United States: 3rd Party Litigation Funding Must Be Disclosed Under Recent New Jersey Local Rule

On June 21, 2021, the U.S. District Court for the District of New Jersey announced that it would amend Local Rule 7.1.1 to require disclosure of any third-party litigation funding received by any party. The rule requires that, within 30 days of filing an action or of transfer into the district, all parties file a statement identifying "any person or entity that is not a party and is providing funding for some or all of the attorneys' fees and expenses" in exchange for either "a contingent financial interest based upon the results of the litigation" or "a non-monetary result" not in the nature of a monetary loan.

The statement must contain the identity of the funder, including the name, address, and (if the funder is a corporate entity) its place of incorporation. Parties must also disclose whether the funder's approval is necessary for "litigation decisions or settlement discussions." If the funder's approval is necessary, the nature of the terms and conditions of approval must also be disclosed.

After the initial statements are filed, parties may seek additional discovery into the third-party funding upon a showing of good cause that 1) the non-party has authority to make material litigation decisions, including settlement authority; 2) the interests of the parties or any class (if a class action) are not being promoted; 3) conflicts of interest exist; or 4) any other necessary issue.

The rule went into effect immediately, with all cases then-pending in the district required to file these disclosures by August 5, 2021. All cases since-filed are required to submit disclosures within 30 days.

With this rule, the District of New Jersey appears to be the first federal district court to require routine disclosure of third-party funding arrangements.  Although courts have historically declined to compel the production of such information, arguments in favor of disclosure appear to be gaining traction, among both courts and advisory committees on the Federal Rules of Civil Procedure, as third-party funding arrangements become more common.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.