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Key Takeaways
LCJ presents empirical evidence reinforcing efforts to promulgate a civil rule requiring disclosure of third-party litigation funding. LCJ's analysis demonstrates that such funding has significant potential impacts on litigation decisions and outcomes. LCJ argues that a disclosure rule would improve judicial efficiency without impeding parties' substantive rights in litigation.
On September 3, 2025, Lawyers for Civil Justice ("LCJ"), based on its analysis of nine publicly available third-party litigation funding ("TPLF") contracts, submitted a rules suggestion to the Advisory Committee on Civil Rules, Subcommittee on Third-Party Litigation Funding. The analysis underscores the need for "a rule requiring disclosure" of TPLF contracts in civil litigation. Rules Suggestion at 1. As we previously reported, the Subcommittee was created last year to study a possible federal rule requiring disclosure of TPLF information.
The submission identified LCJ's key findings about the impact of TPLF contracts on litigation:
- TPLF contracts give "direct control over litigation and settlement to non-party funders," providing funders with influence over parties and case management without the courts' knowledge. Rules Suggestion at 4-7. The contracts may also limit actions counsel can take without consent from the funder, including settlement decisions. Mandatory disclosure of TPLF information allows courts to manage this influence by "anticipat[ing] and avoid[ing] practical case management problems"—e.g., by requiring funders to attend status and settlement conferences. Id. at 5.
- Even TPLF contracts that purportedly lack direct-control provisions still grant "meaningful indirect control and influence over litigation and settlement" to funders. Id. at 7-10. TPLF contract terms may mandate that plaintiffs who wish to settle must nevertheless continue prosecuting a case, creating "zombie litigation." Id. at 7-8. The contracts can also impact the relief sought by prioritizing monetary recovery over equitable and declaratory relief, irrespective of plaintiffs' interests. And the analyzed TPLF contracts did not typically restrict when funders can withdraw their money, which "effectively give[s] the funder veto power over every decision in a case." Id. at 10.
- TPLF contracts may interfere with plaintiffs' attorney-client relationship, including by limiting plaintiffs' choice of counsel. Id. at 11-14.
- TPLF contracts "can undermine protective orders by giving non-party funders access to confidential documents." Id. at 17-18.
- TPLF contracts interfere with court rulings on costs and sanctions by, for example, making the plaintiff liable for the funders' sanctionable conduct. Id. at 18-19.
Based on these findings, LCJ recommends a rule, modeled on the existing insurance disclosure requirement in Federal Rule of Civil Procedure 26(a)(1)(A)(iv), that would require disclosure of TPLF information. Id. at 1-2, 20. According to LCJ, a disclosure rule would "lift[] the veil" on potentially litigation-altering TPLF contracts without burdening courts with ex parte determinations about whether disclosure is appropriate. Id. If adopted, a disclosure rule could inform case management, discovery, protective orders, and motions for costs and sanctions by clarifying whether and how funders may influence litigation and settlement decisions.
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