Rules Committee Takes Initial Steps on TPLF

124 Companies, LCJ and ILR Call for Disclosure Rules

The Advisory Committee on Civil Rules has established a subcommittee to consider third-party litigation funding, a significant initial step toward a possible TPLF disclosure rule in the Federal Rules of Civil Procedure. The Advisory Committee’s action at its October 10 meeting follows a letter signed by 124 major companies calling for clear and uniform TPLF disclosure rules in the Federal Rules of Civil Procedure, and a concurrent comment by Lawyers for Civil Justice and the U.S. Chamber of Commerce Institute for Legal Reform detailing the need for a simple and uniform procedure for TPLF disclosure.

Following the Committee’s action, LCJ issued the following statement:

“The Committee’s decision to establish a subcommittee to consider a rule addressing third-party litigation funding is an important step towards a much-needed uniform procedure for disclosure. Undisclosed TPLF has been a disruptive force in courtrooms nationwide resulting in a patchwork of court practices and conflicting responses from courts to requests for disclosure. LCJ urges the subcommittee to draft a simple, uniform procedure for TPLF disclosure, and in the meantime, we encourage courts and lawyers to ask about TPLF in their cases.”

The letter signed by 124 major companies on October 2 calls for a federal rule to provide uniform and efficient procedures for disclosure of third-party litigation funding (TPLF) agreements in federal civil cases. The letter highlights the importance of disclosure in determining who controls a case and in ensuring the appropriate functioning of key Federal Rules of Civil Procedure (FRCP) provisions. The letter, organized by Lawyers for Civil Justice, is available here.

LCJ, together with the US Chamber of Commerce Institute for Legal Reform, also filed a Rules Suggestion with the Advisory Committee on Civil Rules urging adoption of an FRCP amendment addressing the patchwork of inadequate federal practices on TPLF disclosure. The detailed filing urges the Advisory Committee to draft a uniform and credible procedure for understanding TPLF agreements. You can read the Rules Suggestion here.

LCJ and its allies have for many years called for action on TPLF disclosure rules. LCJ has four rule proposals on TPLF pending before federal rules committees. Members of Congress also weighed in this Summer in support of action by the federal courts on TPLF rules.

Although courts increasingly recognize the need to know about TPLF in their cases, the vacuum created by the lack of FRCP guidance forces judges to cast around for the right way to inquire about TPLF agreements. Some judges ask in open court if parties are using outside funding. Other judges have issued standing orders, and some attempt to obtain disclosure using local rules. Problematically, some judges attempt to address TPLF disclosure through ex parte discussions with plaintiff counsel in chambers, sometimes reviewing TPLF agreements on camera. The corporate letter and the Rule Suggestion urge adoption of uniform procedures in FRCP to supersede the patchwork of approaches to TPLF inquiry, as well as the misplaced reliance on ex parte discussions in handling inquiries.

Third-party funding fundamentally changes the dynamics of litigation, often including control of a case. Issues relating to control can only be determined by understanding the TPLF agreement. Just as FRCP Rule 26(a)(1)(A)(iv) requires defendants to disclose their insurance contracts, plaintiffs should be required to disclose TPLF agreements. When agreements are concealed, settlements can unravel because plaintiffs, or their attorneys, must seek approval from undisclosed funders—or worse, they use funders as an excuse to abandon commitments.

The lack of uniform TPLF disclosure requirements undermines key principles of the FRCP, the Federal Rules of Evidence, and litigation concepts such as the “real party in interest” rule. Courts and parties need transparency to know who is behind the litigation and who has a vested interest in the outcome. Unfortunately, the FRCP is unintentionally compounding this problem, as some courts interpret Rule 26(b)(1)’s “relevance” standard to exclude TPLF agreements from discovery. When defendants are kept in the dark about TPLF agreements, they lose the ability to utilize several key FRCP provisions.

Building on the corporate letter and the Rules Suggestion, LCJ is launching a major initiative, AskAboutTPLF, in support of TPLF disclosure in cases and through local court rules, with the ultimate objective of securing a clear and uniform disclosure rule in the FRCP. A new website will serve as a resource in support of TPLF disclosure in cases and through rule changes. LCJ looks forward to announcing details on this initiative and the new website.

Your support for this initiative continues to be needed. Asking about TPLF in your cases is critical to bringing these issues to the attention of judges. LCJ is seeking examples of motions to obtain disclosure of TPLF agreements and orders indicating how courts handled those requests, so please send us your pleadings. LCJ is also prepared to support your efforts to advocate for effective local disclosure rules. Let LCJ know what you are doing and how we can assist by e-mailing LCJ Executive Director Dan Steen at DSteen@lfcj.com.