The U.S. Chamber Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce, made headway toward its goal of transparency around third-party litigation funding arrangements when it submitted a letter on June 1, 2017, to the U.S. Courts Committee on Rules of Practice and Procedure requesting a nationwide disclosure requirement for third-party litigation funding in federal lawsuits.
This is not the first time the Chamber has petitioned the federal judiciary for greater transparency around the legal funding space. In 2014, the organization submitted a similar proposal that failed to gain traction. Now, the Chamber aims to add a provision to Federal Rule of Civil Procedure 26(a)(1)(A) that would require disclosure of any compensation agreements that are “contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment or otherwise.”
Under current law, judges can require disclosure of funding when it’s relevant to the case, but it is not mandatory to disclose otherwise.
The letter, which was filed along with more than two dozen other business groups, references the drastic rise in the use of litigation finance by law firms as a cause for concern. The letter suggests that as much as $1 billion is invested annually in third-party litigation funding arrangements (National Law Review). The Chamber’s concern is that as funds become more readily available for plaintiffs, litigation will increase.
“Although the Chamber cites the increase in the use of litigation finance by law firms as a cause for alarm, the reality is that those law firms are, in most cases, using such financing to serve precisely those same underserved and underfunded clients — small-to-mid-size businesses and individuals — who cannot otherwise afford to pay a top-tier law firm on an hourly-fee basis to litigate their claims.”
In the same press release, Ms. Chock also says:
“It seems the only interests the Chamber is really trying to protect are those belonging to its big business members, who are eager to retain an advantage they typically enjoy in high-stakes commercial disputes: superior financial resources to litigate. Providing a level of financial parity for the parties enables disputes to be decided on their true legal merits.”
Other litigation funders have called the Chamber’s measures “antithetical to the pro-business, pro-innovation goals of the Chamber.”
Regardless of whether or not the U.S. Chamber’s proposed amendment ultimately passes, don’t expect anything to happen soon. Some predict it could take effect no sooner than December 2019, Law.com reports.
Even if the Advisory Committee on Civil Rules decides to take action following its biannual meeting in November, it takes at least three years to bring a rule into force. We’ll be following the case closely, but don’t expect any immediate changes.
Thrivest’s Stance on the Ethics of Legal Funding
A large part of Thrivest’s business is providing legal funding solutions to both plaintiffs and law firms. We believe that legal funding is an important tool for individuals, businesses, and attorneys who who are experiencing a cash flow predicament.
We have written several blog posts about the ethics of legal funding over the past couple of years, which you can read below:
- The Verdict Is In: Litigation Funding Is Ethical & Essential
- Lawsuit Funding Ethics: As Explained By Hogan, Thiel, and Gawker
- Ethical Implications of Legal Funding: A Global Perspective
Further Reading About the Disclosure of Litigation Funding Arrangements:
- Wall Street Journal: Litigation Finance Arrangements Need to be Disclosed, Chamber Argues
- National Law Journal: U.S. Chamber Pushes Rule to Expose Litigation Funding
- National Law Review: U.S. Chamber Seeks New Federal Rule Requiring Disclosure Of Third-Party Litigation Funding Arrangements
- Reuters: Business lobby calls for federal rules to require litigation funding disclosure
- Law 360: Critics are Pushing Back on 3rd-Party Funding Disclosure Rule
About Thrivest: Innovative & Affordable Legal Funding & Specialty Finance Solutions
At Thrivest, we provide flexible financial options to help businesses and individuals meet their cash flow needs.
If you think our legal funding solutions could be the right fit for you, please call one of our specialists at 888-697-7352. Or to apply online, simply fill out our quick form application.