of California and New Jersey district court are examples of two courts which have promulgated local rules aimed more at providing defendants with TPLF information as part claim litigation. Specifically, in 2017 the Northern District of California reportedly became the first U.S. court to institute a standing order requiring disclosure of TPLF information in class actions.[39] In general, this rule 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.[40]

More recently, the New Jersey district court issued local civil rule, N.J. Civ. Rule 7.1.1 (June 21, 2021) which provides, in general, that all parties (including intervening parties) must file a “statement” disclosing certain information where “any person or entity that is not a party and is providing funding for some or all if the attorneys’ fees and expenses for litigation on non-recourse basis in exchange for (1) a contingent financial interest based on upon the results of the litigation or (2) a non-monetary result that is not in the nature of a personal or bank loan.”[41] In this situation, the following information must be disclosed: (1) the identity of the funder(s), including name, address, and if a legal entity, its place of formation; (2) whether the funder’s approval is necessary for litigation decisions or settlement decisions in the action and [if so], the nature of the terms and conditions relating to that approval; and (3) a brief description of the nature of the financial interest.”[42] In addition, under Rule 7.1.1 parties “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.”[43]

In addition, several other federal courts have also promulgated their own local TPLF disclosure rules. On this point, a well-researched memorandum prepared in relation to the Advisory Committee’s April 2018 meeting noted that, as of late 2017, six U.S. Courts of Appeals[44] and 24 out of the 94 federal district court[45] had formulated local rules requiring identification of litigation funders, with these rules differing in terms of the cases to which the rules apply, the scope of information to be provided, the reasons for disclosure, as well as when and how this information must be disclosed.[46] Notably, however, none of these local rules reportedly require the production of the litigation funding agreement itself.[47] Further, unlike the local rules issued by the Northern District of California and New Jersey district court, these rules are reportedly focused more on TPLF disclosure for the purposes of helping courts assess potential judicial recusal or disqualification issues,[48] rather than providing defendants with third-party funding information as part of litigation discovery.

State TPLF disclosure activity

Turning to TPLF discovery at the state level, Wisconsin and West Virginia are examples of two states which have recently enacted statutes requiring disclosure of TPLF agreements. Wisconsin’s statute, codified at Wis. Stat. Ann. § 804.01(2)(bg) and West Virginia’s statute, codified at W. Va. Code Ann. § 46A-6N-6, both require production of third-party funding agreements to the defendant without a specific discovery request, unless otherwise stipulated or ordered by the court.[49] Given the unsettled state of TPLF discovery, disputes regarding TPLF disclosure have also come before the courts. A complete survey into this complex area is beyond the scope of this article, however, from the author’s research, rulings on this issue have been noted to differ based on the case facts and other factors.[50]

Going Forward

As outlined above, third-party litigation funding practices will continue to present divergent issues and challenges for insurers in 2022. The author will be following developments in this area in the new year and will provide future updates as warranted. In the interim, to supplement this article please see our recent Third-Party Litigation webinar for a deeper dive into the issues discussed above. Finally, with TPLF and related social inflation factors impacting claim values, Verisk can assist you. Our Legal Case Management service, for example, helps drive down litigation spend, guide legal strategy, and provide settlement guidance. To learn more, please do not hesitate to contact me

