Curiam Statement on Litigation Funding Developments

In the last ten days, there have been two developments concerning the disclosure of litigation finance agreements. On May 7, federal Judge Dan Polster issued an order in the opioids multidistrict litigation in Ohio that required limited disclosure of litigation finance agreements. Although the order was hailed in some circles as big news, the litigation finance industry’s response was a mixture of approval and indifference. And that’s because of three key aspects of the order. First, the order calls for ex parte submissions to the court, not disclosure to the opposing party. Second, the order addresses the remote possibility that a financing agreement could allow a litigation finance firm to control litigation strategy or settlement, or otherwise create a conflict of interest for the lawyer. The order does not require disclosure of the financial terms of financing agreements. Experienced lawyers and litigation finance firms do not enter into agreements that cede control of litigation strategy or settlement to the financing firm. And they do not structure agreements in a way that would create a conflict of interest for the lawyers. Third, Judge Polster prohibited additional discovery of financing agreements absent “extraordinary circumstances.”

The bill that Senators Chuck Grassley (R-IA), John Cornyn (R-TX), and Thom Tillis (R-NC) introduced three days later, titled the Litigation Funding Transparency Act (LFTA), has drawn more criticism from the industry. While also limited to MDLs and class actions, the LFTA requires mandatory disclosure of financing agreements, not just to the court but to the parties as well. But there is no good reason why disclosure to anyone other than the court is necessary or desirable from a policy perspective. And the LFTA puts no limits on additional discovery related to financing agreements. In other words, even though the LFTA ostensibly addresses some of the same theoretical concerns that Judge Polster’s order addresses, the LFTA does more than is necessary to address those concerns and is more likely to give rise to unintended consequences.

As the reaction to Judge Polster’s order shows, few litigation finance firms oppose all forms of disclosure. But if a court believes disclosure is necessary, Judge Polster’s order is a much better template than the LFTA.