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Federal rules committee recommends no immediate action for third-party funding disclosure rulemaking at recent meeting

Third-Party Litigation Funding (“TPLF” or “third-party funding”) is an emerging practice impacting insurers, attorneys, and policymakers.  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.[1]   As more fully discussed in the author’s recent TPLF Report, third-party funding is presenting several different issues.  One such question of much interest and debate presently is: Should the Federal Civil Rules of Procedure be amended to require plaintiffs to disclose TPLF agreements to defendants?

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On October 5, 2021, the Federal Advisory Committee on Civil Rules (Advisory Committee or Committee)[2] revisited this question again but did not recommend any immediate action toward formal TPLF disclosure rulemaking.[3]  In reaching this decision, the Committee raised several issues and questions which, from their view, continue to present challenges in developing TPLF rulemaking at this time.  The Committee’s decision will likely disappoint those who have been advocating for a TPLF disclosure requirement over the past several years.  

This article presents a general and non-exhaustive overview of the current TPLF disclosure issue, the Advisory Committee’s review of this matter, certain challenges noted by the Committee in developing TPLF disclosure rules, and a general survey of the current state of TPLF disclosure beyond the Federal rules debate, including a review of “local” federal court rules, recent developments at the state level, and the Litigation Funding Transparency Act reintroduced in Congress earlier this year.

Efforts to amend the Federal Civil Rules of Procedure

Currently, the Federal Rules of Civil Procedure (Federal Rules) do not contain an explicit provision requiring plaintiffs to disclose TPLF information or a copy of the TPLF agreement to the defendants.   Whether the current rules should be amended to require TPLF disclosure first appeared on the Advisory Committee’s agenda in Fall 2014[4] as part of a proposal submitted by the United States Chamber Institute for Legal Reform (the Chamber).  

The Chamber’s 2014 proposal, which was resubmitted in 2017, seeks to amend Fed. R. Civ. P. 26(a)(1)(A). 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.[5]  

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.[6]

This proposal has engendered much discussion and debate.  In support of amending Rule 26, the Chamber outlined a myriad of factors and considerations in support of TPLF disclosure. In general, the Chamber argues that the proliferation and expansion of TPLF funding 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.[7]   

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.[8]  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.[9] From the AAJ’s view, the Chamber’s effort to amend Rule 26 was “just an attempt to unbalance the playing field.”[10]    

The Advisory Committee has been “monitoring” TPLF developments since 2014

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.”[11] 

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.”[12] 

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.”[13]  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.[14]

The Advisory Committee does not recommend “any immediate action” toward TPLF rulemaking at its October 2021 meeting

Turning our attention to the Advisory Committee’s October 2021 meeting, the TPLF disclosure issue was back on the agenda with Committee noting “it seemed timely to report back to the Committee, in part due to an inquiry in May 2021 from Senator Grassley and Representative Issa.”[15]  The referenced “inquiry” relates to a joint letter sent to the Advisory Committee’s Chairperson, The Honorable John D. Bates, by Senator Charles E. Grassley (R-IA) and Representative Darrell Issa (R-CA).[16]  In their letter, these lawmakers requested that the Advisory Committee provide a status update on the TPLF disclosure issue.[17]  In addition, they also took the opportunity to inform Judge Bates of current Congressional activity on this topic, most notably their re-introduction of the Litigation Funding Transparency Act (“LFTA”) in the House and Senate.[18]  Very generally, the LFTA would require plaintiff lawyers to disclose outside funding agreements in federal class action and MDL lawsuits.[19] 

In support of the LFTA, Senator Grassley and Representative Issa argued that adopting a federal TPLF disclosure rule was “a commonsense matter and critical to the integrity of our federal court system”[20]  noting the following:

The practice of TPLF cannot be allowed to proceed in its current form.  Under present law, virtually all TPLF activity occurs in secrecy because there is no procedural or evidentiary rule requiring disclosure of the use and terms of such funding. Moreover, to the extent defendants seek this information through ordinary discovery, plaintiffs generally object to providing it, and courts often do not compel production of the requested information. Transparency brings accountability … Our legislation would take one simple step towards bringing TPLF activity into the daylight.[21]

Taking this request into consideration, the Advisory Committee placed TPLF disclosure on their agenda for the October 2021 meeting and dedicated an entire section to TPLF as part of the meeting booklet.[22]

However, the Committee did not ultimately recommend any immediate action be taken toward formal rulemaking stating, in part, as follows:

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). [23]

Looking ahead, it is unknown if the TPLF disclosure issue will be back on the agenda as part of the Advisory Committee’s next meeting scheduled for January 4, 2022 in Miami, Florida.[24]

The Advisory Committee discusses issues and challenges in creating TPLF disclosure rules

While the Advisory Committee declined any action toward rulemaking, they did share some interesting insights on the issue which may be interpreted as showing the difficulties the Committee may see in amending Rule 26 as specifically proposed, and the issue of TPLF disclosure more generally.

