Lit Funding Opponents Play Long Game in Bid for Transparency

Hourglass.

When the U.S. Chamber of Commerce last week announced its renewed push to force litigation funding deals into the sunlight through a civil rules change, the headline on its press release trumpeted an air of inevitability. “Are the Days of Undisclosed Third-Party Litigation Funding Numbered?” it asked.

The answer: Maybe, but it’s a really big number. Like 877.

The reason for that has little to do with the growth of litigation funding as an industry, or how judicial attitudes toward funding may or may not be changing. Instead, it has to do with the arcane process by which rules for the 94 federal district courts across the U.S. can be changed.

The petition by the chamber and more than two dozen allied business groups seeks to amend Federal Rule of Civil Procedure 26(a)(1)(A) to require litigants to disclose when they are backed by a third-party funder in federal court. It was submitted to the Committee on Rules of Practice and Procedure, the body in charge of setting rules for the federal court system.

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But despite the sense of urgency imbued in the chamber’s 23-page missive demanding more transparency in litigation finance, the committee moves at what might generously be called a “deliberative” pace. Even if it decides to take action, bringing a rule into force takes a minimum of about three years. Other proposals have taken as long as five years to gestate.

The process works like this: A proposal for a civil rule change first goes to the Advisory Committee on Civil Rules, which meets biannually. It last met in April, prior to the chamber’s renewed proposal, so the earliest the proposal could be discussed by the group’s 21 members would be in November.

If the advisory panel decides it’s ready to take action, it could in theory have a draft ready by the following spring that it would recommend to the Committee on Rules of Practice and Procedure. Under a statute known as the Rules Enabling Act, that would kick off a six-month public comment period, involving at least three public hearings held across the country.

When the chamber submitted an identical proposal back in 2014, it fell of the rails before things even got to that stage. In minutes from its 2014 meeting, the advisory committee concluded that “third-party financing practices are in a formative stage. They are being examined by others. They have ethical overtones. We should not act now.” (The chamber re-submitted a similar proposal in 2016, essentially reminding the committee of the issue, without actually asking that action be taken.)

Richard Marcus, a professor at the University of California Hastings College of the Law who dealt with the previous proposal as the advisory committee’s associate reporter, said by phone on Tuesday that it was too soon to tell whether the committee’s views might have changed.

But he underscored that any proposal would not be rushed through. Marcus was skeptical that after its meeting in November, the advisory committee by next spring would have formed enough of a view to finalize the text of a draft amendment. “Since this is a challenging and a not particularly familiar area, I would be really surprised if that happened,” he said.

Supposing it did, after the comment procedure, the committee would then have to digest the comments and then make a final proposal that would go to a higher body, known as the Judicial Conference, for approval in 2019. It would then have to be reported out by the U.S. Supreme Court by May 1, and Congress would then get a chance to reject it— allowing it to take effect no sooner than Dec. 1, 2019.

That’s 877 days from today, for those counting.

Page Faulk, vice president of legal reform initiatives at the Chamber’s Institute for Legal Reform, conceded in a Wednesday interview that the rule amendment process is a lengthy one—although she insisted that it’s one that the chamber wants to see through.

She added: “We also think that a full discussion of the proposal before the judiciary will have the side benefit of increasing awareness that in some cases funders may be lurking in the background … We want this to be top-of-mind with judges.”

It’s not the only avenue the chamber is pursuing. The group also backed a provision in a bill that passed the House in March requiring disclosure of funding in class actions (the bill has still not advanced in the Senate). Maya Steinitz, a University of Iowa College of Law professor who has studied the litigation funding industry, said she saw the renewed proposal as a “component” of the chamber’s broader strategy to force third-party funding arrangements into the open

Allison Chock, head of Australia-based litigation funder Bentham IMF’s operations in the U.S., agreed that the chamber clearly has a larger objective in mind.

“If they rail against litigation finance consistently and for long enough (calling us ‘controversial’ and painting us as ‘shady’ or ‘operating in the shadows’) it’s not unlikely that the public may, after a time and with enough repetition of their negative themes, begin to buy into their characterization,” Chock said in an email, “despite the lack of real facts to back up their fear-mongering.”

Ben Hancock is a San Francisco-based reporter for The Recorder and Law.com. He writes about the future of litigation, including third-party finance, legal data analytics, and artificial intelligence in the law. Contact Ben at bhancock@alm.com. On Twitter: @benghancock

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