Louisiana could be the next state to bring the secretive third party litigation funding (TPLF) industry out of the shadows. The state senate recently passed SB 196 which, among many important reforms, would require the disclosure of TPLF agreements in all civil cases before Louisiana courts. The bill now heads to the Louisiana House of Representatives for its consideration.
TPLF is a multibillion-dollar global industry that allows hedge funds and other financiers to invest in lawsuits and law firms, and potentially control litigation, in exchange for a cut of any award or settlement. Since there are no disclosure requirements, defendants, judges, and often even plaintiffs don’t know if a case has outside funding. Mandatory disclosure rules will help determine whether funders are exercising undue influence, violating ethical rules, or creating conflicts of interest.
The bill would also require class representatives to disclose funding relationships to all parties in the litigation, including class members, and hold third party funders jointly liable for any sanctions imposed by the court. This will ensure that defendants are able to recover their costs if funders spur frivolous or meritless litigation.
A recent ILR report, A New Threat: The National Security Risk of Third Party Litigation Funding, highlighted a growing concern that foreign-sourced money could leverage America’s open courts and litigation system to strategically target U.S. defense and other highly sensitive industries. For example, a sovereign wealth fund could invest in litigation funders, who then use that money to bankroll litigation against critical industries in the U.S. court system. Louisiana is clearly taking this issue seriously by advancing legislation that specifically requires disclosure of arrangements that could give funders access to proprietary or national security information.
ILR urges the Louisiana House to protect the state’s court system against the troubling aspects of the litigation funding industry by passing SB 196 and sending it to Gov. John Bel Edwards.
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