[1] In general, TPLF involves the non-recourse funding of a claim by a non-party for a share in the proceeds if the claim is successful. See e.g., Ana E. Tovar Pigna, Florida: An Approach to Third Party Funding, World Arbitration and Mediation Review, Vol. 11, No. 3, 305, 310 (2017); citing, Maya Steinitz and Abigail Field, A Model Litigation Finance Contract, 99 Iowa L. Rev. 711, 713 (2014). In the context of TPLF, non-recourse funding has been described to mean that “the plaintiff must repay the money (plus fees and interest) only if, and to the extent that, the plaintiff ultimately receives compensation for underlying legal claim.” Ronen Avraham, Lynn A. Baker, and Anthony J. Sebok, The MDL Revolution and Consumer Legal Funding, 40 Rev. Litig. 143, 149 (Spring 2021) (authors’ emphasis). By way of an additional example, another source describes non-recourse funding this way: “if the plaintiff loses, he does not need to repay the loan or any interest …. [a]dditionally if the plaintiff does win, but his proceeds do not exceed [the] loan plus interest, the plaintiff does not owe the deficit; in other words, a debt cannot be created that is larger than [the] judgment received by the plaintiff.” Christopher Mendez, Welcome to the Party: Creating a Responsible Third-Party Litigation Finance Industry to Increase Access and Options to Plaintiffs, 39 Miss.C.L.Rev. 102, 106 (2021); citing, John L. Ropiequet, Current Issues in Consumer Litigation Funding, 33 No. 9 Banking & Fin. Services Policy Rep 17 (2014).

[2] Considerations from the ABA’s Best Practices for Litigation Funding, The National Law Review, Volume XI, Number 151 (February 16, 2021). https://www.natlawreview.com/article/considerations-aba-s-best-practices-litigation-funding

[3] David H. Levitt with Francis H. Brown III, Third Party Litigation Funding: Civil Justice and the Need for Transparency, DRI Center for Law and Public Policy (2018), at 1.

[4] Dr. Thomas Holzheu, Irina Fan, James Finucane, Dr. Anja Visher, Dale Predmore, and Ayush Uchil, U.S. litigation funding and social inflation – the rising costs of legal liability, Swiss Re Institute, December 2021, at2.

[5] Id. at 8.

[6] Id. at 2.

[7] Ronen Avraham, Lynn A. Baker, and Anthony J. Sebok, The MDL Revolution and Consumer Legal Funding, 40 Rev. Litig. 143, 143 (Spring 2021).

[8] Darren Pain, The Geneva Association, “Social Inflation: Navigating the evolving claims environment,” (December 2020), at 26, citing, Buford Capital, 2019 Legal Finance Report and 2020 Legal Finance Report.

[9] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing, Indiana (IC § 24-12), Maine (ME Rev. Stat. Ann. 9-A, § 12), Nebraska (Neb. Rev. St. § 25-3301, et. seq.), Nevada (NRS § 604C.320), Oklahoma (Okla. Stat. § 14A-3-801(6)), Tennessee (Tenn. Code Ann. § 47-16-101, et. seq.), Vermont (8 V.S.A. § 2252), and West Virginia (W. Va. Code § 46A-6N-2).

[10] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing, Ohio Rev. Code §. 1349.55(A)(1).

[11] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing, Arkansas (A.C.A. § 4-57-109), Indiana (Ind. Code § 24-4.5-3-110), Nevada (NRS § 604C.310), Tennessee (Tenn. Code Ann. § 47-16-101), and West Virginia W. Va. Code § 46A-6N-9. More specifically, this source reports that Nevada licenses and regulates consumer litigation financing and requires that the funded amount plus charges and fees of each transaction cannot exceed a rate of 40% of the funded amount annually. By contrast, in Tennessee a financier may impose a fee of up to 10% of the original amount provided to the consumer and may impose a maximum annual fee of $360 per year for each $1,000 of the unpaid principal of the funds advanced to the consumer for up to a maximum of 3 years. In addition, it is noted that West Virginia caps interest on such transactions at 18% while Indiana authorizes a litigation financier to impose an annual fee of 36% of the funded amount and an annual servicing charge of up to 7% of the funded amount, as well as a onetime document charge. See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5 (citations omitted).

[12] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing, Oasis Legal Finance Group v. Coffman, [361 P. 3d 400 2015 (Nov. 16, 2015)]. In this case, two national TPLF companies brought an action against Colorado’s Attorney General and Uniform Consumer Credit Code (UCCC) Administrator for declaratory judgment that funding agreements for personal injury litigation were not loans. The Attorney General and UCCC Administrator counterclaimed, in part, to enjoin these companies from making or collecting loans without being properly licensed. The Colorado Supreme Court held, in pertinent part, that the TPLF companies in this case who had agreed to advance money to tort plaintiffs in exchange for future litigation proceeds were making “loans” making them subject to Colorado’s UCCC provisions, even if the plaintiffs did not have to repay any deficiency if the litigation proceeds were ultimately less than the amount due. Oasis Legal Finance Group, LLC v. Coffman, 361 P.3d 400, 401 (2015).

