Good news came out of Delaware recently after the Chief Judge of the U.S. District of Delaware issued a two-page standing order requiring the disclosure of third party litigation funding (TPLF) agreements.
TPLF is a multibillion-dollar secretive industry that operates primarily in the shadows. Almost no one involved in a lawsuit knows if a plaintiffs’ lawyer struck a deal with an outsider funder in exchange for a cut of any settlement or judgment.
That’s about to change in Delaware, where all litigants before Chief Judge Colm Connelly must disclose whether their attorneys’ fees and expenses are being paid all or in part by a third party in exchange for a cut of the litigation awards or fees or “a non-monetary result that is not in the nature of a personal loan, bank loan or insurance.” Disclosures must happen within 30 days of filing an initial pleading or transferring a new matter into the district court.
The standing order also requires the disclosure of:
- the name, address, and (if a legal entity) place of formation of the third party funder;
- whether the third party funder’s approval is “necessary for litigation or settlement discussions in the action,” the terms and conditions relating to that approval; and
- a description of the financial interest held by the third party funder.
Delaware is the latest federal court to adopt a TPLF disclosure requirement. In June 2021, the U.S. District Court for the District of New Jersey also issued a rule requiring the disclosure of funding.
Changes by individual district courts are important, but the Advisory Committee on Civil Rules can make disclosure the norm in all civil cases. The Committee is currently considering an amendment to the Federal Rules of Civil Procedure to require disclosure of litigation funding in all civil cases.
In 2020, ILR and the Lawyers for Civil Justice sent a letter to the Advisory Committee on Civil Rules, providing three ways the Committee can obtain the information it needs while it considers the amendment.
Without commonsense transparency, litigation funding will operate unchecked. The Delaware District Court has taken the right step to shine a spotlight on third party litigation funding.