Many federal judges are presiding over lawsuits in which, unbeknownst to the court, a non-party investor has a direct, contingent financial interest in the proceeds produced by any judgment or settlement due to third-party litigation funding—commonly abbreviated as TPLF. Although judges are required to recuse themselves when they know that they or their families have a financial stake in a case, courts remain largely in the dark about the existence of third-party investments in their cases. This is so because the existence of TPLF in a given case need not be disclosed as a matter of course under the Federal Rules of Civil Procedure, and to the extent local rules require the disclosure of direct financial interests, they have largely been ignored.
Although the District of New Jersey recently adopted a local rule expressly requiring the disclosure of TPLF-related information at the outset of a case, and certain individual judges have instituted standing rules requiring similar information in their own cases, most judges have no idea whether interests created by TPLF are at play in litigation they are overseeing.
Although a uniform TPLF disclosure rule applicable to all civil cases, as described in Rule Suggestion 17-CV-O, would be the most effective way to inform courts and parties about TPLF and the financial interests it creates, an amendment to Rule 16(c)(2)—specifically, the addition of TPLF as a matter for consideration during pretrial conferences—would be very helpful to courts and parties alike. Such a change would help alert judges to the issues of TPLF and facilitate discussion (and potential disclosure) of the non-party stakes in their cases. Some judges may appreciate the addition to Rule 16(c)(2) as befitting the Chief Justice’s recent call for “greater attention to promoting a culture of compliance” in the federal judiciary, particularly on the “matter of financial disclosure and recusal obligations,”7 which was inspired by the Wall Street Journal’s reporting of 685 instances of conflicts of interest. Some judges may value a nudge for reasons beyond their ethical duties, including to learn who should participate in settlement conferences due to their authority or influence over resolution decisions. And some judges may appreciate the signal to learn facts relevant to their understanding of “the parties’ resources” as required by Rule 26(b)(1), fashioning appropriate sanctions, and allocating costs. There are other case-specific reasons as well.9 For the Committee, adding such a prompt to Rule 16(c)(2) would provide meaningful assistance to judges while sidestepping all of the drafting questions that have complicated its contemplation of a TPLF disclosure rule applicable to all cases. In short, a Rule 16(c)(2) reference to TPLF would assist judges who may find good reasons to inquire about the presence of non-party financial rights to proceeds in their cases while still preserving their complete discretion to make that decision only when appropriate on a case-by-case basis.
