Last week, Rep. Darrell Issa (R-CA 48) released a discussion draft of the Litigation Transparency Act of 2024 (LTA), a significant legislative proposal aimed at addressing the growing concerns surrounding third party litigation funding (TPLF). The draft’s release follows last month’s House Judiciary Subcommittee hearing, which underscored concern over the misuse of TPLF.
TPLF allows hidden investors to fund and potentially control lawsuits in exchange for a large cut of any settlement or award. The legislation marks a crucial step towards ensuring the integrity of our civil justice system and mitigating the potential national and economic security risks posed by TPLF.
Key Provisions of the Act
The proposed legislation includes critical provisions designed to shed light on TPLF practices:
- Ensures Transparency: The Act says that if you’re involved in a federal civil lawsuit and there’s a commercial enterprise (other than your lawyer) that stands to get paid based on the outcome, you need to let the court and all other parties know who that outside funder is. You must do this in writing within 10 days of making such an agreement or when you file the lawsuit, whichever comes later.
- Production of Agreements: The Act requires you to share with the court and all parties any agreement where a litigation funder has invested in a lawsuit and will receive payment based on the lawsuit’s outcome except as otherwise stipulated or ordered by the court.
- Applies to All Federal Cases: The Act applies to all civil litigation in federal court, from an individual case to a class action. It also applies to investments in individual cases and to situations where hedge funds and other commercial entities bet on a portfolio of cases, hoping to hit the jackpot in one or some of those cases.
- Definition of Commercial Enterprise: The Act defines a “commercial enterprise” as any business formed to conduct lawful activities. This doesn’t include entities that are only getting paid back for a loan or for covering attorney’s fees.
In a statement in support of the draft LTA, ILR Acting President Stephen Waguespack noted the importance of this proposal: “For far too long, the litigation funding industry has operated in secret. Judges, plaintiffs, and defendants should know who is funding litigation in exchange for a cut of the settlement or award. The Litigation Transparency Act would be an important step in bringing much-needed transparency to this opaque industry.”
Understanding the Need for Transparency
The problems of TPLF have been thrown into sharp relief in the Sysco v. Burford saga. Sysco alleged that its litigation funder, Burford Capital, prevented it from accepting reasonable settlements in its antitrust litigation, essentially forcing Sysco to continue litigation it wanted to resolve.
National security is also a concern with TPLF. As highlighted in ILR’s research, the secrecy surrounding TPLF makes it impossible to know if foreign governments or actors are pouring millions or billions of dollars into U.S. litigation, raising significant concerns about foreign influence and interference in the U.S. judicial system. Recent reporting confirms ILR’s concerns.
One example from earlier this year, a Bloomberg Law article exposed an investment firm established by Russian billionaires with close connections to Vladimir Putin that funded lawsuits globally, including in the U.S., to evade international sanctions. The article reveals that A1, a subsidiary of the Russian conglomerate Alfa Group, has funded lawsuits in New York and London prior to and following sanctions imposed on three of its billionaire founders in the wake of the 2022 Ukraine invasion.
More Calls for Transparency
Other elected officials are also raising concerns about the industry. On July 11, Sen. Jon Cornyn (R-TX) and Sen. Thom Tillis (R-NC) submitted a letter to the Advisory Committee on Civil Rules, and on July 12, Rep. James Comer (R-KY 1), Chairman of the U.S. House Committee on Oversight and Accountability, submitted a letter to Chief Justice John Roberts expressing the need for a uniform, nationwide requirement to disclose TPLF agreements. The letters underscore the importance of knowing the details about where funding is coming from, the financial details, and any possible conflicts of interest to ensure informed decision-making and prevent any perceptions of unfair influence. Lastly, Sen. John Kennedy (R-LA) offered a version of the Protecting Our Courts from Foreign Manipulation Act as an amendment to the Senate’s National Defense Authorization Act. The amendment would require the disclosure of all foreign funding of litigation and would ban foreign governments and sovereign wealth funds from investing in U.S. litigation through TPLF, among other things.
The flurry of recent activity on Capitol Hill shows policymakers’ increasing concerns with the opaque funding industry. And the draft LTA is a significant step towards bringing transparency and accountability to TPLF. By requiring disclosure and the production of all TPLF agreements in federal civil litigation, the legislation seeks to protect the integrity of the U.S. legal system and ensure that litigation serves the interests of justice, not hidden financial (or other) agendas.