[13] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5-6, citing, South Carolina, Department of Consumer Affairs, Administrative Interpretation: Legal/Litigation Funding Transactions, (Nov. 14, 2014), Administrative Interpretation 3.104, 106-1403, https://consumer.sc.gov/sites/default/files/Documents/Business%20Resources%20Laws/Administrative%20Interpretations/Chapter%203/3.104%2C106-1403%20Litigation%20FundingTransactions.pdf .

[14] Dr. Thomas Holzheu, Irina Fan, James Finucane, Dr. Anja Visher, Dale Predmore, and Ayush Uchil, U.S. litigation funding and social inflation – the rising costs of legal liability, Swiss Re Institute, December 2021, at 24.

[15] Id. at 13.

[16] Id.

[17] Regarding the Advisory Committee, according to U.S. Courts.gov, the U.S. Supreme Court first established this committee in June 1935 to help draft the Federal Rules of Civil Procedure, which took effect in 1938. Presently, this source reflects that Advisory Committees on the Rules of Appellate, Bankruptcy, Civil, Criminal Procedure, and the Rules of Evidence carry on a continuous study of the rules and recommend changes to the Judicial Conference through a Standing Committee on Rules of Practice and Procedure.

[18] According to U.S. Courts.gov, the U.S. Supreme Court first established the Advisory Committee in June 1935 to help draft the Federal Rules of Civil Procedure, which took effect in 1938. Presently, this source reflects that Advisory Committees on the Rules of Appellate, Bankruptcy, Civil, Criminal Procedure, and the Rules of Evidence carry on a continuous study of the rules and recommend changes to the Judicial Conference through a Standing Committee on Rules of Practice and Procedure.

[19] Federal Rules of Civil Procedure Rule 26 is entitled: Duty to Disclose; General Provisions Governing Discovery. Section (a)(1)(A) of this rule currently states as follows:

(a) Required Disclosures.

(1) Initial Disclosure.

(A) In General. Except as exempted by Rule 26(a)(1)(B) or as otherwise stipulated or ordered by the court, a party must, without awaiting a discovery request, provide to the other parties:

(i) the name and, if known, the address and telephone number of each individual likely to have discoverable information--along with the subjects of that information--that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment;

(ii) a copy--or a description by category and location--of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment;

(iii) a computation of each category of damages claimed by the disclosing party--who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered; and

(iv) for inspection and copying as under Rule 34, any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.

The Chamber is seeking to amend Rule 26 by adding a new subsection (v) to Rule 26(a)(1)(A) to require automatic disclosure in all civil cases of: “[A]ny agreement under which any person, other than 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.” Advisory Committee on Civil Rules Booklet, October 5, 2021, at 375.

[20] See n. 19.

[21] Lisa A. Rickard, President, U.S. Chamber Institute for Legal Reform letter to Ms. Rebecca A. Wolmeldorf, Secretary of the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts (June 1, 2017), at 358, 365, 366, 368, 371, 372, 374 and 378, as contained in the Advisory Committee on Civil Rules Booklet, November 7, 2017. In addition to these arguments, the Chamber, as part of the October 30-31, 2014 Advisory Committee Meeting, also offered the following four reasons why Rule 26 should be amended to require TPLF disclosure: (1) enabling courts and counsel to ensure compliance with ethical obligations; (2) alerting defendants to who is “really on the other side of an action;” (3) facilitating resolution of motions for cost-shifting; and (4) information bearing on sanctions. Advisory Committee on Civil Rules Booklet, October 30-31, 2014, at 118-122 and 123-128.

