Third Party Litigation Funding's Week Under the Microscope

November 10, 2017

By Page Faulk, Senior Vice President, Legal Reform Initiatives, U.S. Chamber Institute for Legal Reform

Third party litigation funding – where companies “invest” in lawsuits for a cut of any proceeds – is spreading like wildfire across the globe, with one of the largest funders boasting billions of dollars in resources just on its own. Funders essentially turn courtrooms into casinos, picking cases on which to gamble for a cut of the settlement or award. This raises a number of ethical issues, including questions about who is actually driving the litigation strategy. This week, TPLF received some much-need scrutiny in Washington, D.C.

First, the Advisory Committee on Civil Rules held its fall meeting to consider numerous court rules. Among them was a petition, led by the U.S. Chamber Institute for Legal Reform and joined by 29 other major business and legal organizations urging the Committee to require transparency when TPLF is used in federal civil cases.

The Committee discussed the business coalition’s petition in depth, and took an incremental but important step by deciding to establish a subcommittee that will gather more information about the practice. While there is still a great deal of work to be done, this is a positive development, because it shows that the federal judiciary is becoming more aware that TPLF is influencing cases and the judicial system.

Meanwhile, the U.S. Senate Judiciary Committee examined TPLF as part of a hearing on a broad array for civil justice issues. At the hearing, Committee Chairman Chuck Grassley expressed “increasing concern” about the impact of TPLF, a practice which he said “gives outsiders a contingent financial interest in a lawsuit” and is “subject to essentially no oversight or transparency.” Chairman Grassley said that while he is not saying the practice should be eliminated outright, he believes a “measure of transparency would be appropriate.”

Fortunately, a bill ripe for Chairman Grassley’s Committee to pass called the Fairness in Class Action Litigation Act of 2017 includes a provision requiring TPLF transparency. That bill passed the U.S. House of Representatives in March.

This week’s Advisory Committee meeting and Senate Judiciary Committee hearing taken together indicate a growing awareness among lawmakers and the judiciary about the need for transparency in TPLF.