When the U.S. Supreme Court's Advisory Committee on Civil Rules agreed earlier this month to create a subcommittee to look at litigation funding disclosure, it marked a big departure from the advisory board’s hands-off approach.
“It probably deserves a careful look, if for no other reason than we don't know what we don't know," U.S. District Judge David Proctor said October 10 after the ACCR met and agreed to create a disclosure subcommittee. Proctor’s remarks and the action of the committee were reported by The American Lawyer.
What’s different now, after years of not getting involved in the issue, is the growth of litigation funding, said Proctor, who was asked to chair the subcommittee. By one account, litigation funders last year invested some $15 billion in civil cases that have come before U.S. courts.
“The landscape is so drastically changing and the products are so widespread and different," he said.
Concerns by big companies likely helped spur the committee to act.
Almost 125 companies signed a letter in early October urging the committee to settle once and for all whether outside funders’ involvement in civil litigation should be disclosed and, if so, how. Right now, courts are making it up as they go along, the companies said. In most cases, there’s no disclosure at all, which means conflicts, as well as critical information about plaintiffs’ resources and who’s making litigation decisions, remain hidden. In other cases, there is ex parte disclosure, which creates conditions of unequal treatment among parties.
“Ex parte communications are strongly disfavored by the Code of Conduct for U.S. Judges because they are both ineffective in educating courts and highly unfair to the parties who are excluded,” the companies said. Amazon, Chubb, Cisco, Comcast, Eli Lilly, ExxonMobil and Federal Express are among the companies signing the letter.
Big companies have long been concerned about litigation funding disclosure. They argue third-parties are driving nuisance lawsuits as they use the courts as a money-making venture. Supporters of third-party funding say the money is non-recourse, so there’s no incentive for funders to back frivolous claims, and the industry is just leveling the playing field by enabling smaller companies and individuals to take on better-resourced companies.
In their letter, the companies say plaintiffs should disclose litigation funding sources just as defendants have been required for decades to disclose their agreements with insurance companies.
“The Advisory Committee explained in 1970 that disclosure of insurance contracts ‘will enable counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based on knowledge and not speculation,’” the companies said.
That reasoning applies equally to litigation funding, the companies said. “We need to be aware of key factors to make realistic and knowing assessments of the case and to develop appropriate litigation strategies,” they said. “Without this information, we are at a major disadvantage in determining whether there are non-parties with a direct interest in, and influence or control over, the outcome of the case and in understanding whether the case can be resolved through settlement.”
Several states have passed or considered bills in the last two years requiring some form of disclosure and lawmakers in Congress have introduced a disclosure bill, the Litigation Transparency Act, although it’s unlikely to be considered any time soon, a Bloomberg Law report says.
Should the ACCR subcommittee’s effort lead to uniform rules, that could create, without legislation, the transparency and uniformity that companies want.
“A straightforward, uniform rule for TPLF disclosure [would] remedy the current imbalanced and inconsistent litigation dynamic that is prejudicial and frustrates civil justice,” the companies said.
