Litigation financing is nothing new. For decades private companies have lent money to law firms to fund lawsuits. This financing has helped underdog plaintiffs even the playing field against large corporate defendants that often outweigh the opposition 10 to 1 or more in financing. Up until recently, litigation funding agreements have been kept confidential. Recently, calls to unveil financial backers have reached courts across the nation and even landed in Washington. While critics of confidential financing agreements argue that there could be conflicts of interests and wrongful motives for the financing, many see the importance of keeping these agreements quiet.
US Chamber of Commerce considers transparency requirements
In 2017, the US Chamber Institute for Legal Reform led a broad coalition with 29 other business and legal organizations to pass The Fairness in Class Action Litigation Act of 2017. This act would require disclosure of third-party litigation funding agreements. The bill passed the House of Representatives but was referred to the Committee on the Judiciary in the Senate.
Proponents of litigation financing argue that disclosure could limit the number of third parties willing to get involved in funding lawsuits. They also fear that defendants could use the information to tie up litigation with unnecessary discovery requests that would reveal plaintiff’s budget limitations. Those in favor of transparency argue that defendants have a right to know anyone with a financial interest in the lawsuit. Calls for disclosure also come from those who fear third-party backers are funding trials for the wrong reasons.
Courts weigh in
Courts across the nation are divided in whether disclosure should be required in all lawsuits which receive third-party financing. In 2017, the Northern District of California issued a Notice Regarding Civil LR 3-15 stating “in any proposed class, collective or representative action; the required disclosure includes any person or entity that is funding the prosecution of any claim or counterclaim.”
Recent federal decisions show how split the courts are in whether they should require disclosure of third-party financing agreements. In Kaplan v. S.A.C. Capital Advisors, the court agreed with plaintiffs that disclosure of third-party financing arrangements was not needed. Defendants argued that there could be potential conflicts of interests, the court found that those arguments were “purely speculative” and therefore failed to show a relevant claim to require disclosure.
US District Judge James Robart out of Seattle issued a decision similar to the one in Kaplan finding that Zillow did not present a compelling reason to order the plaintiff to provide information on third-party funding.
In Gbarbe v. Chevron Corp., however, the court agreed with the defendant that disclosure of litigation funding was relevant to determining “the resources that counsel will commit to representing the class.” In the case, Chevron requested the court to compel plaintiffs to produce “documents reflecting or relating to the actual or potential financing or funding of the prosecution of the litigation. The court granted Chevron’s motion noting that under the circumstances of the case the third-party financing agreement was relevant to the adequacy determination.
Litigation Funding Future
Given the split in court decisions, it is unclear what the future holds for required disclosure on litigation financing. So far, the most significant move to compel disclosure of third-party funders has been in class action lawsuits. Litigation financing continues to be an essential part of leveling the playing field between David and Goliath.
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 (VHT, Inc. v. Zillow Group, Inc., et al, 2017)