In addition to the arguments presented by the Chamber, it is noted that 30 general counsel from different insurance companies and other corporations submitted a letter to the Advisory Committee in January 2019 supporting the Chamber’s efforts to amend Rule 26. In this letter, these representatives argued, in part, that “[w]e believe the reasons for requiring full disclosure are strong and well documented … When litigation funders invest in a lawsuit, they buy a piece of the case; they effectively become real parties in interest. Defendants (and the courts) have a right to know who has a stake in a lawsuit and to assess whether they are using illegal or unethical means to bring an action. Further, in assessing discovery proportionality and addressing settlement possibilities, both the court and the defendant need to know who is sitting on the other side of the table --- is it an impecunious individual seeking recourse based on the merits of his/her case or is there also a multi-million-dollar litigation funder driven by the need to satisfy investor expectations?” Brackett B. Dennison, III, Former Senior Vice President and General Counsel, et. al. letter Ms. Rebecca A. Wolmeldorf, Secretary of the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts (January 31, 2019) at 265, as contained in the Advisory Committee on Civil Rules Booklet, April 2-3, 2019.

[22] Dr. Thomas Holzheu, Irina Fan, James Finucane, Dr. Anja Visher, Dale Predmore, and Ayush Uchil, U.S. litigation funding and social inflation – the rising costs of legal liability, Swiss Re Institute, December 2021, at 22 (citations omitted).

[23] Kathleen L. Nastri, President American Association for Justice letter to Ms. Rebecca A. Wolmeldorf, Secretary of the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts (January 17, 2018), at 234, as contained in the Advisory Committee on Civil Rules Booklet, April 10, 2018.

[24] Id at 232-236.

[25] Id. at 237. In addition to the arguments presented by the AAJ, it is noted that representatives from three third-party litigation funders submitted a letter to the Advisory Committee in February 2019 in response (and opposition) to the Chamber’s efforts to amend Rule 26. In part, these commentators argued that the Chamber’s proposal ignored the relevance requirement which it termed as the “backbone of discoverability” under the Federal Rules and ignored that federal courts “can easily handle discovery issues relating to litigation financing under existing Rule 26 and/or their own inherent authority.” Eric H. Blinderman, Chief Executive Officer (U.S.), Therium Capital Management, et. al. letter to Ms. Rebecca A. Wolmeldorf, Secretary of the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts (February 20, 2019), at 270-71, as contained in the Advisory Committee on Civil Rules Booklet, April 2-3, 2019.

A separate letter from another third-party funding company was also submitted to the Committee in February 2019 challenging the Chamber’s efforts. In this letter, the submitter rejected as “simply false” the Chamber’s allegation that the business community does not use litigation financing, noting that he was personally aware of companies and other entities using third party financing – including, allegedly, some of the companies that were signatories to the January 31, 2019 letter submitted to the Committee advocating for TPLF disclosure as discussed in n. 20 above. Christopher P. Bogart, Chief Executive Officer, Buford Capital, LLC letter to Ms. Rebecca A. Wolmeldorf, Secretary of the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts (February 20, 2019), at 273-74, as contained in the Advisory Committee on Civil Rules Booklet, April 2-3, 2019. It is noted that Mr. Bogart also submitted a lengthy response challenging the Chamber’s efforts on many fronts in his letter to the Committee as part of the Advisory Committee’s November 7, 2017 meeting. See, Christopher P. Bogart, Chief Executive Officer, Buford Capital, LLC letter to Ms. Rebecca A. Wolmeldorf, Secretary of the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts (September 1, 2017), at 391-410, as contained in the Advisory Committee on Civil Rules Booklet, November 7, 2017.

