District of New Jersey Proposes New Local Civil Rule Requiring Disclosure of Third-Party Litigation Funding

The United States District Court for the District of New Jersey has announced proposed amendments to its Local Civil Rules, including a new rule – Civ. Rule 7.1.1 – regarding “Disclosure of Third-Party Litigation Funding.”

As we previously observed on this blog earlier this year, the exact dollar amount that third-party investors infuse into U.S. lawsuits each year is unknown, but conservative estimates begin at approximately $2.3 billion.  Currently, the District of New Jersey’s Local Civil Rules are silent as to litigation funding, but the District is focused on the importance of understanding the parameters of outside litigation funding and a mechanism for requiring disclosure.

Under the proposed new rule, all parties would be required to file statements setting forth information about any non-party person or entity that is “providing funding for some or all of the attorneys’ fees and expenses for the litigation on a non-recourse basis” in exchange for either “a contingent financial interest based upon” the litigation’s results or a “non-monetary result that is not in the nature of a personal or bank loan, or insurance.”

The statement would need to be filed within 30 days of the filing of an initial pleading or removal, and would need to include:  (1) the identity of the funder(s), including name, address, and place of formation (if a legal entity); (2) whether the funder’s approval is “necessary for litigation decisions or settlement decisions,” and if so, “the nature of the terms and conditions relating to that approval”; and (3) a description of the nature of the financial interest involved.

The proposed new rule provides that a party may seek discovery “of the terms of any such agreement upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of the parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist, or such other disclosure is necessary to any issue in the case.

If adopted, Local Civil Rule 7.1.1 would “take effect immediately and apply to all pending cases upon its effective date,” with disclosure statements filed “within 45 days of the effective date of th[e] Rule” in matters that are already pending before the court.

One other rule amendment has been proposed at this time.  The District of New Jersey has proposed an amendment to existing Local Civil Rule 33.1 regarding interrogatories, which addresses formatting requirements and provides that contention interrogatories shall not be served until 60 days prior to the close of fact discovery, unless otherwise permitted by the court.

In the April 14, 2021 Notice to the Bar issued by Chief Judge Freda L. Wolfson, the Clerk has invited comments on these rule amendments.  All comments must be received by May 21, 2021, and should be addressed to the Clerk of the Court, or sent via e-mail to localrules@njd.uscourts.gov.