Over 100 major companies, including Amazon, General Motors, and Meta, called on the U.S. judiciary to adopt a nationwide rule requiring mandatory disclosure of third-party litigation funding (TPLF) in federal lawsuits.
This request, which came on October 2, comes ahead of a key hearing by the Advisory Committee on Civil Rules, where the companies argue that undisclosed TPLF arrangements drive up litigation costs and create an unfair playing field for businesses involved in federal court cases.
In a letter addressed to H. Thomas Byron III, Secretary of the Committee on Rules of Practice and Procedure, the coalition highlighted the need for transparency in litigation financing.
“We need TPLF disclosure to understand who has control of the case,” the companies stated. “Without this information, we cannot make informed decisions, and the settlement process often unravels.” The letter emphasized that undisclosed financial backers significantly alter the dynamics of litigation.
The demand for TPLF reform reflects growing tensions between corporations and litigation financiers. Businesses argue that without knowing the identity and financial stake of third-party funders, they are severely disadvantaged in assessing the resources available to the opposing party.
"When courts do not allow us to know if the named parties are funded by TPLF investors, we cannot argue, and the court cannot weigh, how the resources of the parties should factor into decisions about the scope of discovery," said the businesses.
Representative Darrell Issa (R-Calif.) introduced legislation in the U.S. House of Representatives on October 4 that would require the disclosure of litigation funding in civil lawsuits filed in federal courts.
"We believe that if a third-party investor is financing a lawsuit in federal court, it should be disclosed rather than hidden," Issa remarked, further stating that such a rule would “advance fair and equal treatment by the justice system and deter bad actors from exploiting our courts.”
The coalition, which also includes companies like Liberty Mutual Insurance and The Hartford, drew a comparison between TPLF and existing rules requiring defendants to disclose their insurance agreements.
"Our companies need to know about TPLF when we are sued for the same reasons that the Advisory Committee promulgated FRCP 26(a)(1)(A)(iv) to require defendants to disclose our insurance agreements," the letter stated, emphasizing the importance of transparency for both parties in litigation.
Third-Party Litigation Funding (TPLF) is when an outside party finances a lawsuit in exchange for a share of any potential settlement or judgment. The funder covers legal costs and assumes the risk, aiming to profit if the case succeeds.
According to a SwissRE report, the litigation funding market has expanded rapidly, growing by 44% from 2019 to 2022, and is projected to continue at a compound annual growth rate of 8.7% from 2020 to 2028.
TPLF has grown into an $18 billion global industry, with 52% of funding directed at U.S. litigation, a report from CRC group said. This raises costs for businesses, as TPLF allows plaintiffs to extend cases and adopt aggressive tactics, leading to higher settlements, jury awards, increased insurance premiums, larger deductibles, and more restrictive coverage.
According to Munich Re, 59% of Americans do not know that third parties like hedge funds or foreign entities often secretly finance litigation in exchange for a share of the jury award or settlement. Stef Zielezienski of APCIA stated that such practices "have turned the U.S. legal system into an investment market, benefiting secret funders rather than the victim."