[26] To provide historical context, since the Chamber first submitted its proposal in 2014, the Advisory Committee has basically elected to monitor and study TPLF developments to evaluate possible rulemaking in this area. On this point, the Committee noted that when they first considered TPLF disclosure in 2014, they “concluded that the field was changing rapidly and that not enough was known about it to support adding a disclosure requirement, and also that there were other questions about the wisdom of doing so. Advisory Committee on Civil Rules Booklet, October 5, 2021, at 371. Thereafter, the TPLF disclosure issue was assigned to the Committee’s Multi-District Litigation (MDL) Subcommittee with the Committee noting at that time “it appeared that [TPLF] might be of particular importance in some MDL litigation.” Id. at 190. However, after about two years of study, the MDL Subcommittee reported back to the Committee in conjunction with October 2019 meeting that TPLF “did not seem particularly prominent” in the MDL context and that “further work on a possible rule would be suspended, but that the evolution of TPLF would be monitored going forward, not with a primary focus on MDL proceedings but with regard to all civil litigation.”[26] As such, the Advisory Committee decided to remove TPLF from the subcommittee’s agenda and return it back to the full Committee for continued monitoring. Id. at 26.

[27] Advisory Committee on Civil Rules Booklet, January 4, 2022, at 190.

[28] Senator Charles E. Grassley’s and Representative Darrell Issa’s letter to The Honorable John D. Bates, Chairman Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, dated May 3, 2021, as contained within the Advisory Committee’s Booklet, October 5, 2021, at 397.

[29] Id. 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 propose to amend Chapter 114 of title 28, United States Code.

The discovery provisions contained as part of the Litigation Funding Transparency Act of 2021 are basically the same in both bills and are outlined as follows:

Regarding class action suits, these bills, in pertinent part, propose:

In any class action, class counsel shall—

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

In terms of timing, the bills propose that the required information regarding class actions suits must be disclosed “10 days after execution of any agreement [as described above] … or the time of service of the action.”

As for MDL actions, these bills, essentially propose the same disclosure requirements as class action stating, in pertinent part, as follows:

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.

Regarding timing, the bills propose that the required disclosures in MDL litigation must be made “10 days after execution of any agreement [as described above] or the time the civil action becomes subject to this section.’’

[30] Id.

[31] See information retrieved January 24, 2022

Gov.Track - https://www.govtrack.us/congress/bills/117/s840

[32] Id.

[33] See information retrieved January 24, 2022

Gov.Track https://www.govtrack.us/congress/bills/117/hr2025/details

[34] On this point, the Committee stated:

This memorandum does not recommend any immediate action but provides an opportunity for Committee members to address these issues. The agenda book therefore contains a rather expansive treatment of this topic to acquaint Advisory Committee members with the issues, should the Committee be interested in proceeding at this time. If not, it is expected that the Committee will continue to monitor developments. It is likely that further information can be brought to bear. If the decision at present is to continue monitoring TPLF developments, there is no present need … to delve deeply into these issues. But moving forward likely will present them. (Advisory Committee on Civil Rules, October 5, 2021, at 371).

[35] The Advisory Committee’s discussion of these (and other) issues is contained in Advisory Committee on Civil Rules, October 5, 2021 booklet, at 379-381.

The following excerpt from the author’s recent article on the Committee’s October 2021 meeting summarizes some of the key points and issues discussed by the Committee as follows:

Which cases?

The Committee noted there “would be problems of scope” if they pursued rulemaking, referencing, as examples, how the LFTA pending in Congress and the proposal to amend Rule 26 before them “have different scopes in terms of what they apply to.” As such, the Committee raised the question of whether any disclosure rule should relate to “all civil litigation or only class, MDL, and ‘representative’ litigation.” On this point, the Committee noted that “[o]ne of the most active litigation areas for [TPLF] is reportedly patent litigation, but that would not seemingly be affected by the bill in Congress.” From another angle, the Committee questioned whether including all personal injury cases in federal court “might be seen as excessive, in part depending on what is considered ‘litigation funding,’” with the Committee asking “[w]hen a relative helps the victim with living expenses, should that be covered?”

What should be disclosed?

Another issue the Committee raised concerned what information should be disclosed. On this point, the Committee noted that the proposal to amend Rule 26 would require the parties’ full agreement be disclosed, while the LFTA would similarly require full disclosure in the specific instances in which it would apply. However, the Committee suggested that “[t]here are other gradations” to consider, stating: “Disclosure could be limited to the fact of funding. Disclosure could also require that the funder’s identity be included. (This could address recusal issues.) Disclosure could call for a general description of the funding agreement. Disclosure could also include specific reference to any control the funder has over the conduct of the litigation. Disclosure could also go beyond the current proposals and include all communications between the funder and the attorney or party that received the funding. (This would raise serious work product issues …)”

Should certain lines be drawn?

