By Bob Chlopak

Third party litigation funding (TPLF) is a pervasive yet secretive force in the U.S. legal system. When rarely discovered or disclosed, it has posed significant problems in courtrooms that have required extensive time from parties and courts to address.

But the concerns don’t stop at the courthouse walls. TPLF also has drawn a great deal of interest from media and likely contributes to the erosion of confidence in our courts. In particular, the lack of transparency and potential for agenda-driven foreign money to influence our justice system don’t sit well with media or many voters. That explains the hundreds of stories written on this subject in the past year and poses a striking contrast to the reactions of many courts and judges who ironically take the view that there is nothing to see here.

Two recent, notable events capture the need for uniform disclosure of third party litigation funding and the challenges of accomplishing this goal.

First, Westfleet released its annual survey on litigation funding, finding that 39 active funders had more than $15B under management overall, and committed close to $3B to 353 new deals — more than $7.5M per deal on average.

Meanwhile, speaking at a conference hosted by the International Legal Finance Association (a litigation funding industry organization), Judge Robert Dow, Jr., the top advisor to Chief Justice John Roberts, said he doesn’t think disclosure of litigation funding is necessary. “As long as the funder doesn’t have control, I don’t think it’s gonna be a major issue for judges,” he said.

Judge Dow is correct to flag the concern about nonparty control over civil litigation — which may be the most serious abuse involving third party funders — but it is far from the only problem.

There are instances where the issue of third party funding has gone beyond the direct control issue that arose most recently in a Sysco case where Burford was alleged to have control over a party to litigation. For example, third party funding created a clear conflict of interest in the Chinese Drywall litigation, has induced behavior to increase case value — while endangering the health of women — in the mesh litigation, and may well be fueling other problems like meritless claims in mass torts that dominate civil dockets nationwide.

Additionally, concerns about foreign money in our justice system prompted the introduction of bipartisan legislation in 2023 that requires disclosure and would bar third party funds from foreign governments and sovereign wealth funds in federal litigation overall.

To be clear, a federal rule to require disclosure of third party funding would not restrict or prevent its use; it would only require that the fact of such funding and the agreements be disclosed so the court and other parties have awareness.

If there are concerns about any such arrangements, the court and parties could then address and resolve them early in the litigation — and avoid more serious problems from arising.

Some federal and state courts already have taken it upon themselves to require disclosure of third party funding and, thus far, the sky falling predictions have been more fearmongering than real. A uniform nationwide rule would be fairer, more consistent and more predictable than a patchwork of rules in different courts.

Additionally, this is a legal policy issue that is generally much more understandable and concerning to voters than most legal issues as it centers on basic fairness — the right of parties to know “who is in court” with them. Indeed, the defense bar and corporate counsel are in the enviable position of having public opinion on their side in this battle and the opportunity to leverage it in prodding the judiciary to reform its rules. Arguably, this is also in the judiciary’s interest as it may help bolster trust and confidence in its work at a time when these measures are at a historic low for the nation’s top court.

Currently, the extent of third party funding in our courts is largely unknowable, as there is no uniform requirement for disclosure in federal court. Sunlight is “the best of disinfectants,” as Justice Louis Brandeis once wrote, and it is certainly time for the sun to come out on TPLF.