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Introduction
Litigation funding has become an indispensable tool in modern litigation. For individual plaintiffs, small businesses, and class-action claimants, this financial support levels the playing field against corporate giants with vast legal resources. However, corporate defendants, insurance companies, and business lobbyists have aggressively pushed for broad disclosure requirements that threaten to cripple litigation funding.
While proponents of disclosure claim that transparency prevents ethical conflicts, the reality is that mandatory disclosure is a weapon designed to undermine plaintiffs’ ability to litigate effectively. It forces them to reveal strategic financial information while corporate defendants remain shielded from similar scrutiny. The goal of these requirements is not fairness but to deter funding, limit access to justice, and give defendants an unfair strategic advantage in litigation.
The Federal Push for Unwarranted Disclosure
Despite the lack of a uniform federal rule requiring litigation funding disclosure, powerful corporate interests continue lobbying for intrusive regulations. The Judicial Conference of the United States, which oversees federal court rulemaking, has become a battleground for this issue.
Judicial Conference’s Advisory Committee on Civil Rules
The Judicial Conference’s Advisory Committee on Civil Rules has been evaluating disclosure requirements for over a decade. In October 2024, under intense lobbying from corporate defendants, the committee formed a subcommittee to explore a nationwide rule requiring disclosure. This move was influenced by a letter signed by large corporations such as Google, Cisco, and Meta. and Comcast.
Who is behind this push?
Business Groups: Organizations such as the U.S. Chamber of Commerce that represent large tech companies argue that undisclosed third-party litigation funding (TPLF) creates ethical risks and that funders may influence litigation outcomes.
Lack of Evidence: These groups fail to provide substantial evidence that litigation funding causes conflicts of interest or manipulates case strategy.
Why is this unnecessary?
Existing Judicial Authority: Courts already have broad discretion to review funding arrangements if they are relevant to a case.
Asymmetry: Corporate interests seek a blanket requirement that would expose all funders to scrutiny, even when there is no legitimate concern about case integrity.
What is the likely outcome?
Deterrence of Funding: If a nationwide disclosure rule is adopted, plaintiffs will face significant barriers to securing funding.
Reduced Access to Justice: Funders may withdraw from cases to avoid unnecessary scrutiny, limiting plaintiffs’ ability to hold corporate wrongdoers accountable.
Legislative Threat: The Litigation Funding Transparency Act of 2024 (H.R. 9922)
The Litigation Funding Transparency Act of 2024, introduced by Rep. Darrell Issa, would mandate disclosure of litigation funding in all federal civil litigation where a funder has a financial stake. The legislation requires parties to identify financiers with rights to contingent payments and provide legal agreements to the court and involved parties.
What are the real consequences?
Investor Deterrence: If enacted, this law would deter investors from supporting cases, making it more challenging for plaintiffs to contest wealthy defendants in federal courts.
Why is this law unnecessary?
Redundancy: Courts already possess discretionary power to review litigation funding when necessary, rendering a mandatory disclosure rule redundant and punitive.
Who benefits?
Corporate Defendants: Particularly those facing class actions, mass torts, and antitrust lawsuits, stand to gain a significant strategic advantage if this bill becomes law.
Federal Court Decisions: A Divided Landscape
Federal courts have issued conflicting rulings on whether litigation funding should be disclosed.
Pro-Disclosure Rulings: How Corporate Defendants Exploit Disclosure:
Some courts have compelled disclosure, often under flawed justifications.
Case Study: Gbarabe v. Chevron Corp.
In Gbarabe v. Chevron Corp., No. 14-cv-00173-SC (N.D. Cal. 2016), the Northern District of California ordered the plaintiff to disclose a full, unredacted litigation funding agreement. The court claimed that funding transparency was necessary to assess class counsel’s financial stability.
Why was this ruling problematic?
Irrelevance of Financial Standing: The financial standing of plaintiffs' counsel should not determine whether a case proceeds.
Asymmetrical Disclosure: The defendant—Chevron, a multinational energy giant—faced no similar financial disclosure requirements.
Defendant's Financial Secrecy: Corporate defendants are not required to disclose how they fund their legal teams, even when insurers fully cover their defense costs.
Pro-Plaintiff Rulings: Recognizing the Unfairness of Disclosure
Several courts have rightly denied corporate defendants’ attempts to compel disclosure.
Case Study: Kaplan v. S.A.C. Capital Advisors, L.P.
