The District of Delaware is the latest in a series of courts to require disclosure of third-party funding arrangements, a subject we have previously explored. The Chief Judge in the District of Delaware now joins other courts like the District of New Jersey and the Northern District of California in requiring these disclosures.
On April 18, 2022, Chief District Judge Colm F. Connolly of the United States District Court for the District of Delaware issued a standing order requiring litigants to disclose whether their cases are being financed by third parties. The standing order requires that, “where a party has made arrangements to receive from a person or entity that is not a party (a ‘Third-Party Funder’) funding for some or all of the party’s attorney fees and/or expenses to litigate th[e] action on a non-recourse basis,” either for “a financial interest that is contingent upon the results of the litigation” or “a non-monetary result that is not in the nature of a personal loan, bank loan, or insurance,” the party must disclose certain details of the funding relationship within 45 days of the entry of the standing order (i.e., by June 2, 2022) for existing cases, or within 30 days of the filing of an initial pleading or transfer of a new matter into the District.
In particular, the party must disclose: (a) the identity, address, and (if a legal entity) place of formation of the Third-Party Funder; (b) whether the Third-Party Funder’s approval is “necessary for litigation or settlement discussions in the action, and if the answer is in the affirmative, the nature of the terms and conditions relating to that approval”; and (c) a “brief description” of the nature of the financial interest held by the Third-Party Funder. These disclosures must be made in a stand-alone statement, separate from any pleading. The standing order expressly establishes that a party may seek “additional discovery on the terms of a party’s arrangement with any Third-Party Funder” upon showing that: (i) the Third-Party Funder has “authority to make material litigation decisions or settlement decisions; (ii) the “interest of any funded parties or the class” are “not being promoted or protected by the arrangement”; (iii) “conflicts of interest exist as a result of the arrangement”; or (iv) “other such good cause exists.” The standing order appears to only apply to cases assigned to Chief Judge Connolly.
This standing order and similar orders or rule changes in other courts have come to pass amid a push by Lawyers for Civil Justice (LCJ) and the U.S. Chamber Institute for Legal Reform (ILC) for the Advisory Committee on Civil Rules to “take concrete steps to shine a light on the rapidly expanding, $9 billion-plus third-party litigation finance (TPLF) industry.” As the LCJ and ILC recently noted, a 2020 report by Burford Capitol, the world’s largest litigation finance firm, found that the reported use of legal finance has increased by 105% since 2017. LCJ and ILC urge the Advisory Committee on Civil Rules to adopt an amendment to Rule 26(a)(1)(A) to require disclosure of third-party investments in litigation at the outset of litigation. This blog will continue to monitor whether other courts enter orders or rule changes requiring disclosure of third-party litigation funding in light of these efforts.
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