May 10, 2018

Grassley, Tillis, Cornyn Introduce Bill to Shine Light on Third Party Litigation Financing Agreements

WASHINGTON – Senate Judiciary Committee Chairman Chuck Grassley and Senators Thom Tillis and John Cornyn today introduced legislation requiring disclosure of third party litigation financing agreements in civil lawsuits. Through such agreements, hedge funds and other commercial lenders finance the cost of civil litigation in return for a portion of any recovery. However, the existence and terms of such agreements are often not disclosed to the court or opposing parties, creating the potential for conflicts of interest. The Litigation Funding Transparency Act of 2018 would require disclosure at the outset of any class action lawsuit filed in federal courts, or in any claim that is aggregated into a federal multi-district litigation (MDL) proceeding, of any agreement between a party to the case and any third-party commercial enterprise that has a contingent interest in the outcome of the case. 
 
“As I’ve said time and again, transparency brings accountability. For too long, obscure litigation funding agreements have secretly funneled money into our civil justice system, all for the purpose of profiting off someone else’s case. The courts and opposing parties should know whether there are undue pressures and secret agreements at play that could unnecessarily drag out litigation or harm the interest of the claimants themselves. No one’s saying that litigation funding should be prohibited at this time. But a healthy dose of transparency is needed to ensure that these profiteers aren’t distorting our civil justice system. Our bill strikes the appropriate balance in disclosing certain information while allowing courts to craft necessary protections,” Grassley said.
 
“The Litigation Funding Transparency Act of 2018 is commonsense legislation that will shed light on third party litigation financing agreements to ensure that the court and opposing parties are made aware of who is financing the litigation and whether or not there are any conflicts of interest,” Tillis said.
 
“Third party litigation financing pumps millions of dollars into our justice system, and the current lack of oversight makes it difficult to track this money’s influence on litigation. This bill will give us insight into where this money is going and keep the civil justice system honorable and fair,” Cornyn said.
 
Third party litigation funding is estimated to be a multi-billion dollar industry but is largely unregulated and subject to little oversight, fueling concerns that such agreements create conflicts of interest and distort the civil justice system. In 2015, Grassley and Cornyn sought details on the types of cases that funders will finance, the structure and terms of the agreements they enter into, and whether the court or interested parties are ever made aware of any such agreement. Since then, third-party litigation funding has skyrocketed. For example, litigation financier Burford Capital reported profits up 75% in 2016. And according to Burford’s own survey, 28% of private practice lawyers in the U.S. say their firms have used third-party funding directly, “a four-fold increase since 2013.”
 
To improve transparency and oversight, the Litigation Funding Transparency Act of 2018 provides a simple, uniform rule that would apply to all class actions and MDL proceedings in federal courts. Specifically, it requires class counsel, in any class action filed in a U.S. district court, to disclose in writing to the court and all other named parties to the case the identity of any commercial enterprise (other than a class member or class counsel) that has a right to receive payment that is contingent on the receipt of monetary relief in the case. Such disclosure may be limited by stipulation or order by the court to protect certain information. The bill imposes the same disclosure obligations for MDL proceedings.
 
Text of the Litigation Funding Transparency Act of 2018 is available HERE.
 

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