JEFFERSON CITY – The Advisory Committee on Civil Rules' decision late last month that it will study third-party litigation funding in civil lawsuits and the potential need for a disclosure requirement may not be getting to the root of problem, a Missouri-based tort reform advocate said.
"Transparency when there are third party interests in the litigation is always a good practice," Missouri Civil Justice Reform Coalition Executive Director Richard AuBuchon said. "However, by the time these agreements for funding are in place, they have already done the harm to the individual by taking away any real chance of recovery, made the case more difficult for the lawyers to reach settlement and driven up costs for all involved."
The harm caused by third-party litigation funding, in which third parties such as hedge funds "invest" in litigation in exchange for a percentage of a resulting settlement or judgment, is especially hard on the most vulnerable of litigators, AuBuchon said.
"It is a practice extending further misery to those who may be more vulnerable than others and should be regulated or banned outright," he said.
Third-party litigation funding is a "global industry" in which about $100 billion is made available to fund litigation, according to the U.S. Chamber Institute for Legal Reform.
"The practice, while lucrative for those betting on cases, increases the probability that meritless claims will be brought, inserts questions about who is actually controlling the litigation other than the plaintiff and defendant, and makes settling lawsuits far more difficult and expensive," the ILR says on its website. "Even the funders admit they deliberately complicate litigation."
The Advisory Committee on Civil Rules for the U.S. courts announcement about its study of the effects of third-party litigation funding in civil litigation and whether disclosure requirements are needed was released in last October.
The committee already knows that third-party litigation funding litigation funding "is growing by leaps and bounds,” 48 insurance, business and tort reform advocacy groups said in a letter to the U.S. Courts' Committee on Rules of Practice and Procedure in early October.
Despite that growth, "very few MDL transferee judges presently report that they are aware of third-party litigation funding in the proceedings before them," the letter said.
"Disclosure is the only way that courts, parties and the committee will learn who is in the courtroom and understand the issues that are raised by their presence," the letter said. "The funders' fear of revealing privileged information should be handled just like it is for everyone else: redact it and ask for a protective order."
Even that won't be enough, AuBuchon said.
"Transparency and disclosure won't address the usury that is being perpetrated at the expense of people who are seeking redress in the courts," he said.
Editor's note: The St. Louis Record is owned by the U.S. Chamber Institute for Legal Reform.