The Committee also raised questions about whether certain lines should be drawn between commercial and consumer TPLF. Here, the Committee noted commercial funding typically involves much larger funding sums that may go directly to lawyers for litigation expenses, while on the consumer side the funding amounts are smaller and tend to involve payments made directly to plaintiffs to cover living expenses. On this point, the Committee posed the question: “Would that dividing line look to the dollar amount of the funding commitment, the nature of the litigant (nature or legal entity), or the nature of the claim (e.g., personal injury or patent infringement)?”

How should “portfolio” funding be handled?

As portfolio TPLF funding[35] continues to increase, the Committee noted some consideration points regarding this area. Specifically, the Committee commented: “From the rulemaking perspective, the possibility of portfolio funding could raise issues of scope. Is disclosure required in every case in the portfolio? Assuming the portfolio includes cases on file when the funding is advanced, what is the timing of disclosure for those pending cases? If the portfolio funding agreement provides that all obligations to the funder are satisfied once $X is paid (and that then then funding obligation no longer exists to pending cases, (does that mean that the disclosure can somehow be withdrawn?”

In addition to these items, the Committee also raised questions and potential issues on several other fronts, including what the Committee described as “sources of funding covered,” “public interest” or “social interest” litigation funders, follow-on discovery, and cases on appeal. The Committee also discussed other items which could impact TPLF rulemaking including work product concerns, recent select court decisions, enforcement, defense litigation funding, federal courts as enforcer of professional responsibility rules and champerty and maintenance rules.

Advisory Committee on Civil Rules, October 5, 2021, at 379-381.

[36] See, e.g., Advisory Committee on Civil Rules, January 4, 2022, at 251-252.

[37] Advisory Committee on Civil Rules, January 4, 2022, at 252.

[38] Advisory Committee on Civil Rules, January 4, 2022, at 251-252.

[39] Joseph J. Stroble and Laura Welikson, Third-Party Litigation Funding: A Review of Recent Industry Developments, IADC Defense Counsel Journal, April 30, 2020.

Paragraph 19 of this standing order, referenced as U.S.Dist.Ct.Rules N.D.Cal., Attachment C. Standing Order for All Judges of the Northern District of California--Contents of Joint Case Management Statement, states as follows:

Disclosure of Non-party Interested Entities or Persons: Whether each party has filed the “Certification of Interested Entities or Persons” required by Civil Local Rule 3-15. In addition, each party must restate in the case management statement the contents of its certification by identifying any persons, firms, partnerships, corporations (including parent corporations) or other entities known by the party to have either: (i) a financial interest 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.

Local Rule 3-15, cited as U.S.Dist.Ct.Rules N.D. Cal., Civil L.R. 3-15, provides, in part, that “upon making a first appearance in any proceeding in this Court, each party must file with the Clerk a ‘Certification of Interested Entities or Persons’” which “must disclose any persons, associations of persons, firms, partnerships, corporations (including parent corporations), or 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.” Further, this rule provides that “[i]f a party has no disclosure to make pursuant to subparagraph (a)(1), that party must make a certification stating that no such interest is known other than that of the named parties to the action. A party has a continuing duty to supplement its certification if an entity becomes interested within the meaning of section (1) during the pendency of the proceeding.” This rule does not apply to governmental entities or its agencies.

[40] Id.

[41] Id.

[42] Id.

[43] Id.

[44] 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.

[45] 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.

[45] Patrick A. Tighe, Survey of Federal and State Disclosure Rules Regarding Litigation Funding, February 7, 2018, at 209, as contained in the Advisory Committee on Civil Rules Booklet, April 10, 2018.

[46] Id.

