Senate bill would bring litigation funders out of the shadows, goes further than opioid judge's recent order

By John O'Brien | May 10, 2018

WASHINGTON (Legal Newsline) - Days after a federal judge overseeing some of the most important current litigation demanded to be told if outside interests were funding it, Republican senators have introduced a bill that would do even more in all class action lawsuits.

Senate Judiciary Committee chairman Chuck Grassley, R-Iowa, on May 10 unveiled the Litigation Funding Transparency Act of 2018, which would require disclosure of any third-party litigation funders that have fronted money to class action plaintiffs and their lawyers with the promise of a percentage of any recovery.

Critics of such agreements say the funders can charge interest rates that exceed state usury laws while grabbing control of the litigation from the parties actually involved in the case.

“(T)ransparency brings accountability,” Grassley said. “For too long, obscure litigation-funding agreements have secretly funneled money into our civil justice system, all for the purpose of profiting off someone else’s care.”

Funders have resisted the term “lawsuit lending,” arguing that because they receive nothing if the plaintiff loses its case, the agreements can’t be labeled “loans” and they can’t be held to the standards of usury laws.

But Grassley’s bill doesn’t address interest rate laws – it only asks that funding agreements are made known.

Judges, like Dan Polster of Cleveland, are starting to do that on their own. Polster is overseeing the federal multidistrict litigation brought by hundreds of cities and counties across the country against the makers of opioids.

Earlier this week, he issued an order that asks the lawyers pushing these cases to turn over any litigation-funding agreements so that he can make sure those companies won’t try to put their own imprints on the process.

One company that provides litigation funding welcomed Polster’s order, which does not make those agreements public. Only Polster will know about their existence.

“In other words, he will know about the financing, but the defendant will not – and no defendant yet has come up with any justification for being told about a plaintiff’s sensitive financial arrangements other than pure voyeurism,” wrote Christopher Bogart, CEO of Burford Capital.

Burford likely doesn’t welcome Grassley’s legislation, which would have the agreements disclosed to all named parties in a lawsuit in both class actions and MDL proceedings. Joining Grassley in the bill are Sens. Thom Tillis, R-N.C., and John Cornyn, R-Texas.

The bill was filed more than a year after the U.S. District Court for the Northern District of California became the first court to seek this information. Parties in class actions in that court must disclose funding agreements at their first appearance before the court.

Before that, a California judge overseeing a lawsuit over a gas explosion off the coast of Nigeria, allowed Chevron to discover the funding agreement between Therium Litigation and the class action plaintiffs and attorneys.

Therium had more than $1.5 million invested in the case, according to court records. Judge Susan Illston rejected a request by the plaintiffs to have only her review the agreement.

She noted that the plaintiff’s proposal for an in camera review of the agreement -- meaning a hearing would be held before the judge in her private chambers -- was “inadequate.”

“(I)t would deprive Chevron of the ability to make its own assessment and arguments regarding the funding agreement and its impact, if any, on plaintiff’s ability to adequately represent the class,” Illston wrote in her order.

The senators’ bill is years in the making, as Grassley and Cornyn in 2015 sought details from three large litigation-funding firms. That information pertained to the cases they finance, the terms of the agreements and their returns on investments.

The industry has only grown since then. Burford reported profits up 75% in 2016, the senators say, and 28% of lawyers in the U.S. say their firms have used third-party funding.

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Organizations in this Story

Bentham IMF Burford Capital U.S. District Court for the Northern District of Ohio U.S. Senate U.S. Senate Committee on the Judiciary

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