More on Mandatory Disclosure

As a follow-up to the previous post on the current state of disclosure requirements for litigation finance in the United States, this post considers two major questions in disclosure regulation.  First, is mandatory disclosure of litigation finance inevitable and with that, are the trends in the court and legislatures in favor of full disclosure in every instance? Secondly, is disclosure of litigation finance advisable in every civil matter and should litigants be forced to not only disclose if their legal cost but also the financiers’ identities and the specific arrangements that were made?

Starting with the first question, is mandatory disclosure inevitable? No. The primary reason for disclosure is to ensure that judges deciding the matter do not have a conflict of interest.  Mandatory disclosure in regards to litigation finance would be to provide an advantage to a litigation adversary, which is not the intended purpose of disclosure rules.  This is supported by the fact that Rule 7.1(a) requiring disclosures is intentionally very limited.

To address the second part of question one, do trends favor mandatory disclosure; the lack of current regulation  (as demonstrated in more detail in the previous blog post) suggests that the trends of the court at least do not favor disclosure.  There have been discussions of new legislation and most recently in May, a draft bill introduced by Senator Chuck Grassley but so far there has not been anything definite to show a trend towards mandatory disclosure.

As for the second question, disclosure is not advisable in every civil matter.  But the one area where disclosure may be more helpful than burdensome is in collective litigation.  In collective litigation there is generally no single plaintiff and the cases are often very sophisticated so the court plays a more active role than it does in single-claimant commercial litigation.  However, this does not mean that mandatory disclosure should be automatic in every collective litigation case.

In response to the second part of the second question, if disclosure is mandatory in a collective action case then it should be done in what Christopher Bogart deems a “common sense approach.”  Which is to say that the disclosure should not be overly excessive to disclose every detail of the arrangement and maybe not even the identities of the financiers but rather in a way that affirms to the judge that there is no conflict and that the funder exercises no control over the matter. This can be done by calling for disclosure to be made ex parte and in camera to the judge only, not the defendant, and by stipulation that no discovery will be permitted into litigation finance arrangements as they are protected attorney work product.

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

 Works Cited:  Christopher P. Bogart, Litigation Finance Disclosure in the US: Common Sense v. False Narratives, Bloomberg Big Law Business (July 11, 2018).