Wisconsin Regulates Litigation Funding

Critics of third-party litigation funding often contend that such funding harms the business environment because it encourages unmeritorious litigation. These critics often support a number of different forms of regulating litigation finance, including court rules that would require parties to tell their opponents about any litigation funding received from third parties. Wisconsin has recently established such a court rule, but there are serious questions about whether it will help businesses or harm them.

In April 2018, a few months before he lost his bid for re-election, Wisconsin Governor Scott Walker signed legislation that requires all third-party litigation funding deals to be disclosed—even if a discovery request has not been made for that information. Under Wisconsin Act 235, litigants must “provide to the other parties any agreement” under which third-party funders are entitled to a share in any earnings from a civil action, settlement or judgment. The rule excludes lawyer contingent fee arrangements. This statute is first of its kind on the state level.

The leading critic of third-party funding, the U.S. Chamber of Commerce’s Institute for Legal Reform, supports the new law. It argues that third-party funding is bad for business because it both prolongs litigation and leads to more lawsuits. According to Lisa Rickard, president of the Chamber’s Institute for Legal Reform, “Wisconsin’s law brings litigation funding out of the shadows, so that funders in the state can’t anonymously ‘pull the strings’ of a lawsuit without other parties’ knowledge.”

But supporters of litigation financing note that businesses are increasingly turning to litigation financing as a means of reducing the risk of litigating their own commercial disputes. When a business considers whether to pursue its legal rights in litigation against another business, it may be discouraged by the fact that litigating involves high out-of-pocket costs with no certainty of return. Because litigation finance permits such companies to spread the cost and risk of litigation with a third-party, it makes it easier for commercial enterprises to protect their rights.

Unfortunately for Wisconsin companies – and probably for the U.S. Chamber of Commerce – it is going to be harder to make use of litigation finance for commercial purposes in Wisconsin. This is because Wisconsin’s law applies to all litigants, including both consumers and commercial enterprises, it may end up hurting businesses more than it helps them. In Wisconsin, it appears that the old adage applies: “be careful what you wish for – you just might get it.”

Keywords: litigation finance, third-party litigation funding, Wisconsin, disclosure requirements

Work Cited:  Jamie Hwang, Wisconsin Law Requires All Litigation Funding Arrangements to Be Disclosed (April 10, 2018) available at http://www.abajournal.com/news/article/wisconsin_law_requires_all_litigation_funding_arrangements_to_be_disclosed

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