A proposed bill aimed at amending Chapter 111 of Title 28, United States Code has been introduced in the Senate and the House of Representatives. The bill calls for plaintiff attorneys to disclose to all parties in the lawsuit (and to the Principal Deputy Assistant AG for National Security) the name, address, and citizenship/country of incorporation that has a right to receive any payment that is contingent in any respect on the outcome of the civil action by settlement, judgment, or otherwise.
Supporters of the bill state it is designed to protect against conflicts of interest and enhance oversight of third-party litigation funding (TPLF) by foreign persons while prohibiting third-party funding by foreign states and sovereign wealth funds.
It is important to note that the bill’s primary focus is on third-party funding arrangements that are contingent upon the outcome of a specific civil action. This means that funders, like Advocate Capital, Inc., who provide financing with no contingency on the case's success may not fall under the scope of this legislation.
This amendment was proposed by the United States Chamber Institute for Legal Reform in 2014 and 2017. It seeks to address a concern regarding the involvement of foreign entities in financing and influencing civil actions in the United States.
Full recourse funders, like Advocate Capital, Inc., operate on a different model. They offer recourse financing, where repayment is not contingent upon the outcome of a particular civil action. Instead, these funders receive repayment on a predetermined schedule, regardless of the case's outcome.
Recourse financing plays a vital role in enabling plaintiffs to access the legal system and pursue justice. These funders support law firms and plaintiffs by providing the necessary capital to cover litigation expenses, thereby ensuring that cases can be pursued without financial constraints.
One group that is challenging the bill is the American Association for Justice (AAJ). According to an article by Mark Popolizio, J.D., “In January 2018, the AAJ submitted a letter to the Advisory Committee refuting what it referred to as the Chamber’s ‘one sided’ proposal on several grounds. For example, the AAJ argued, in part, that the proposed TPLF disclosure rule would not solve the alleged conflict of interests concerns; that state ethics commissions were the ‘most appropriate’ bodies to consider TPLF ethical concerns; and that there was no evidence that third-party funders were ‘dictat[ing] the litigation strategy or decisions,’ or undermining attorney attorney-client privilege protections. From the AAJ’s view, the Chamber’s effort to amend Rule 26 is ‘just an attempt to unbalance the playing field.’”
As this bill progresses through the legislative process, it will be essential for the legal industry to closely monitor its developments and engage in discussions to ensure that it strikes the right balance between preserving the integrity of the legal system and supporting access to justice for all.
