Dear Mr. Walsh,
On behalf of the U.S. Chamber Institute for Legal Reform (“ILR”) and New Jersey Civil Justice Institute (“NJCJI”), we are writing to express support for proposed Local Civil Rule 7.1.1, which would require the disclosure of litigation funders in civil cases pending in the U.S. District Court for the District of New Jersey. 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 businesses of all sizes, sectors and regions, as well as state and local chambers and industry associations. For more than 100 years, the Chamber has advocated for pro-business policies that help businesses create jobs and grow our economy. NJCJI is the State’s leading organization advocating for the business community on matters of law and legal policy. NJCJI promotes a fair and predictable civil justice system, and defends the value of the rule of law in protecting innovation and fostering economic growth.
Third-party litigation funding (“TPLF”) is a rapidly growing business model in which third parties pay money to a plaintiff or his/her counsel in exchange for a contingent interest in any proceeds from a lawsuit. At present, virtually all TPLF activity in the District of New Jersey is occurring in secrecy because there is generally no procedural or evidentiary rule requiring disclosure of the use of such funding. Moreover, to the extent defendants seek this information through ordinary discovery, plaintiffs generally object to providing it, and courts often do not compel production of the requested information. Thus, the existence of TPLF in a particular civil action typically becomes known to the court and the parties only if there is compliance with a local rule requiring disclosure. According to a February 2018 research memo prepared by the Federal Judicial Center at the request of the federal Advisory Committee on Civil Rules, the local rules of six U.S. Courts of Appeals (including the Third Circuit) and “a quarter of all federal district courts” include some form of TPLF disclosure requirement. However, the local rules of the District of New Jersey currently have no TPLF-related disclosure requirements.
The proposed Rule 7.1.1 would plug that gap by requiring the disclosure of (a) the existence of any TPLF in a given case; (b) the identity of the funder; (c) whether the funder’s approval is necessary for litigation and settlement decisions (and, if so, the nature of the terms and conditions relating to that approval); and (d) a brief description of the nature of the financial interest.4 Absent these most basic disclosures, TPLF will continue to operate in secret, hiding potential conflicts of interest and other ethical issues, such as improper fee-splitting between lawyers and non-lawyers. And unless TPLF becomes more transparent, courts will continue to be left in the dark on whether an outside entity is steering a plaintiff’s litigation and settlement decisions – a dynamic that is highly relevant to settlement negotiations, the adequacy of counsel in class actions and potential cost-shifting obligations.