In Kaplan v. S.A.C. Capital Advisors, No. 12-cv-9350 (S.D.N.Y. 2015), the Southern District of New York rejected the defendant’s request to force disclosure of litigation funding. The court held that funding details were irrelevant to the claims or defenses.
Why is this case important?
Merit-Based Litigation: The court recognized that litigation funding does not alter the legal merits of a case.
Protection from Financial Scrutiny: The ruling upholds the principle that plaintiffs should not face undue financial scrutiny.
Jurisdiction-Specific Rules Regarding Disclosure
Delaware
U.S. District Court for the District of Delaware:
In April 2022, Chief Judge Colm F. Connolly issued a standing order requiring parties to disclose third-party litigation funding arrangements. Parties must file a statement within 30 days of an initial pleading, revealing:
Identity and Address: The name and address of the third-party funder.
Approval Rights: Whether the funder's approval is necessary for litigation or settlement decisions, including related terms.
Financial Interest: A brief description of the funder's financial interest in the case.
This order imposes an administrative burden on plaintiffs and may deter potential funders due to the lack of confidentiality.
Delaware Court of Chancery
While the Delaware Court of Chancery has not adopted a blanket rule for litigation funding disclosure, it has compelled such disclosures in specific cases. For instance, in August 2024, Vice Chancellor Nathan Cook ordered plaintiffs in a class action against Genworth Financial to disclose their unredacted funding agreement. The court emphasized the potential for conflicts of interest in class actions involving third-party financiers.
New Jersey
U.S. District Court for the District of New Jersey
Effective June 21, 2021, the District of New Jersey implemented Local Civil Rule 7.1.1, mandating comprehensive disclosure of litigation funding. Parties are required to disclose:
Identity of Funders: The name and address of all third-party funders.
Approval Rights: Whether the funder's approval is necessary for litigation or settlement decisions, including related terms.
Financial Interest: A brief description of the funder's financial interest in the case.
This rule applies broadly to all civil cases, potentially discouraging plaintiffs from seeking necessary funding due to mandatory exposure of financial backers.
Supreme Court of New Jersey’s Civil Practice Committee Rejected Disclosure Requirement
The Supreme Court of New Jersey's Civil Practice Committee is responsible for reviewing and recommending updates to Parts I, II, and IV of the New Jersey Court Rules. It also evaluates related non-rule changes and responds to statutory amendments and new legislation affecting court procedures. In its 2024 Report, the Committee rejected a proposal from the New Jersey Civil Justice Institute that sought to implement a rule requiring all civil litigants to disclose whether they had received funding from a third party.
California
Northern District of California
In 2017, the Northern District of California amended its rules to require automatic disclosure of third-party funding in class action lawsuits. The amendment mandates that any person or entity funding the prosecution of a claim must be disclosed. Initially, the proposed rules would have required such disclosures in all cases, but the final rule is limited to class actions.
Other Jurisdictions
Louisiana
In 2024, Louisiana enacted legislation mandating transparency in litigation funding agreements. The law requires disclosure of any funding arrangement in civil cases, aiming to prevent undue influence from third-party funders. While intended to promote fairness, this requirement may discourage plaintiffs from obtaining necessary financial support.
Indiana
Indiana recently passed a law prohibiting foreign entities from funding lawsuits within the state. The legislation also forbids funders from influencing litigation outcomes and mandates the disclosure of funding agreements. These provisions could limit plaintiffs' access to diverse funding sources, potentially impacting their ability to pursue legitimate claims.
West Virginia
West Virginia's law bars funding companies from offering commissions to attorneys or medical providers for client referrals, prohibits false advertising, and restricts funders from influencing legal representation choices. While aimed at protecting plaintiffs, these regulations may inadvertently reduce the availability of litigation funding, affecting plaintiffs' capacity to sustain prolonged legal battles.
These jurisdiction-specific rules and laws illustrate a growing trend toward mandating the disclosure of litigation funding arrangements. While proponents argue that such transparency prevents ethical conflicts, these requirements often serve to advantage corporate defendants strategically, compelling plaintiffs to reveal sensitive financial information and potentially deterring them from pursuing legitimate claims.
Conclusion: Protecting Litigation Funding from Unfair Disclosure
Mandatory disclosure of litigation funding is not about transparency—it is about suppressing access to justice. While corporate defendants argue that funding disclosure prevents abuse, the reality is that broad disclosure mandates serve to benefit wealthy defendants while harming plaintiffs.
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