Sen. Chuck Grassley Leads Effort to Improve Transparency of Third-Party Financing in Civil Litigation
On February 13, US Senators Chuck Grassley, Thom Tillis, John Cornyn and Ben Sasse, all members of the Senate Judiciary Committee, introduced legislation requiring disclosure of third-party litigation financing agreements to the court and named parties to (1) any class action lawsuit filed in federal court, and (2) any claim that is aggregated into a federal multi-district litigation proceeding. Currently, the existence and terms of third-party litigation financing agreements, whereby hedge funds and other lenders finance the cost of civil litigation with the expectation of sharing in a portion of any recovery, are rarely disclosed to the court or opposing parties, creating the potential for conflicts of interest.
If enacted, the Litigation Funding Transparency Act of 2019 would require counsel to disclose the identity of any enterprise (other than a class member or class counsel) that has a right to receive payment that is contingent on the receipt of the monetary disposition of the case. According to the Judiciary Committee, the primary purpose of the Act is to enhance transparency and oversight in the litigation finance markets, which are currently operating largely without regulation. According to Sen. Grassley, “[a] healthy dose of transparency is needed to ensure that profiteers aren’t distorting our civil justice system for their own benefit.” Sen. Grassley goes further to say, “[o]ur bill strikes the appropriate balance in getting certain information out in the open while allowing courts to craft necessary protections.”
The disclosure obligations contemplated by the Act may be limited by stipulation or order by the court to protect certain information, and will require assessing the varying interests of the parties to a particular case.
A complete copy of the proposed Act is available here.