WASHINGTON – Some of the country’s largest companies want the plaintiffs who sue them in federal courts to be required to reveal whether an outside entity is funding their lawsuits.
More than a dozen states have passed legislation in recent years targeting third-party litigation funding, the business of fronting the costs of pursuing lawsuits in exchange for a percentage of what is recovered. That percentage usually exceeds limits imposed by traditional usury laws, but since the agreements are not viewed as traditional loans, those laws don’t apply.
Still, corporate defendants that are required to disclose available insurance money when they are sued want plaintiffs to reveal who stands to gain from their litigation. A letter sent Monday by more than 200 businesses to the Advisory Committee on Civil Rules urges it to adopt measures proposed by the Lawyers for Civil Justice and the U.S. Chamber Institute for Legal Reform in March.
“Given the Federal Rules’ emphasis on transparency about financial interests in litigation, the absence of a TPLF disclosure requirement is inexplicable,” the letter says. “Contracts for litigation funding directly or indirectly give nonparty funders a share of judgments and settlements and provide a basis for influencing or controlling litigation and settlement decisions.”
North Carolina has banned the practice entirely, and corporations aren’t the only ones who have a reason to complain about the terms of TPLF agreements. Previous Legal Newsline reporting noted an illegal immigrant who won a $3.75 million settlement only took home about 13% after the lender grabbed $1.8 million.
Advocates of TPLF, which has exploded into a multibillion-dollar business, say it gives individuals in dire financial straits the opportunity to seek justice in court for their injuries. And federal legislation hoping to require disclosure has had trouble moving forward as Democrats in Congress resist reform. The U.S. International Trade Commission has proposed its own rule, though it simply requires funders to show themselves during patent-dispute proceedings there.
Few federal courts, like New Jersey and California’s northern district, have implemented their own disclosure requirements, and the companies’ letter suggests a “straightforward, uniform rule” similar to the insurance-disclosure mandate.
“Doing so would provide courts, litigants, and the public with information that is critical to managing cases and maintaining judicial integrity,” the letter says. “A uniform rule would save courts from having to devise their own disclosure criteria and parties from having to guess which of the disparate disclosure protocols (if any) a court will employ in a particular case.”
Among the companies signing the letter are Allstate, Amazon, ExxonMobil, General Motors, Google, Johnson & Johnson, Meta, Microsoft, OpenAI, Target, Uber and Walmart.
In proposing the amendment, Lawyers for Civil Justice and the Institute for Legal Reform argue all commercial TPLF agreements should be disclosed, in part to eliminate the risk of foreign entities financing litigation to further their own interests. They also have done studies showing TPLF agreements often include clauses requiring plaintiffs to comply with their decisions on whether to settle and for how much, despite professional rules in most states prohibiting such conduct.
In one of the most widely known cases, Burford Capital, a publicly traded litigation finance firm, was able to block Sysco Food Service from settling antitrust cases for less than Burford had invested in the litigation.
