Major Firms Push for Nationwide Litigation Funding Disclosure Rule

In a significant development in the legal landscape, more than 100 prominent companies from various sectors have collectively called for a nationwide rule mandating the disclosure of third-party litigation funding in U.S. lawsuits. This push for transparency comes as the litigation funding industry, which originated in Australia in the 1990s, has grown into a multibillion-dollar global market.

The initiative, spearheaded by defense-focused Lawyers for Civil Justice, saw participation from tech giants Amazon.com, Google, and Meta, alongside pharmaceutical behemoths Pfizer and Novartis, as well as automotive leader Ford. These corporations submitted a joint letter to the federal courts' Advisory Committee on Civil Rules, emphasizing the need for uniformity in funding disclosure across the judiciary.

Litigation funding, a practice where financiers support legal cases in exchange for a portion of the settlement or judgment, has become increasingly prevalent. The global market for this financial instrument was valued at $11.4 billion in 2019, with the average return on investment for funders estimated at an impressive 36%. This growth has attracted attention from hedge funds and private equity firms, further fueling the industry's expansion.

The companies argue that disclosure of financial backers is crucial for defendants to make informed decisions about litigation strategies. They contend that outside funding "fundamentally alters the dynamics and has a major impact on whether the dispute can be resolved through settlement." This perspective aligns with concerns raised by some critics who argue that litigation funding can potentially lead to frivolous lawsuits.

However, the push for mandatory disclosure has met resistance from the litigation funding industry. Christopher Bogart, CEO of Burford Capital, the largest publicly traded litigation funder, questioned the motives behind the companies' letter. Bogart stated:

"What they want is to keep their unfair advantage in the justice system and to drive up costs for anyone who sues them – which is exactly what they do whenever they find out about the identity of a litigation funder."

This debate highlights the complex nature of litigation funding, which proponents argue improves access to justice for those unable to afford legal fees. The practice has grown significantly in the UK since its legalization in 1967, and some countries, like Ireland, have only recently permitted third-party litigation funding.

As the judiciary's civil rules advisory committee prepares to meet on October 10, 2024, to discuss potential amendments to court rules regarding litigation funding disclosure, the industry finds itself at a crossroads. The committee's last discussion on this topic took place in late 2021, indicating the ongoing nature of this debate.

The outcome of this push for transparency could have far-reaching implications for the legal system, potentially affecting how commercial disputes and class actions are financed and litigated in the future. As the litigation funding industry continues to evolve, with some law firms even establishing their own funding arms, the need for clear regulations and disclosure requirements becomes increasingly apparent.