Bill to Reform Class Action Procedure Would Require Disclosure of Litigation Funding Agreements

The United States House of Representatives has just passed legislation that would have a sweeping effect on class action procedure and would mandate disclosure of litigation financing arrangements in class actions cases.  This disclosure would occur at the discovery stage and at the end of proceedings, when the settlement or judgment payment to the class is authorized.  These new procedural rules would be in accordance with procedural reforms proposed for or adopted by certain federal district courts in their local rules.

The current legislation is H.R. 985 – The Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017 (FICALA), which is purportedly meant to benefit both defendant companies and deserving class action plaintiffs.  FICALA is styled as follow-on legislation to the Class Action Fairness Act of 2005 (CAFA), which made it easier for defendants to remove class actions from state to federal court. FICALA includes a variety of procedural reforms, including:

• a prohibition of class actions in which the named plaintiffs/class representatives are relatives or employees of class counsel;
• a requirement that, before certification, the putative class representatives show that there is a mechanism for identifying members of the proposed class and a feasible way to directly administer any monetary awards;
• limits on attorneys’ fees for class counsel; and
• a stay of discovery while any dispositive motions are pending.

In addition to these reforms, FICALA would include a couple of other reforms that would directly implicate litigation financing arrangements for the named plaintiffs or the class as a whole.  First, FICALA requires the disclosure of any contract with a third-party funding litigation. This required disclosure is designed to make it harder for the funder to exert any influence on the litigation that might conflict with the interests of class members and the attorney-client relationship.  This requirement parallels a reform to the local rules for the Northern District of California, with respect to class action cases.

The second reform concerns transparency in the disbursement of any award to the class.  FICALA requires class counsel to file an accounting detailing the following information: (a) the total amount paid directly to all class members, (b) the actual or estimated total number of class members, (c) the number of class members who received payments, (d) the average amount (both mean and median) paid directly to all class members, (e) the largest and smallest amounts paid to any class member, (f) each amount paid to any other person (including class counsel) and the purpose of the payment.  Under (f), payments to litigation funders would have to be disclosed, at least as long as they were made directly from the award to the class.

The House has sent FICALA to the Senate for consideration and it remains pending before the Senate Judiciary Committee. If it is enacted in something like its current form, FICALA will increase scrutiny from defendants and the judiciary into how litigation funders are supporting plaintiffs in class action cases.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, class action procedure, CAFA, FICALA, civil procedure, disclosure

Works Cited:

H.R. 985: Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 201, available at https://www.govtrack.us/congress/bills/115/hr985/text