Litigation Funders and Clients on Different Pages

The past decade has seen the rise of litigation finance in the United States. Despite its relative infancy, the complex industry is here to stay. As we continue through this next decade, there is a glaring issue that must be addressed within the sector: transparency. There is a disconnect of information, opinions, and impressions regarding nearly every aspect of the litigation finance industry, from market size to ethical concerns. How these disparities are confronted will inevitably shape the sector for the years to come.

Disclosure Rules

Arguably one of the most controversial aspects of third-party financing is whether it should be disclosed during discovery. At the moment, disclosure is not required for litigation funding agreements. Certain pieces of information, such as documents and materials a party expects to utilize, must be initially disclosed, per Rule 26 of the Federal Rules of Civil Procedures. Currently, Rule 26 does not extend to litigation financing agreements. However, it should be noted that some states have passed or are considering adopting mandatory disclosure for litigation funding agreements.

While the federal rule does not require disclosure, when surveyed, 41% of lawyers were “not sure” of how often funding must be disclosed in court. Contrastingly, nearly half of funders maintained that courts rarely compelled disclosure in court. There is a chasm in industry understanding. Moving forward, the disconnect of misinformation must be bridged

Concerns

When surveyed about their concerns regarding litigation finance, the most significant worries that lawyers expressed were:
Ethical implications
Client privilege
Disclosing the financing in court

In contrast, when litigation funders were asked what their clients’ greatest worries were, funders explained that their clients were mainly concerned about:
Understanding how litigation finance works
Disclosing the financing in court

While there are some disparities between lawyers’ thoughts and feelings and what funders believe are lawyers’ biggest concerns, the continued conversation will ensure everyone is on the same page.

For more information visit Town Center Partners.

Topics: litigation finance, third-party funding, legal funding, disclosure, funder, lawyer