Full story in Reuters

By Jenna Greene

Lawyers for Civil Justice, which represents corporations and defense counsel and pushes for more disclosure of litigation funding, last week submitted nine contracts as part of lengthy comments, opens new tab to a judicial panel considering a national rule that would require litigation funding disclosure. The agreements came to light via related lawsuits or other government filings, the group said.

Taken together, the contracts offer insight into the degree of control litigation funders can exercise over the cases they back.

Funders typically describe themselves as passive investors, sitting on the sidelines while the clients and their lawyers run the cases. As such, their involvement need not be disclosed, they say, any more than a litigant would report taking out a line of credit at a bank.

But the contracts show funders in at least some instances “have the right to reject settlements, choose and instruct counsel, or even take over litigation entirely,” said Alex Dahl, general counsel of Lawyers for Civil Justice.

For example, Dahl points to a 2022 contract by Burford Capital entities with Sysco Corp stating that the funding recipient “shall not accept a settlement offer without the Capital Providers’ prior written consent.” (However, the amendment came after Sysco allegedly breached a prior deal and as such, may be atypical.) A Burford spokesperson declined comment. A Sysco spokesperson declined comment on pending litigation.

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Other agreements can give funders the ability to “lock in” a specific lawyer or firm, Lawyers for Civil Justice said in its comments, offering another means of controlling a case. For example, a Longford Capital agreement, opens new tab defines replacing counsel as a “Material Adverse Event” that requires plaintiff to obtain Longford’s prior written consent. Longford did not respond to a request for comment

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Even if funders don’t usually exercise the control provisions, Dahl argues that their ability to do so is grounds to require disclosure, “so that the court and all parties can make a realistic appraisal of the case.”

In the U.S., there are about 42 active commercial litigation funders, litigation finance firm Westfleet Advisors said in its annual report in March, with a total of $16.1 billion in assets under management. The financiers committed $2.3 billion to new deals last year, according to the report, a $400 million decline from 2023.

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Mandatory disclosure of the agreements has broad support from corporations and the defense bar. More than 100 major companies from the technology, pharmaceutical, automotive and other sectors last year sent a letter to federal courts’ Advisory Committee on Civil Rules, which has formed a subcommittee to consider adopting a disclosure rule.

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A handful of judges and courts, however, have started to require funding agreements be revealed, including in the District of New Jersey and a standing order, opens new tab by Chief U.S. District Judge Colm Connolly in Delaware.

Several states including Louisiana, Indiana and West Virginia in recent years have also put disclosure requirements in place.

In April, lawmakers in Kansas enacted compromise disclosure legislation Chin Feman helped negotiate that won the backing, opens new tab of litigation funders and foes alike.

The law requires claimants to produce the full litigation funding agreements for confidential review by the court. Opposing parties are entitled to more limited disclosures, such as the identity of the funder and whether it has control or approval rights for litigation decisions.