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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