Federal courts panel eyes third-party litigation funding

By Rick Fahr | Apr 18, 2016

PALM BEACH – During a meeting in Palm Beach last week, members of the U.S. Federal Courts Advisory Committee on Civil Rules learned that two U.S. senators are probing the practice of third-party litigation financing (TPLF).

John Beisner of the U.S. Chamber Institute for Legal Reform told members of the committee that Sens. Charles Grassley (R-Iowa) and John Cornyn (R-Texas) requested information from three of the world’s largest litigation financing companies. Grassley chairs the Senate’s Judiciary Committee, and Cornyn chairs one of the committee’s subcommittees.

Third-party litigation funding involves a firm not involved in a legal dispute supplying capital to pursue the case. Under current rules, litigation funders do not have to reveal their participation.

The senators sent letters seeking information to the heads of Burford Capital and Bentham IMF, U.S.-based companies; and Juridica Investments LTD of Great Britain.

Grassley explained his interest in the matter today.

"I first learned about the potential impact of litigation funding after a series of news articles," Grassley told the Florida Record through a spokeswoman. "These financing arrangements appear to operate with no oversight and have very little transparency. As a result, determining the impact litigation financing has on our civil justice system is extremely difficult. Most litigation financing agreements are confidential; however, the few agreements that have become public raise a lot of red flags about litigation funding. Because of the lack of transparency, we're first trying to better understand third-party litigation financing and the possible repercussions. Then, we can better determine if legislation may be necessary."

Darren McKinney, director of communications for the American Tort Reform Association, said introducing third-party funding into court cases adds costs to the court system that taxpayers end up paying.

“Our courts are established to resolve disputes between the parties," he told the Florida Record. "A third party comes in to fund a lawsuit – you are effectively ginning up lawsuits, or perhaps more accurately, funding a lawsuit beyond its natural lifespan."

McKinney contended that there is no real need for such funding mechanisms.

“When you introduce a third party, who isn’t directly implicated in the controversy, it unnecessarily elongates the litigation," he said. "If a plaintiff has a righteous case, it’s not as though he or she isn’t going to be able to find a perfectly qualified firm or number of firms to combine to willingly act on a contingency fee basis,” he said. “A third party is effectively placing a bet. Folks should see our court system, our justice system as sacrosanct.”

Beisner told committee members that parties involved in a court case deserve to know all parties involved.

The conclusion: “We look forward to continuing discussion of this important issue, and we urge the committee to take steps soon to achieve greater transparency about the growing use of TPLF in federal court litigation.”

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Organizations in this Story

American Tort Reform Association U.S. Chamber Institute for Legal Reform (ILR)

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