For example, the Advisory Committee noted that the “[t]he effort [to establish possible TPLF disclosure rules] would require a considerable amount of work.”[25] Further, the Committee seemed to contemplate whether other rulemaking entities may be the  more appropriate forums to address the issue, commenting that “[a]s information about the multitude of issues increases, it may be that one response is to conclude that this collection of issues is too diverse to be handled by a civil rule amendment.  Another is to conclude that regulation of TPLF is best left to other entities, such as state legislatures, rather than individual federal judges.”[26]  

In addition, the Advisory Committee dedicated several pages outlining a variety of different issues and questions it noted as “bearing on the Committee’s role” in considering TPLF disclosure rules.  While a complete examination into all the points is beyond the scope of this article, the author found a few of these items particularly noteworthy outlined in general 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.”[27]  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.”[28]  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.”[29]  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?”[30]

What should be disclosed?

Another issue the Committee raised concerned what information should be disclosed.[31]  On this point, the Committee noted that the proposal to amend Rule 26 would require the parties’ full agreement to be disclosed, while the LFTA would similarly require full disclosure in the specific instances in which it would apply.[32]  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 … .)”[33]

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.[34]  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)?”[35]

How should “portfolio” funding be handled?

As portfolio TPLF funding[36] 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 funding obligation no longer exists to pending cases, (does that mean that the disclosure can somehow be withdrawn?”[37]

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.[38]  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 enforcers of professional responsibility rules and champerty and maintenance rules.[39] 

Taking these items into consideration, the Committee concluded that the “catalog of issues is hardly exhaustive but suggests the challenges that may lie ahead for rulemaking on this subject.  As should be apparent, a very large amount of fact-gathering would be necessary to fashion a disclosure rule addressing TPLF.”[40]

TPLF disclosure – looking beyond the Federal Rules debate

Based on the above, it seems reasonable to suggest that the Advisory Committee is not contemplating taking any steps (at least any time soon) toward amending Rule 26 or otherwise promulgating some sort of TPLF disclosure rules for federal claims. 

So, where does this leave the issue in the bigger picture?  While an exhaustive examination into this question is outside the scope of this article, the following provides a general overview of current developments on TPLF disclosure beyond the Federal rules debate which the reader may find helpful:

Some Federal courts have adopted “local rules”

While there is no explicit federal rule requiring TPLF disclosure at this time, some federal courts have promulgated their own “local” TPLF disclosure rules.[41]  On this point, a well-researched memorandum prepared for the Advisory Committee’s April 2018 meeting noted that, as of late 2017, six U.S. Courts of Appeals[42] and 24 out of the 94 federal district courts [43] 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.[44] Notably, however, none of these local rules reportedly require the production of the litigation funding agreement itself.[45]  Further, these rules have reportedly focused more on TPLF disclosure for the purposes of helping courts assess potential judicial recusal or disqualification issues,[46] rather than providing defendants with third-party funding information as part of litigation discovery.  As such, the Advisory Committee commented that “[it does not seem that these disclosure rules are focused on the main issues the current proposal before this Committee addresses.”[47]

However, the United States District Courts (U.S.D.C.) for the Northern District of California and New Jersey are examples of two courts that have promulgated local rules aimed more at providing defendants with TPLF information as part of claim litigation.  For example, in 2017 the U.S.D.C. for 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.[48]  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.[49]

More recently, the U.S.D.C. for New Jersey issued local civil rule, N.J. Civ. Rule 7.1.1 (June 21, 2021) which the Advisory Committee noted as “seem[ing] to be focused more closely on the issues like those raised by the current submission before this Committee.”[50] 

Generally, N.J. Civ. Rule 7.1.1 states 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.”[51]  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.”[52] 

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.”[53]

