DOVER, Del. (Legal Newsline) - The Delaware Senate has passed a resolution that would require the state’s court system to study whether to require lawyers to disclose outside funding sources, two months after federal courts in Delaware mandated disclosure of third-party litigation funders.
The bill, sponsored by Democratic Sen. Kyle Evans Gay, passed in the state Senate on June 28 but has an uncertain future in the House. The Delaware General Assembly recessed June 30 and won’t be back in session until January.
The bill was co-sponsored by two more senators and two representatives, all Democrats. Its language mirrors the position of pro-business organizations including the U.S. Chamber of Commerce, citing concerns about judicial ethical standards, a lack of regulation and the possibility outside funders who aren’t parties to litigation might control how it is conducted or settled.
Multiple courts, including federal courts in New Jersey and Delaware, have ordered third-party litigation finance disclosure, the resolution noted. “Disclosure ensures that all parties are aware of the stakeholders who have a vested interest in the outcome of a case and allows all parties to make informed decisions regarding their litigation strategy,” the bill reads.
The chief judge of the federal district court in Delaware in April ordered litigants to file statements identifying third-party funders along with whether they have any control over litigation or settlement decisions. Litigation funding has exploded into a multibillion-dollar industry in recent years, as hedge funds, sovereign wealth funds and pension advisors embrace an investment that tends to be uncorrelated with other economic trends.
If passed, the bill would require Delaware courts to appoint a committee of lawyers to study disclosure and make recommendations to the Delaware Supreme Court on how to revise court rules or propose statutes to mandate transparency in funding.
Groups including the Chamber’s Institute for Legal Reform, which owns Legal Newsline, have proposed federal regulation as well as changes to the rules of civil procedure to require parties to disclose outside funding arrangements. Democrats and the legal funding industry typically oppose such rules as unnecessary or an invitation to engage in expensive motion practice and delay tactics.