PALM BEACH, Fla. (Legal Newsline) - A U.S. Court rules committee again put off any action on whether to require disclosure of third-party litigation financing (TPLF), a rapidly expanding practice that has alarmed many in the legal system and the business community.
General counsel to Lawyers for Civil Justice, Alex Dahl, attended a meeting of the 15-member Advisory Committee on Civil Rules last week in Palm Beach where he said there was open discussion on TPLF but no decision on how or when to move forward with possible procedural rules on the topic.
“They decided to keep monitoring the issue,” Dahl said, “but said they didn’t have enough information at this time to move forward with rulemaking.” The Committee first considered a possible TPLF disclosure rule in October 2014 and came to the same conclusion.
One of the main concerns with TPLF is that someone with no standing in a case has a possible say over how it proceeds by virtue of being invested in it. Supporters of a change in procedure, including the U.S. Chamber Institute for Legal Reform (ILR) and Lawyers for Civil Justice, are asking for mandatory disclosure of the parties involved in the litigation, especially given the recent surge in its use.
The ILR owns Legal Newsline.
The practice has grown so rapidly that late last year it caught the attention of chair of the U.S. Senate Judiciary Committee, Republican Charles Grassley of Iowa, and chair of the Subcommittee on the Constitution, Republican John Cornyn of Texas, who announced a probe into it.
Last August, Grassley and Cornyn wrote a letter to one of the more prominent third party funders, Bentham IMF, requesting more information on the practice.
“In 2011, the New York Bar Association estimated that more than $1 billion was committed to litigation financing in the U.S.,” the Senators wrote. “But some estimate that amount has tripled in just the last few years.”
The letter continued: “Your burgeoning industry is largely unregulated and operates with no licensing or oversight. Lending agreements between plaintiffs and commercial funders are confidential and generally not disclosed to the courts, the opposing party or the public. And while commercial litigation lenders maintain that plaintiffs maintain control over litigation and settlement decisions, the terms and fundamental structure of agreements that are publicly available call into question these assertions.”
In an October 2015 letter urging the Rules Committee to take action on TPLF, Skadden, Arps on behalf of the ILR noted that “the TPLF industry is also seeing a proliferation of new TPLF entities that are raising money from investors to buy interests in U.S. litigation matters.”
What’s more, the letter said that TPLF companies are finding new ways to invest in the litigation. Traditionally, TPLF entities would collect money from investors that they would in turn use to buy interests in a collection of cases of the fund’s choosing.
“LexShares Inc., a recent entrant to the market, however, plans on attracting investors, commercial plaintiffs, and plaintiffs’ firms to its online marketplace,” the letter said. “Accredited investors are able to shop among individual cases and contribute as little as $2,500 in the hopes of reaping an eventual profit when a matter settles or produces a favorable judgment.”
The Advisory Committee on Civil Rules meets twice a year.