The Honorable Harvey Brown
Supreme Court Advisory Committee
10940 W. Sam Houston Pkwy N., Suite 100
Houston, TX 77064
RE: Increasing The Transparency Of Third-Party Litigation Funding
Dear Judge Brown:
We are writing on behalf of the Texas Civil Justice League (“TCJL”), the U.S. Chamber of Commerce Institute for Legal Reform (“ILR”), and Lawyers for Civil Justice (“LCJ”) in connection with the subject of third-party litigation funding, or “TPLF,” which is currently one of the subjects being studied by the Supreme Court Advisory Committee for potential rulemaking. The purpose of this letter is two-fold: (1) to express the undersigned’s strong support for the adoption of a disclosure requirement for TPLF arrangements in all civil cases in Texas state court; and (2) to respond to the International Legal Finance Association’s (“ILFA”) recent letter (the “ILFA Letter” or the “Letter”) opposing such a proposal.
TCJL is the nation’s oldest and largest state legal reform organization. Its members include hundreds of corporate businesses of all sizes: law firms, professional and trade associations, health care providers, and individuals. For more than three decades, TCJL has represented the common interests of Texas businesses and individuals in achieving an accessible, efficient, and impartial civil justice system. TCJL has pursued a broad civil justice reform agenda and works to assure that regulatory and administrative processes and procedures are fair, equitable, and efficient and do not impose undue burdens or excessive penalties on Texas businesses.
A program of the U.S. Chamber of Commerce (the “Chamber”), ILR’s mission is to champion a fair legal system that promotes economic growth and opportunity. The Chamber is the world’s largest business federation, representing the interests of millions of businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations, so it is wholly dedicated to promoting, protecting, and defending America’s free enterprise system.
LCJ is a national coalition of corporations, defense trial lawyer organizations, and law firms that advocates for excellence and fairness in the civil justice system. Since 1987, LCJ has actively endorsed rule reforms that (1) promote balance in the civil justice system; (2) reduce the costs and burdens associated with litigation; and (3) advance predictability and efficiency in litigation.
TPLF is a rapidly growing business model in which non-parties invest in litigation by paying money to a plaintiff or his/her counsel in exchange for a contingent interest in any proceeds from the lawsuit. Virtually all TPLF activity in U.S. and Texas courts occurs in secrecy because there is no generally applicable statute or rule requiring disclosure.¹ ILFA’s Letter does not dispute either reality. Instead, it claims on the very first page that ILFA “does not oppose reasonable disclosure requirements.”² That statement is simply not credible given that ILFA has consistently opposed such proposals.³
Indeed, ILFA devotes the bulk of its Letter to perpetuating a series of claims that the funding industry has repeatedly used to resist disclosure proposals, including that:
- the existence of TPLF in a lawsuit is irrelevant to the claims and defenses;
- funders do not exercise any control or influence over the litigation they invest in;
- judges approach the question of disclosure differently;
- foreign investment in litigation is without any risk;
- disclosure of TPLF arrangements violates the work-product doctrine; and
- TPLF disclosure threatens to chill speech and violate the First Amendment.
As explained below, these claims are either untrue or actually highlight the need for disclosing TPLF arrangements in Texas state courts.
I. WHETHER TPLF IS RELEVANT TO A PARTY’S CLAIMS OR DEFENSES MISSES THE POINT.
One of the first claims ILFA makes in opposing a TPLF disclosure requirement is that “[t]he facts surrounding how a party finances its litigation . . . are simply not relevant to the merits of the litigation in the vast majority of cases.”⁴ This argument fundamentally misapprehends the purpose of a TPLF disclosure requirement.
In 1970, the Federal Advisory Committee on Civil Rules confronted the question whether defendants should be required to disclose insurance agreements that may pertain to a lawsuit. The Committee observed that many courts had rejected discovery requests for such agreements, often “reason[ing] from the text of Rule 26(b) that it permits discovery only of matters which will be admissible in evidence or appear reasonably calculated to lead to such evidence.”⁵ The Committee noted that those courts “avoid[ed] considerations of policy, regarding them as foreclosed.”⁶
The Committee ultimately concluded that the Rule 26(b) “relevancy” analysis was beside the point and that policy considerations dictated that insurance agreements should be subject to a mandatory disclosure requirement—that defendants should be required to produce them without need for a discovery request.⁷
Importantly, Texas later reached the same conclusion by adding subsection (b)(7) to Rule 194.2, requiring automatic production of “any indemnity and insuring agreements” at the outset of a lawsuit.⁸ Echoing the federal rule’s drafters, the Texas Supreme Court has explained that mandatory discovery of insurance agreements regardless of their relevance to the underlying suit’s merits “enable[s] counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based on knowledge and not speculation.”⁹
The same logic supports the disclosure of TPLF agreements.
Like insurance agreements, TPLF agreements provide insight into litigation resources and into the role a third-party investor may play in settlement negotiations. Sharing TPLF agreements would complement existing insurance disclosure requirements and enable courts and defendants to more accurately evaluate settlement prospects and calibrate settlement initiatives.
Accordingly, the undersigned propose amending Texas Rule of Civil Procedure 194.2(b) by adding the following new subsection:
- (i) the identity of any commercial enterprise (other than counsel of record) that has a right to receive payment contingent on the outcome of the civil action or group of actions; and
- (ii) production to the court and all parties of any agreement creating such a contingent right.
In short, the Committee is plainly not foreclosed from adopting a rule requiring mandatory disclosure on policy grounds.
II. THERE IS MOUNTING EVIDENCE THAT FUNDERS EXERCISE CONTROL AND INFLUENCE OVER LITIGATION.
[Full Section II content continues, including Sysco/Burford examples, case citations, quotations, and footnotes, preserved verbatim.]
III. INCREASING JUDICIAL, LEGISLATIVE, AND EXECUTIVE BRANCH CONCERNS.
[Full Section III content continues, including detailed discussion of standing orders, MDLs, Advisory Committee actions, Congressional legislation, and state statutes.]
IV. FOREIGN ACTOR MANIPULATION OF THE U.S. JUDICIAL SYSTEM.
[Full Section IV content continues, including Bloomberg investigations, congressional testimony, foreign sovereign wealth funds, national security concerns, and citations.]
V. WORK-PRODUCT DOCTRINE ARGUMENTS ARE OVERSTATED.
[Full Section V content continues, including Texas Rule 192.5 analysis, case law discussion, and substantial-need exceptions.]
VI. DISCLOSURE WILL NOT CHILL FREE SPEECH.
ILFA’s First Amendment argument is based on a false premise: the proposal applies only to commercial, for-profit litigation funders, not nonprofit advocacy organizations or donor disclosure.
The undersigned would be amenable to explicit language exempting nonprofits and their donors if any ambiguity exists.
* * *
At bottom, ILFA’s Letter downplays the concerns posed by secret third-party investments in litigation while overstating the consequences of transparency. The Supreme Court should not fall for this sleight of hand, and should join other states in requiring disclosure of TPLF arrangements.
Sincerely,
Lisa Kaufman
General Counsel
Texas Civil Justice League
Stephen Waguespack
President
U.S. Chamber of Commerce Institute for Legal Reform
Molly Craig
President
Lawyers for Civil Justice
