A federal rules advisory panel plans to look into rules changes concerning disclosure of third-party financing of litigation—a move praised by the U.S. Chamber of Commerce—but the breadth of that probe could be limited.
The Chamber’s Institute for Legal Reform and more than two dozen other business groups submitted a proposal in June that would amend Federal Rule of Civil Procedure 26 to require disclosure of all compensation agreements that are “contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment or otherwise.”
On Tuesday, U.S. District Judge John Bates of the District of Columbia, chairman of the Judicial Conference Advisory Committee on Rules of Civil Procedure, suggested creating a subcommittee to take up a package of proposals to amend multidistrict litigation procedures, according to sources who attended the meeting. One of the proposals, submitted by Lawyers for Civil Justice, highlighted the pervasiveness of third-party litigation financing in MDLs—something that also might be a part of the subgroup’s work.
A Chamber official called it an “important step” in addressing third-party litigation financing.
“The committee discussed our broad coalition’s TPLF petition in depth, before deciding to establish a subcommittee to gather more information,” Page Faulk, senior vice president of Legal Reform Initiatives at the Chamber’s Institute for Legal Reform, wrote in an email, referring to third-party litigation financing. “This is a positive development, because it shows that the federal judiciary is becoming more aware that TPLF is affecting cases and the judicial system.”
Chamber attorney John Beisner, a partner at Skadden, Arps, Slate, Meagher & Flom, said the subcommittee’s work wouldn’t be limited to third-party litigation financing in MDLs. Even so, he added, many of the complaints about third-party financing are in MDLs, so having it discussed in that context wasn’t a disappointment. “I can’t say what they will ultimately do but it seemed to me this was saying we’re going to be looking at this.”
But Travis Lenkner, managing director of Burford Capital, which opposed the Chamber’s proposal, said the subgroup’s focus was on MDL changes. Litigation financing, he wrote in an email, was an “afterthought.”
“No doubt, the special interest lobbyists will try to spin the creation of any subgroup that is even remotely connected to litigation funding as a ‘win’ on their Rule 26 proposal,” he wrote in an email. “The Chamber will never admit defeat or even a setback. But I have spoken to multiple people who were in the room yesterday. And my understanding from them is that there plainly was no interest in moving forward on the Rule 26 issue, and that with respect to the MDL subgroup, the funding issues were thrown in at the end of the subgroup discussion as an afterthought.”
Still, it’s one small step forward for the Chamber, which failed with similar proposals in 2014 and 2016 to get the committee’s attention. This time, the Chamber pushed for urgency given the growth of third-party litigation financing. In a statement earlier on Tuesday, Harold Kim, executive vice president of the U.S. Chamber’s Institute for Legal Reform, said: “Litigation funding isn’t slowing down and the time to act is now. We urge the committee to support a rule change to bring transparency to third party funding arrangements. Without it, this opaque industry will continue to undermine our legal system.”
Similar changes involving both third-party litigation financing and changes to MDL procedures were included in a bill that passed the U.S. House of Representatives earlier this year—although they are limited to class actions. That bill and other legal reform measures were discussed at a Senate Judiciary Committee hearing on Wednesday.
House Judiciary Committee Chairman Bob Goodlatte, a Republican from Virginia who sponsored the Fairness in Class Action Litigation Act, supported the Chamber’s proposal in a Nov. 1 letter to the committee in which he wrote that third-party litigation financing was “clearly proliferating in civil litigation.”
The subcommittee is expected to spend six to 12 months gathering additional information.
The three proposals involving MDL procedures addressed concerns primarily among the defense bar that meritless cases were getting filed and that parties were unable to appeal orders that impacted thousands of cases.
John Rabiej, director of the Center for Judicial Studies at Duke Law School, who submitted one of the proposals, said about 20 percent of MDLs have gotten unwieldy, accounting for 90 percent of the 130,000 cases now in MDLs.
“The important thing and just as a matter of strategy is that they believe it’s a legitimate issue,” said Rabiej of the advisory committee. “So in one sense, I’m very happy and glad that they agree this is a legitimate issue or rulemaking consideration. I’m a little disappointed that it’s taking this much time.”
If the advisory committee takes up a proposal, it would submit a draft version to the Committee on Rules of Practice and Procedure, which would then take public comments and hold hearings for several months. A final proposal would go to the Judicial Conference for approval, followed by input from the U.S. Supreme Court and Congress. The entire process could take four years, he said.
And changing MDL procedures wasn’t going to be easy. Rabiej noted that few judges involved in the rulemaking committees have handled MDLs. He also anticipated pushback from plaintiffs lawyers—and even MDL judges themselves.
“The resistance is going to come from the judiciary,” he said. “They like the status quo. They can get rid of 10,000 cases in one fatal swoop.”