Regulation in Litigation Finance

As the litigation finance market continues to grow, there is talk of more regulation at both the state and federal levels.  It used to be that litigation finance was outlawed in many jurisdictions by laws against champerty and maintenance.  But now in most jurisdictions it is allowed and recognized as a viable option for clients.  Or at least, by choice of law rules there is usually a relevant jurisdiction that allows litigation finance.

Different jurisdictions are proposing different regulations.  Therefore, attorneys and funders will have to carefully pay attention to the laws on a case-by-case basis.  For example, New York has proposed to apply the usury laws to consumer litigation finance, limiting the per-annum rate of return that a funder could receive.  It is important to note that only applies to consumer litigation finance when commercial litigation finance is the larger part of the industry.

One area where many different jurisdictions are considering an increase in regulation is related to the disclosure of funding arrangements.  Already at the state level, Wisconsin passed a law requiring the disclosure of litigation funding arrangement.  While at the federal level, the Northern District of California requires disclosure in the class-action context (as of January 2017).  In multidistrict litigation, over the liability of the opioid crisis, Judge Dan Polster entered an order requiring in camera (for the court) disclosure of any funding.

There are some who view these regulations as a benefit because it will show the defendant that the plaintiff will not just give up because of costs. But many litigation financers are concerned because there is disagreement between courts over the protection of attorney-client privilege in relation to giving funders access to otherwise confidential information.  Additionally, there is a concern that defendants will create additional litigation over waiver and privilege, which would only complicate litigation funding for plaintiffs.

As a potential compromise there are options of limited disclosure such as in camera disclosure to the court rather than public disclosure or disclosure of a summary of the agreement rather than the complete funding arrangement.  But as for now it is a wait and see game of what kind of regulation will ultimately prevail.

Topics:  litigation finance, alternative litigation finance, third-party funding, regulation

Works Cited:  David Lat, The Evolving Regulatory Landscape For Litigation Finance, Above the Law (June 8, 2018).