Major Companies Urge Greater Transparency in Third-Party Litigation Funding

On October 2, 2024, over 120 companies wrote to the Advisory Committee on Rules of Practice and Procedure urging the Advisory Committee to amend the Federal Rules of Civil Procedure “to provide a straightforward, uniform rule” requiring the disclosure of third-party litigation funding agreements. Ltr. at 3. The letter emphasizes that the lack of transparency over the existence of litigation funding creates an “imbalanced and inconsistent litigation dynamic that is prejudicial and frustrates civil justice.” Id. Specifically, the letter highlights that the non-disclosure of third-party litigation funding agreements prevents defendants from advancing arguments that would otherwise be available to them under the Federal Rules of Civil Procedure, including the proportionality and scope of discovery based on the “resources of the parties.” Defendants also cannot appropriately parse the allocation of costs and sanctions for failure to comply with discovery obligations, conflicts of interest, and that the action is not being “prosecuted in the name of the real party in interest.” Id. at 1-2.

The letter further emphasizes that the presence of third-party litigation funding agreements “fundamentally alters the dynamics and has a major impact” on the ability of the parties to engage in meaningful settlement discussions. Id. at 1. In particular, non-disclosure of litigation funding agreements that require the third-party funder to approve the settlement, oftentimes results in the “unravel[ling]” of settlement agreements when the funder withholds or is represented to have withheld consent to the terms of the proposal. Id. The letter also highlights the incongruity in mandating the disclosure of defendants’ insurance agreements, while allowing non-disclosure of the existence of third-party litigation funding agreements. As explained in the letter, if the intent of the disclosure rules, as articulated by the Advisory Committee when the insurance disclosure rule was implemented, is to “enable counsel for both sides to make the same realistic appraisal of the case” to ensure that “settlement and litigation strategy are based on knowledge and not speculation,” there is no rational basis to require disclosure of funding sources by one party and not the other. Id. at 2.