In the Shadows: Third-Party Litigation Funding Agreements and the Effect Their Nondisclosure Has on Civil Trials
19 Pages Posted: 11 Aug 2020
Date Written: April 19, 2019
Third-party litigation funding (“TPLF”) has become an increasingly common practice in the United States in recent years, especially in the field of civil litigation. In civil practice, TPLF entails a third party funding the litigation costs of an actual party to a case and in turn the third party receives a share of any damages if the suit is successful. Often, the court and jury are not aware of any TPLF agreement, as there are currently few rules requiring disclosure of the existence of such agreements or the identity of TPLF financiers. And while generally entities engaged in TPLF have no connection to the par-ties, in at least one high-profile case the third party financing the litigation had a personal animus against the defendants. Further, there is evidence suggesting the plain-tiff’s litigation strategy in that case was driven by this animus between the third party and the defendants and had an effect on the overall outcome of the lawsuit.
This trend raises numerous concerns, namely whether TPLF arrangements should be allowed to take place in the shadows while courts and juries are none the wiser. Opponents of the practice as it currently stands argue TPLF agreements should be disclosed in the name of fairness to the parties and in the spirit of transparency. Proponents of the status quo, on the other hand, argue TPLF allows individuals who would otherwise not be able to afford the high cost of litigation to vindicate their rights and that disclosure of these agreements will have improper effects on jury verdicts. As of early 2020, Wisconsin and West Virginia are the only states with laws requiring disclosure of TPLF agreements; however, there are currently proposals in the United States Senate and in many states that would enshrine rules requiring TPLF disclosure. Similar proposals have also been made before the Federal Advisory Committee on Civil Rules of Practice and Procedure.
This Note argues for the adoption of these proposed rules requiring disclosure of TPLF agreements. It will approach this from the perspective of third parties funding the litigation costs of plaintiffs (as opposed to funding defense cases). This Note will also show that mandatory TPLF disclosure aligns more closely with the notions of fairness that underline the main tenets of the American civil system. And because disclosure should have no effect on the substantive facts and laws at issue in a dispute, it should thus not impact verdicts. It could, however, play a role in calculating potential punitive damages, namely in cases where the TPLF is motivated by personal animus against one of the parties. Finally, this Note will rebut arguments against mandatory disclosure by showing that any concerns regarding the adoption of such rules are outweighed by fundamental concerns for fairness and transparency.
Keywords: Third-Party Litigation Funding, Litigation, Punitive Damages
Suggested Citation: Suggested Citation