Litigation Finance Industry Faces Fresh Calls for Disclosure

Rep. Darrell Issa (R-Ca.) plans to introduce federal legislation Monday that would require disclosure of litigation funding in civil lawsuits.

The bill aims to require all named parties in a civil action to identify a person who has the right to receive payment contingent on the outcome of a civil action or group action. It would also require parties provide a copy of any agreement regarding funding tied to the outcome of the case to all named parties.

The $15.2 billion industry involving investors paying for large scale lawsuits in order to get a piece of an award or settlement has faced ongoing scrutiny from state and federal legislators. Many detractors want disclosure, which requires all parties in a case to reveal who is funding their case and furnish copies of funding agreements.

Issa’s legislation includes exceptions for the repayment of the principal of a loan, the repayment of a loan with interest up to 7%, and reimbursement for attorneys’ fees. The disclosure must be filed 10 days after the execution of an agreement.

The bill is unlikely to move in a divided Congress as elections and the lame duck session that follows loom.

Latest Iteration

This is the fourth version of federal legislation that has been introduced to regulate the litigation finance industry. Sens. Joe Manchin (I-W. Va.) and John Kennedy (R-La.) last year introduced a measure that would have required disclosure from a foreign person or entity funding litigation, a bill that died in committee. Sen. Chuck Grassley (R-Iowa) has twice floated measures that did not move.

A handful of states, including Louisiana, Indiana and West Virginia, passed bills this year requiring regulating litigation finance. Many of the bills are backed by the US Chamber of Commerce, a group representing the interests of major corporations, arguing that litigation funding contributes to the filing of frivolous lawsuits.

In June, Issa chaired a House judiciary committee hearing over concerns posed by critics of the litigation finance industry. The debate surrounded how the presence of litigation finance should be disclosed and whether it would solve concerns that witnesses such as former Rep. Bob Goodlatte (R-Va.) had regarding national security and ceding control of lawsuits to funders.

“I believe that we’ve agreed that in fact more transparency at a base level needs to be there,” said Issa during the hearing. “I want to make sure that we begin to talk about the parameters of what can be done.”

A few weeks later he introduced a discussion draft of legislation that required disclosure of litigation financing contracts in all civil lawsuits.