The Debate over Disclosure Rules for Litigation Finance

As litigation financing continues its exponential growth, it occupies a more prominent place in the legal landscape. This prominence leads to more calls for the regulation of litigation finance transactions.

Currently, litigation finance is governed by a patchwork of regulatory sources, at both the federal and state levels. Some jurisdictions don’t regulate litigation finance at all. Others prohibit litigation financing completely. Some provide minimal regulations, such as certain formal and disclosure requirements for the documentation of a litigation finance transaction.

One of the most widely supported kinds of regulation involves court rules that require litigants to make disclosures about any third-party funding that they have received. Wisconsin has recently enacted such a rule for all of its courts. Likewise, certain federal judicial districts have established local rules to that effect in certain kinds of cases.

Some don’t see any downside in such rules, even for the parties receiving funding. One commentator has noted that a funded party may obtain a strategic and negoitating advantage if its opponent knows that it is well-funded and capable of hanging in for the long haul. According to this view, disclosure may expedite the process of reaching a fair settlement.

But there can be problems with such disclosure rules. These rules may allow the opponent of a funded party to create a kind of ancillary dispute about whether communications between the funder and funded party have waived privileges. This can be problematic because there’s still some uncertainty over how well courts will protect the attorney-client and attorney work product privileges for the funded party.

Keywords: litigation finance, third-party litigation funding, discovery rules, disclosure

Work Cited:  David Lat, The Evolving Regulatory Landscape for Litigation Finance, Above the Law (June 8, 2018) available at https://abovethelaw.com/2018/06/the-evolving-regulatory-landscape-for-litigation-finance

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