Litigation Funding Transparency

Investors are now seeing trucking lawsuits as a cash cow. A new tactic has emerged where financial firms will fund litigation in order to make an ROI. This practice involves providing loans to the plaintiff with high interest rates to fund litigation against trucking companies. This practice has the potential to turn the courthouse into a casino with investors seeking to turn profits. This practice makes it so that reasonable settlement offers are turned down because the funding arrangement doesn’t allow plaintiffs to meet their obligations to their financing company. Furthermore, these deals are rarely regulated and are actively being kept secret by the financial institutions.

Despite efforts by third-party funders to keep their investments secret, in some states, there have been disclosure requirements. In June 2022, such a transparency requirement became policy for all federal district courts in New Jersey. The policy will require any litigation funder in a civil lawsuit to disclose their identity and give a brief description of their interest in the case. An estimated 25 of 94 federal district courts in the U.S. require some sort of disclosure of the identity of litigation funders in a civil case.

Further efforts to regulate this practice comes from the Chamber Institute and the APCIA have been among a wide-ranging coalition pressuring the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts to amend the Federal Rules of Civil Procedure to require disclosure of third-party litigation funding arrangements in any civil action filed in federal court.

At state level the financing practices are largely unregulated. As the issue becomes more widespread look for legislatures to take action by passing statutes that outright prohibit the investment or require the disclosure of third-party investors thus making them susceptible to discovery.

Written by associate Pavel Glazunov.