In June, the U.S. Chamber of Commerce petitioned the Federal Rules of Civil Procedure to require disclosure of outside funding in all cases. Among the roughly 30 organizations that signed the letter was the International Association of Defense Counsel, a 2,500-member organization whose members include general counsel and corporate defense lawyers.
Mark Behrens, chairman of IADC’s civil justice response committee, talked to ALM about how litigation financing disclosures could help reduce discovery costs for defendants. Behrens, who is co-chairman of the public policy group at Shook, Hardy & Bacon in Washington D.C., also discussed how some courts have addressed recent U.S. Supreme Court decisions that have restricted the jurisdictions where corporations can be sued.
The following has been edited for length and clarity:
ALM: What’s the IADC’s interest in third-party litigation financing?
MB: Business groups are looking at the need for disclosure because they’re concerned third-party litigation funding may fuel speculative litigation. The lawyer groups, including IADC, are interested in disclosure to preserve the integrity of the civil justice system because third-party litigation funding can raise ethical problems in some states where the longstanding doctrine of champerty exists. Also, defense lawyers need to know who the real party in interest is in a case to help facilitate settlements.
Q: When IADC has pushed for new rules before, such as discovery amendments in 2015, what was its interest?
A: The discovery amendments are intended to help address broad fishing expeditions. And this was a concern of the defense community, both the companies and their counsel, because in many cases the litigation was about the discovery as opposed to the claim, and plaintiffs used broad discovery requests as a weapon to try to force settlements unrelated to the merits of the case. Now there is a recognition that is in the rules that the discovery must be proportional to the needs of the case. Also in the rules, there is now a provision that makes clear that judges can impose cost shifting on plaintiff requests that go beyond what is proportional in the case. So if a plaintiff makes an overly broad request, the defendants can say, “We’ll give you what we believe is proportional to the case, but if you want more than that you can pay for it.” This is also where third party litigation funding may come in.
Q: How is that?
A: Because traditionally, we have a system right now where it costs nothing to file a request for discovery and the burden is borne by the producing party. And courts have traditionally taken that approach because they believe that in many cases, in personal injury cases, you have an individual plaintiff and a corporate defendant, and the courts believe the defendant is better able to absorb the costs of production. But if third-party litigation funding is involved in the case, you don’t have great disparities in income and resource levels between the defendant and the plaintiff. It might be where third-party litigation funding is disclosed, the defendant may have more opportunity to convince courts that it’s appropriate for the plaintiff to pay what they’re asking for.
Q: The U.S. Supreme Court in several recent decisions has made it harder for plaintiffs to sue corporations in certain jurisdictions. Those decisions include Daimler AG v. Bauman in 2014 and this year’s BNSF Railway Co. v. Tyrrell and Bristol-Myers Squibb v. Superior Court of California. Why is this issue so important to defendants?
A: In many of these jurisdictions — if you look whether it’s Madison County, Illinois, or New York City or the city of St. Louis, and West Virginia for a long time — there are jurisdictions where when the plaintiffs sue there, the defendants tend to believe that the law is not going to be applied fairly in their case.
Q: How have courts responded?
A: There have been some rulings already. The Oregon Supreme Court found no general jurisdiction in in a FELA [Federal Employers' Liability Act] case involving a railroad spike machine. The Alabama Supreme Court rejected general jurisdiction in an automobile product liability case involving a car made by GM in Canada. This year, the Washington Supreme Court in a case called Noll [v. American Biltrite] rejected specific jurisdiction in an asbestos case. There have been a number of rulings already where courts are faithfully applying not only the letter but also the spirit of the Supreme Court’ cases and saying general jurisdiction does not exist unless the defendant is essentially at home in the forum state and specific jurisdiction doesn’t exist unless the forum state is related to the underlying cause of action.