Litigation Funding Transparency Act of 2021

As discussed above, the Litigation Funding Transparency Act of 2021 (LFTA) was introduced in the House and Senate in March of this year.[54]  Similar to previous efforts, these bills propose, in part, that the identity of the funder and a copy of the funding agreement be disclosed in federal class actions and multi-district litigation (MDL) cases.[55]  As of October, the LFTA  has been referred to the House Committee on the Judiciary and the Subcommittee on Courts, Intellectual Property, and the Internet and the Senate Committee on the Judiciary.[56]

State considerations

A complete 50 state survey of current TPLF discovery rules is beyond the scope of this article. However, it is noted that two states, Wisconsin and West Virginia, 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.[57] 

Given the unsettled state of TPLF discovery, disputes regarding TPLF disclosure and production have also come before the courts. While a complete survey into this complex area is beyond the scope of this article, rulings on this issue have been noted to differ based on the case facts and other factors.[58]

Questions?

Going forward, the TPLF disclosure issue will likely continue to be an issue of interest and concern for insurers.  Like so many other TPLF matters, the disclosure issue warrants close attention given the impact it can have on litigation practices.  The author will be following developments in this area and will provide future updates as warranted.  In the interim, please do not hesitate to contact the author if you have any questions.


[1] 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] 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.

[3] It is noted that the TPLF disclosure issue was just one of several items addressed by the Committee at its October 5, 2021 meeting.  For a review of the other agenda items reviewed by the Committee, see pages 2-5 of its meeting report.  Advisory Committee on Civil Rules Booklet, October 5, 2021, at 2-5.

[4] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 371.

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

[6] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 375.

[7] 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.

[8] 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.

[9] Id at 232-236.

[10] 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 note 7 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.

[11] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 371.

[12] Advisory Committee on Civil Rules Booklet, October 29, 2019, at 190.

[13] Id. at 372.  See also, Advisory Committee on Civil Rules Booklet, October 29, 2019, at 190-191 and Advisory Committee on Civil Rules Booklet, April 1, 2020, at 145.

[14] Advisory Committee on Civil Rules Booklet, April 1, 2020, at 26.  While a complete examination into the degree of TPLF practices in the MDL context is beyond the scope of this article, and without questioning the subcommittee’s findings on this point, the author notes that, in contrast to these findings, a recent study which analyzed 225,293 requests for third-party funding from 2001 to 2016 related to mass tort and motor vehicle accident cases from what was described as “one of the largest financing firms in the U.S.,” concluded that “consumers with mass tort claims pending in MDL actions constitute the fastest growing sector of those seeking assistance from third-party funding.” See, Ronen Avraham, Lynn A. Baker, and Anthony J. Sebok, The MDL Revolution and Consumer Legal Funding, 40 Rev. Litig. 143, 143 (Spring 2021). 

[15]  Advisory Committee on Civil Rules Booklet, October 5, 2021, at 371.

[16] 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.

[17] Id.

[18] 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.’’

[19] Id.  

[20] Id.

[21] 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.

[22]   Advisory Committee on Civil Rules Booklet, October 5, 2021 at Booklet Tab 24 (p. 371-418).

[23] In addition, it is noted that the Multidistrict Litigation Subcommittee briefly referenced TPLF as part of its discussion of several other issues as contained in Booklet Tab 8.  Specifically, the MDL Subcommittee included TPLF as an item within a subsection entitled “Issues No Longer Under Consideration.” Advisory Committee on Civil Rules Booklet, October 5, 2021, at 163. This section contains a short historical recap of the MDL Subcommittee’s relation to TPLF in which subcommittee noted that it was tasked with examining TPLF discovery proposals but that “[a]fter careful review of experience with TPLF in MDL proceedings, the subcommittee concluded that there did not seem to be a significant role for TPLF in those proceedings.” Id. Thus, the MDL subcommittee reported back to the full Committee that it was discontinuing work on the TPLF disclosure topic. 

Echoing similar challenges in obtaining the type of information which may be necessary to evaluate possible rulemaking, the MDL Subcommittee as part of the Advisory Committee’s December 2017 meeting stated, in part, as follows:

The information provided by different sources often presents direct contradictions about whether there are general practices, what the practices may be, and what variations may occur or emerge. Work toward possible rules must begin, if at all, by undertaking a careful question for information that may be hard to come by.  Neither financing firms nor lawyers nor litigants may be eager to reveal the full terms of their agreements.  None of them may even be able, much less willing, to describe the full impact of their agreements on the conduct of lenders, lawyers, and parties in third-Party funded litigation.  The topic may be no more ripe for further work now than it was in 2014 or 2016.   Advisory Committee on Civil Rules Booklet, December 6, 2017, at 247.

