WASHINGTON – Lawmakers
in both chambers of Congress reintroduced legislation requiring disclosure of
third-party litigation financing agreements in civil lawsuits. The bills, which
are designed to shine a light on the financial interests or potential conflicts
involving third-party lawsuit funders is led by Judiciary Committee Ranking
Member Chuck Grassley (R-Iowa) and Congressman Darrell Issa (R-Calif.-50).
Senate cosponsors include senators Thom Tillis (R-N.C.), John Cornyn
(R-Texas) and Ben Sasse (R-Neb.), members of the Senate Judiciary
Committee.
Hedge
funds and other commercial lenders are increasingly financing the cost of civil
litigation in return for a portion of any recovery. However, the existence and
terms of such agreements are rarely disclosed to the court or
opposing parties, creating the potential for conflicts of interest. The?Litigation
Funding Transparency Act of 2021?would require disclosure at the outset of
any class action lawsuit filed in federal courts, or in any claim that is
aggregated into a federal multi-district litigation (MDL) proceeding, of any
agreement between a party to the case and any third-party commercial enterprise
that has a contingent interest in the outcome of the case.?
“Transparency brings
accountability. It’s true for Congress, the Executive and our
courts. For too long, obscure third-party litigation
funding arrangements have secretly funneled money into our civil
justice system, without any meaningful oversight, all for the purpose
of profiting off someone else’s case. We should know whether there
are undue pressures at play that could needlessly prolong litigation
or harm the interests of the claimants themselves. A healthy
dose of transparency is needed to ensure that profiteers aren’t distorting our
civil justice system for their own benefit. Our bill strikes the
appropriate balance in getting certain information out in the
open while allowing courts to craft necessary protections,” Grassley said.
“This
legislation is an uncomplicated but long-overdue transparency measure. If a
third party is financing a class action lawsuit in federal court, it should be
declared at the onset of the case. Awareness by all parties will help ensure
fair and equal treatment by the justice system, as our system is designed to
guarantee,” Issa said.
“This
commonsense legislation will shed light on third-party litigation financing
agreements to ensure that the court and opposing parties are made aware of who
is financing the litigation and whether or not there are any conflicts of
interest. I am proud to join Senator Grassley to re-introduce this bill, and I
hope we can pass it out of Congress quickly,” Tillis said.
Third-party
litigation funding is estimated to be a multi-billion dollar industry but is
largely unregulated and subject to little oversight, fueling
concerns about conflicts of interest that may distort the
civil justice system. In 2015, Grassley and Cornyn?
sought details?on the types of cases that
funders will finance, the structure and terms of the agreements they enter
into, and whether the court or interested parties are ever made aware of any
such agreement. Since then, third-party litigation funding has skyrocketed. For
example, litigation financier Burford Capital reported profits up 75% in 2016.
And according to?
Burford’s own 2018 survey, “nearly one in
three interviewees (32%) and an even larger percentage of survey respondents
said their firms or companies had used litigation finance—a 237% increase since
2012.”
To
improve transparency and oversight, the?Litigation Funding Transparency Act?provides
a simple, uniform rule that would apply to all class actions and MDL proceedings
in federal courts. Specifically, it requires class counsel, in any class action
filed in a U.S. district court, to disclose in writing to the court and all
other named parties to the case the identity of any commercial enterprise
(other than a class member or class counsel) that has a right to receive
payment that is contingent on the receipt of monetary relief in the case. Such
disclosure may be limited by stipulation or order by the court to protect
certain information. The bill imposes the same disclosure obligations for MDL
proceedings.
Text
of the?
Litigation Funding Transparency Act?is available
HERE.
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