Court Orders Start to Expose ‘Startling’ Data on Litigation Funding Sources

There is no federal law that requires the disclosure of litigation funding agreements in court cases, but some disturbing insight has been found in individual jurisdictions that have rules to increase transparency, according a panel on the topic at the American Property Casualty Insurance Association’s (APCIA) annual meeting.

“We don’t know the extent of it because there are so few jurisdictions that require disclosure, but in those few jurisdictions that have disclosure rules, it has been startling what has been uncovered,” said Paul Taylor, a fellow at the National Security Institute at George Mason University’s Antonin Scalia Law School, who served more than 20 years as counsel to the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice.

Taylor said that in one intellectual property case in federal court in Delaware, a Chinese-backed third-party funder named Purple Vine was involved. The Federal District of Delaware requires litigation finance disclosure via a standing order, and the implications of this particular finding, Taylor continued, are crystal clear when considering information shared during the legal process, especially during discovery—a pretrial exchange of information between parties in the case.

“No matter how airtight a nondisclosure rule might be, there are so many people involved that there’s a lot of room for leakage,” Taylor continued at the conference in Chicago. “That’s where sensitive information could give foreign competitors an advantage in a certain area. If they get sensitive knowledge about a company’s product, it could allow them to just reap proceeds from litigation, which they could use to fund other anti-American projects, whatever they might be.”

Third-party litigation funding (TPLF)—an investment to the plaintiffs from an outside firm in exchange for a share of a settlement or judgement—has been cited repeatedly by the insurance industry as a factor in the rising cost of casualty claims. Industry trade associations have lobbied to increase awareness of the practice and encourage court rules to reveal third-party financers.

Shortly before the panel discussion, APCIA released a statement in support of TPLF-related federal legislation introduced by Congressman Darrell Issa, chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet.

“The misuse of the legal system fueled by third-party litigation funding has formed a litigious culture, ultimately burdening every consumer and business through increased costs, including the cost of insurance throughout the country,” said Nat Wienecke, APCIA’s senior vice president of federal government relations, in a statement.

Vishal Amin, head of IP policy at Intel, said an “immense amount” of IP cases come not from competitors but from others funded by third parties and are “coming after our interests.”

“It’s almost a form of economic warfare,” Amin told the conference audience. “You have sovereign wealth funds from the Middle East; you have foreign governments [like] the example with the Chinese, or Russian oligarchs now funding some of this litigation finance. There is a method to the madness here.”

Former Congressman Bob Goodlatte of Virginia, also a panelist, said TPLF upsets the job of a judge to fairly and efficiently administer justice because judges can’t identify potential conflicts of interests. Additionally, he said, plaintiffs’ attorneys may be less likely to settle cases because they are beholden to TPLF contracts. In fact, they may be forced to continue with a case because contract stipulations have not been met.

The terms of insurance contracts involved in a case are confidentially disclosed and the same should go for TPLF agreements, Goodlatte said. Whether through court rules or state or federal law, more needs to be done to stop turning the courts into a “casino,” he added.

“The courts were not designed for this purpose, and justice is being denied—not more fairly administered—by having the extensive amount of third-party litigation funding as is taking place,” Goodlatte said.