[47] Patrick A. Tighe, Survey of Federal and State Disclosure Rules Regarding Litigation Funding, February 7, 2018, at 209, as contained in the Advisory Committee on Civil Rules Booklet, April 10, 2018,

[48] Patrick A. Tighe, Survey of Federal and State Disclosure Rules Regarding Litigation Funding, February 7, 2018, at 209, as contained in the 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.

[49] 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.”

[50] Joseph J. Stroble and Laura Welikson, Third-Party Litigation Funding: A Review of Recent Industry Developments, IADC Defense Counsel Journal, April 30, 2020. https://www.iadclaw.org/defensecounseljournal/third-party-litigation-funding-a-review-of-recent-industry-developments/

On this point, these authors note Kaplan v. S.A.C. Capital Advisors, L.P., No. 12-CV-9350 VM KNF, 2015 WL 5730101 (S.D.N.Y. Sept. 10, 2015) where the court refused to allow the defendants in a putative securities fraud class action any discovery regarding the plaintiffs’ litigation funder finding, in part, that the defendants had not shown that the litigation funding documents were “relevant to any party’s claim or defense.” Id., citing, Kaplan, at 2015 WL 5730101, *5. In addition, this source notes that some courts have held that certain documents related to a plaintiff’s financing, such as the funding agreement itself, are simply not relevant to any claim or defense of the parties -- outside of the limited context when the defenses of champerty or maintenance are asserted, and therefore are not discoverable. On this point, as examples, the authors cited Kaplan v. S.A.C. Capital Advisors, L.P., No. 12-CV-9350 VM KNF, 2015 WL 5730101, at *5 (S.D.N.Y. Sept. 10, 2015); Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, 721 (N.D. Ill. 2014) (“The terms of Miller's actual funding agreement would seem to have no apparent relevance to the claims or defenses in this case, as required by Rule 26 as a precondition to discovery.”); Benitez v. Lopez, No. 17-CV-3827-SJ-SJB, 2019 WL 1578167, at *1 (E.D.N.Y. Mar. 14, 2019) (“[T]he financial backing of a litigation funder is as irrelevant to credibility as the Plaintiff’s personal financial wealth, credit history, or indebtedness. That a person has received litigation funding does not assist the factfinder in determining whether or not the witness is telling the truth. Furthermore, ‘[w]hether plaintiff is funding this litigation through savings, insurance proceeds, a kickstarter campaign, or contributions from the union is not relevant to any claim or defense at issue.’”). Joseph J. Stroble and Laura Welikson, Third-Party Litigation Funding: A Review of Recent Industry Developments, IADC Defense Counsel Journal, April 30, 2020.

In contrast to these decisions, this source notes that the court in Gbarabe v. Chevron Corp., No. 14-CV-00173-SI, 2016 WL 4154849 at *2 (N.D. Cal. Aug. 5, 2016) granted the defendant’s motion to compel the disclosure of the plaintiff’s funding agreement in this proposed class action suit finding, in part, that the funding agreement was relevant to the Federal Rule of Civil Procedure 23 adequacy determination, and that Chevron was entitled to view the agreement itself “to make its own assessment and arguments regarding the funding agreement and its impact, if any, on plaintiff’s ability to adequately represent the class.” Joseph J. Stroble and Laura Welikson, Third-Party Litigation Funding: A Review of Recent Industry Developments, IADC Defense Counsel Journal, April 30, 2020, citing, Gbarabe, 2016 WL 4154849 at *2.

In addition to these resources, another source reports, in part, that after analyzing 52 trial court decisions, they found “courts most often deny or limit discovery of funding agreements and communications with funders … Occasionally, court allows discovery of funding documents in unusual cases, but courts so far have not found this minority of decisions persuasive … A few courts have compelled discovery of information shared with funders, but after analyzing a properly raised work-product claim, only two judges have concluded that sharing information with a funder under normal commercial funding conditions waives all work product protection.” Charles M. Agee, III, Lucian T. Pera, and Alex Agee, Litigation Funding and Confidentiality: A Comprehensive Analysis of Current Case Law, Westfleet Advisors, August 2021, at. 2-3.