[24] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 47.

[25] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 377.

[26] Id

[27] Id. at 379.

[28] Id.

[29] Id.

[30] Id.

[31] Id. at 380.

[32] Id.

[33] Id. at 380-81.

[34] Id. at 379

[35] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 379-80.

[36] TPLF “portfolio funding” which has been described to involve law firms receiving investor funding for multiple cases in different practice areas.  Jarrett Lewis, Third Party Litigation Funding: A Boon or Bane to the Progress of Civil Justice?, 33 Geo.J.Legal Ethics 687, 691 (Summer 2020), citing, Sean Thompson, Dai Wai Chin Feman, and Aaron Katz, United States, in The Laws. Rev., Third Party Litigation Funding Review, 55 Leslie Perrin ed., 2019.

[37] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 381.

[38] Id. at 379-82.

[39] Id. at 381-86.

[40] Advisory Committee on Civil Rules Booklet, October 5, 2021, at 386.

[41] Id. at 378.

[42] 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 (3rd Cir. L.R. 26.1.1(b); Fourth Circuit (4th Cir. L.R. 26.1(2)(B); Fifth Circuit (5th Cir. L.R. 28.2.1); Sixth Circuit (6th Cir. L.R. 26.1(b)(2)); Tenth Circuit (10th Cir. L.R. 46.1(D)); and Eleventh Circuit (11th Cir. L.R. 26.1-1(a)(1); 11th Cir. L.R. 26.1-2(a).”  Id. at 220.

[43] 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.

[44] Id.

[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] 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, 5th Cir. L.R. 28.2.1 at 213, citing, C.D. Cal. L. R. 7.1-1.  Id. at 209.  

[47]  Advisory Committee on Civil Rules Booklet, October 5, 2021, at 377.

[48] 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.

[49] Id.

[50] Id. at 378.

This recently released New Jersey civil rule is referenced by the court as “Civ. RULE 7.1.1 DISCLOSURE OF THIRD-PARTY LITIGATION FUNDING” and, per the court, was promulgated pursuant to its authority under 28 U.S.C. 2071 and Rule 83 of the Federal Rules of Civil Procedure.  This new rule became effective via a court order dated June 21, 2021.   

N.J. Civ. Rule 7.1.1 states in full as follows:

Civ. Rule 7.1.1 Disclosure of Third–Party Litigation Funding

(a) Within 30 days of filing an initial pleading or transfer of the matter to this district, including the removal of a state action, or promptly after learning of the information to be disclosed, all parties, including intervening parties, shall file a statement (separate from any pleading) containing the following information regarding any person or entity that is not a party and is providing funding for some or all of the attorneys’ fees and expenses for the litigation on a non-recourse basis in exchange for (1) a contingent financial interest based upon the results of the litigation or (2) a non-monetary result that is not in the nature of a personal or bank loan, or insurance:

  1. The identity of the funder(s), including the 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 the answer is in the affirmative, the nature of the terms and conditions relating to that approval; and
  3. A brief description of the nature of the financial interest.

(b) The 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.

(c) Nothing herein precludes the Court from ordering such other relief as may be appropriate.

(d) This Rule shall take effect immediately and apply to all pending cases upon its effective date, with the filing mandated in Paragraph 1 to be made within 45 days of the effective date of this Rule.

[51] Id.

[52] Id.

[53] Id.

[54] Litigation Funding Transparency Act of 2021, H.R. 2025 and S. 840, 117th Cong. (2021).  Both bills were introduced on March 18, 2021 and propose to amend Chapter 114 of title 28, United States Code.

[55] See n. 18 above.

[56]  Westlaw. Federal Bill Tracking, 2025 Federal One Hundred Seventeenth Congress - First Session, retrieved October 31, 2021.

[57]  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.”

W. 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.”

[58] 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.


Mark Popolizio, J.D.

Mark Popolizio, J.D., is vice president of MSP compliance at ISO Claims Partners, a Verisk business. You can contact Mark at mpopolizio@verisk.com.


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