The Advisory Committee on Appellate Rules, which considers and recommends revisions to the Federal Rules of Appellate Procedure, has declined to pursue a rule requiring disclosure of litigation funding in appeals in federal appellate courts. This decision effectively blocks an effort to compel disclosure of litigation finance in every federal appellate court. It also follows on the heels of a decision not to require disclosure of litigation funding in a new proposed Rule 16.1 for Multi-District Litigation in federal district courts. With these developments, efforts to require disclosure of litigation funding across all federal courts have stalled out again. And for good reason: these efforts remain a solution in search of a problem.
In a May 11, 2023 report to the Standing Committee on Rules of Practice and Procedure of the U.S. Judicial Conference – which formally sets the Federal Rules of Appellate Procedure, as well as the Federal Rules of Civil Procedure – the Appellate Rules Committee stated that it “does not think that there is anything for it to do at this point” related to disclosure of third-party litigation funding. The Appellate Rules Committee reported that it will await “further developments” from the Civil Rules Committee, which has studied third party litigation funding “for years.”[1]
In September 2022, Lawyers for Civil Justice had written to the Appellate Rules Committee advocating amendments to Appellate Rule 26.1 that would require disclosure of litigation funding.[2] The Appellate Rules Committee noted that “[t]here are third-party litigation funders who make non-recourse investments in litigation and the suggested amendment would require their disclosure.”[3] At its fall meeting on October 13, 2022, the Appellate Rules Committee deferred consideration of this issue. The Appellate Rules Committee noted its desire to consult with the Civil Rules Committee on the disclosure issue because the Civil Rules Committee “has been considering this issue for some time.”[4]
At the Appellate Rules Committee meeting on March 29, 2023, the issue of disclosure of third party funding was back on the agenda. According to the draft minutes of the meeting, the Committee’s chair, the Honorable Jay S. Bybee, suggested that the Appellate Rules Committee continue to “tag[] along for now” on the work of the Civil Rules Committee in examining this issue.[5] This suggestion was reflected in the Appellate Rules Committee’s report to the Standing Committee. Thus, the issue of disclosing third-party litigation funding in federal appellate courts is now “pending consideration by other rules committees.”[6]
The Appellate Rules Committee’s decision makes good sense. The Civil Rules Committee has been studying the issue of litigation funding disclosure for nearly a decade. It has developed substantial expertise on litigation funding generally and about potential issues with requiring disclosure specifically. It has repeatedly declined suggestions to impose a one-size fits all disclosure requirement in federal courts. And for good reason: courts have ample existing authority to obtain information about litigation funding if it is relevant in a particular case.
Courts also have ample existing authority to fashion other approaches appropriate to a particular type of case or to a judicial district as a whole. For example, the Northern District of California requires disclosure of litigation funding in a class, collective, or representative action. The District of New Jersey requires a litigant to disclosure litigation funding in every case filed in that district. Chief Judge Connolly, of the District of Delaware, requires disclosure of litigation funding in cases brought before him. These approaches all reflect unique issues in each of these districts. As these examples show, there simply is no compelling need to mandate disclosure of litigation funding – let alone of the underlying funding agreement – in every case in federal court. Moreover, by allowing different courts to experiment with different approaches, the Civil Rules Committee can study the various approaches and assess the pros and cons of different disclosure regimes in its ongoing consideration of this issue.
The approach of the Civil Rules Committee to the issue of disclosing litigation funding is reflected in its recent proposal for a new Rule 16.1 for managing Multi-District Litigation (MDL) proceedings. The Civil Rules Committee examined whether to include disclosure requirements for third-party litigation funding in the new Rule 16.1. The MDL Subcommittee, which was tasked with developing the new Rule 16.1, noted that “[a] great deal of effort was spent examining the proposal to require disclosure of litigation funding.” Ultimately, the MDL Subcommittee’s “conclusion was that this topic, while perhaps very important, was not particularly salient in MDL proceedings.”[7] Accordingly, the Civil Rules Committee did not include a disclosure requirement for litigation funding in the proposed new Rule 16.1 that it submitted to the Standing Committee earlier this month.
Again, this decision comports with courts’ existing authority. If a court overseeing an MDL believes litigation funding may be relevant, it can easily obtain that information. For example, in the Opioid MDL in the Northern District of Ohio, Judge Polster entered an order mandating the disclosure of litigation funding and requiring in camera review of the underlying agreement. This order was tailored to the specific needs of that MDL and avoided giving defendants an undue advantage by making known the litigation budgets of the plaintiffs.
Although the U.S. Chamber of Commerce Institute for Legal Reform recently renewed its call for mandatory disclosure of litigation funding in all federal district courts,[8] the Civil Rules Committee would be wise to continue its wait-and-see approach and to continue studying the issue. Litigation funding is involved in a miniscule number of the overall civil cases filed each year in federal court. And, as detailed above, courts do not need additional authority to obtain information about litigation funding.
Of course, the fight over disclosure of litigation funding will continue in different venues. For example, at the state level, Louisiana Governor John Bel Edwards recently vetoed legislation to require disclosure of litigation funding agreements because the law would give large corporations a tactical advantage. As Governor Edwards observed, the bill was “clearly a pretense designed to gain a litigation advantage under the guise of promoting transparency in litigation and protecting national security.”
As the disclosure war continues over litigation funding, policymakers and legislators would do well to follow the examples of Governor Edwards and the Appellate and Civil Rules Committees. Any approach to disclosure should help ensure that litigation funding can continue to level the playing field for litigants with meritorious disputes and that any disclosure is targeted and calibrated to the specific needs of a case or court. Given that litigation funding remains relatively new and uncommon in the United States, allowing for additional time to examine and study potential approaches to disclosure – including maintaining the status quo – will only help ensure an outcome that appropriately balances all the interests involved.
Stewart Ackerly is a Director at Statera Capital. He formerly practiced at Williams & Connolly LLP.
[1] Report of the Advisory Committee on Appellate Rules at 31 (May 11, 2023) available at https://www.uscourts.gov/sites/default/files/2023-06_standing_committee_agenda_book_final_updated_5-30-23_0.pdf (page 100).
[2] See Letter from Lawyers for Civil Justice re: Rules Suggestion to the Advisory Committee on Appellate Rules, dated September 1, 2022 available at https://www.uscourts.gov/sites/default/files/202303_appellate_rules_committee_agenda_book_final_updated_3-21_0.pdf (page 178)
[3] Report of the Advisory Committee on Appellate Rules at 18 (Dec. 6, 2022), available at https://www.uscourts.gov/sites/default/files/2023-01_standing_committee_meeting_agenda_book_final_0.pdf (page 151)
[4] Id.
[5] Draft Minutes of the Spring Meeting of the Advisory Committee on the Appellate Rules at 15 (March 29, 2023) available at https://www.uscourts.gov/sites/default/files/2023-06_standing_committee_agenda_book_final_updated_5-30-23_0.pdf (page 171).
[6] Agenda, Judicial Conference of the United States, Committee on Rules of Practice and Procedure at 6 (June 6, 2023) available at https://www.uscourts.gov/sites/default/files/2023-06_standing_committee_agenda_book_final_updated_5-30-23_0.pdf.
[7] Report of the Advisory Committee on Civil Rules at 9 (May 11, 20223) available at https://www.uscourts.gov/sites/default/files/2023-06_standing_committee_agenda_book_final_updated_5-30-23_0.pdf (page 792. June 6, 2023).
[8] https://www.law360.com/articles/1606168/biz-groups-again-push-for-litigation-funding-disclosure-rule