The federal courts’ Advisory Committee on Civil Rules will discuss whether to write a new rule requiring disclosure of third-party litigation funding (TPLF) at its upcoming meeting on April 14th. The Advisory Committee should take action to provide transparency about nonparty funding of, and control over, federal lawsuits.
Federal courts have long operated on a fundamental principle: those with direct interests in litigation must disclose those interests. Now comes the litigation funding industry, demanding to be entirely exempt from this deeply ingrained tradition of transparency.
Third-party funders, as well as others involved in litigation, know that courts require real parties in interest to be identified. Corporate parents and significant shareholders must be disclosed, even if they aren’t directly involved in the suit. Insurance companies that may pay judgments must provide their agreements to opposing parties. Even amicus curiae—who have no direct financial stake whatsoever—must disclose themselves and who funded their briefs.
Third-party funders often acquire substantial financial interests in cases, sometimes claiming 30-40% of any recovery. Many funding agreements give funders control over settlement decisions, requiring their approval before plaintiffs can accept offers. Some agreements give funders a say over litigation strategy, selection of experts, and even choice of counsel. Yet funders argue they deserve a singular, categorical exception and should remain hidden from courts, opposing parties, and the public.
Their arguments echo objections the insurance industry raised fifty years ago—and those were losing arguments. When the Federal Rules of Civil Procedure were amended in 1970 to require disclosure of insurance agreements, the Advisory Committee explained that disclosure would “enable counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based upon knowledge and not speculation.”
That rationale applies with equal—indeed, greater—force to litigation funding. If parties need to know about insurance agreements to understand who will pay judgments, they certainly need to know about funding agreements that determine who controls litigation and settlement decisions, and who will share in any recovery.
The funding industry’s main objections aren’t convincing. First, it argues that litigation funding provides access to justice for plaintiffs who couldn’t otherwise afford to litigate. Even if true, this does not justify secrecy. If funding serves legitimate purposes, transparency should pose no threat.
Second, funders contend their agreements are protected by attorney-client privilege or the work-product doctrine. But funding agreements are commercial contracts between parties and non-party investors, not communications between attorneys and clients. Contractual terms defining who controls decisions and who benefits from outcomes are not work product.
Even if some portions of funding agreements warrant protection, courts have well-established procedures for handling confidential information. Protective orders, redactions, and in-camera review allow courts to balance legitimate confidentiality interests against the need for transparency.
The third objection—that funding arrangements are not relevant to the litigation—ignores practical realities. Courts cannot effectively manage litigation when they don’t know whether plaintiffs have contracted away their decision-making authority. Parties cannot negotiate settlements when they don’t know whether the person across the table is prohibited from resolving claims or even discussing that possibility. And courts cannot assess the proportionality of discovery requests—required under the rules—without knowing whether a deep-pocket non-party is paying for, and perhaps driving, a party’s discovery demands.
Courts increasingly encounter these problems without knowing there’s a funder in the case. When funding arrangements surface mid-litigation, judges discover that seemingly irrational plaintiff behavior reflected funder control they couldn’t see. Settlement discussions stall because funders withhold required approval. Cases continue despite all parties’ desire to settle because funding contracts mandate prosecution. Discovery disputes multiply because courts lack information about who actually controls litigation decisions and resources.
The funding industry’s request for special treatment is particularly striking when compared to amicus disclosure requirements. The Federal Rules of Appellate Procedure require amici to disclose their identity, their lawyers, and anyone who contributed significantly to the preparation of their brief. Amici have no direct financial interest in case outcomes, no control over litigation, and no right to any portion of judgments. Yet they must disclose their financial supporters because courts, parties, and the public need to know who is seeking to influence judicial outcomes.
If those with minimal involvement must disclose, those with substantial financial stakes and litigation control certainly should. The logic is inescapable: litigation funders have far greater interests in outcomes than amici, more than many corporate parents, and in some cases are the real parties in interest. They should not receive special treatment.
The solution is straightforward: amend the Federal Rules of Civil Procedure to require the disclosure of litigation funding agreements, just as they require disclosure of insurance agreements. This would provide courts with information necessary for case management, enable parties to make informed strategic decisions, and maintain the transparency that has always been fundamental to our judicial system. The Advisory Committee should act on the new proposal by Lawyers for Civil Justice and the U.S. Chamber of Commerce Institute for Legal Reform for a TPLF disclosure rule.
Disclaimer: The opinions and views expressed in this article are those of the author and not necessarily those of The National Law Review.
