Over two years ago, I wrote that courts and counsel have not done enough to adapt to the litigation industry’s use of third-party financing. See “Litigation Funding” (May 8, 2012). A few days ago, Byron Stier, at the Mass Tort Litigation Blog, posted a short news item about a recent effort to modify discovery rules to take into account the litigation industry’s business model of seeking third-party litigation funding. See “Industry Groups Seek Amendment of Rule 26 to Require Disclosure of Third Party Litigation Financing” (July 13, 2014).
Stier reported that the U.S. Chamber of Commerce Institute for Legal Reform, American Insurance Association, American Tort Reform Association, Lawyers for Civil Justice, and National Association of Manufacturers, back in April 2014, wrote a letter to the Committee on Rules of Practice and Procedure of the Administrative Office of the federal courts, to propose an amendment to Federal Rule of Civil Procedure 26(a)(1)(A). Their proposed new language is underscored, and follows 26(a)(1)(A)(i)-(iv):
“(v) for inspection and copying as under Rule 34, any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment or otherwise.”
This proposal is important and necessary to ensure that defendants can inquire about financial bias in jury voir dire, as well as identify bias among judges, special masters, and witnesses. Other procedural rule reforms will be needed as well. Appellate briefs should disclose financiers that have a stake in the litigation. When courts limit counsel and parties’ communications to the media about a case, such limits should apply as well to insurers and third-party financiers of the litigation efforts. Third-party financiers provide a convenient way for the litigation industry to lobby regulators and legislators, and more expansive disclosure rules are needed to capture the activities of the litigation financiers. Funding of litigation-related research by third-party financiers should be anticipated by journal editors with more expansive disclosure rules; journal editors should be alert to evolving financial markets that may influence research agendas and publications. Lawyers’ scrutiny of new clients for conflicts now requires inquiry into the veiled interests created by litigation financing.
