WASHINGTON (Legal Newsline) - Newly introduced legislation in Congress would ban foreign governments and sovereign wealth funds from underwriting civil actions in our federal courts, a more than decade old practice of litigation meddling that proponents of the legislation say is undermining our national security. Termed third-party litigation funding (TPLF), the practice has also been giving fits to the business community, the deep pocket targets of plaintiffs’ attorneys backed by foreign governments – some of them our enemies -- hedge funds and left-wing activists.
John Kennedy (R-LA), and Joe Manchin (D-W.V.) introduced the “Protect Our Courts From Foreign Manipulation Act” in the Senate on the heels of the House Oversight Committee hearing into TPLF. Rep. Mike Johnson (R-LA) introduced a companion bill in the House. The bills would in addition introduce transparency to the practice; the identities of any foreign person or entity behind the funding would no longer be withheld from the courts.
“For far too long, the litigation funding industry has operated in secret,” Harold Kim, president of the U.S. Chamber’s Institute for Legal Reform, said in a statement. “Judges, the parties, and the Justice Department should know if foreign-sourced money is being poured into U.S. litigation against American businesses in exchange for a cut of the settlement or award. The Protecting Our Courts from Foreign Manipulation Act also will help limit the ability of foreign governments to weaponize our court system against U.S. national and economic security interests.”
TPLF crept into the American legal system in 2010. Since then, the influence of mystery backers of the litigation has expanded exponentially.
A recent Government Accountability Office (GAO) report showed the amount of TPLF provided by lenders to clients more than doubled between 2017 and 2021 alone.
“Because the TPLF industry remains free of federal regulation, it remains unknown exactly how much TPLF is shelled out each year,” Timothy Lee, senior Vvice president of Legal and Public Affairs for the Center for Individual Freedom (CFIF), wrote in The Hill. “Conservative estimates, however, place the figure at $2.3 billion a year, while other studies have placed the number as high as $5 billion.”
In one example, cited by Legal Newsline in its coverage of the House Oversight Committee hearing, a Mike Bloomberg charity targets the oil industry with climate change lawsuits. The actions are supported by some state attorneys general who resist public disclosure, including those who help fund the cases.
Victor Schwartz, co-chair of the Public Policy Practice Group at Shook, Hardy & Bacon, argues that disclosure of the identities of third-party funders should be required in all litigation. He notes that attorneys representing the businesses targeted by the lawsuits are required to disclose when insurance companies are financing their defense strategies.
“They are not passive,” Schwartz, referring to the investors, told Legal Newsline. “They may exercise control over the litigation. The judge in the trial court needs to know who they are and ask those who by name bring cases whether such control exists.”
He likens the chances of the initiative winning congressional approval with the passing of the Class Action Fairness Act of 2005, designed to prevent class action abuse.
“The business community was united in support of the Class Action Fairness Act, and the plantiffs’ bar split,” Schwartz said. “Similarly, the business community is united behind reforms in third-party litigation, while the plaintiffs’ bar is once again split between those who use funders and those who find the practice repugnant.”
(Editor's note: Legal Newsline is owned by the U.S. Chamber).