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US Judicial Committee to Study Disclosure of Litigation Funding

By Harry Moran |

With federal lawmakers following in the wake of some state legislatures in introducing draft legislation to impose new regulations on litigation funding, it is perhaps no surprise that the US judiciary has now seen fit to take a more proactive approach in examining the role of third-party legal funding in the country.

An article in Reuters covers the news that the U.S. Judicial Conference’s Advisory Committee on Civil Rules agreed last week to begin a study into litigation finance, to ascertain whether a federal rule governing disclosure of third-party funding was necessary. The decision followed a panel meeting last Thursday in Washington, D.C., and notably comes shortly after over 100 companies signed a letter calling on the judiciary to introduce greater transparency measures for litigation funding. 

The chair of the Advisory Committee, U.S. District Judge Robin Rosenberg, said that the debate over third-party legal funding “is an important issue” and that it “is not going away.” Following the committee’s decision, a subcommittee will be created to study the issue but as the Reuters article highlights, this does not provide a timeline on when, or even if, a new rule governing disclosure would be introduced. U.S. District Judge John Bates, chair of the Committee on Rules of Practice and Procedure, seemed to make a distinction between the “theoretical problem” that litigation finance could pose, and the study’s purpose to uncover whether there were “actual problems”.

In response to the committee’s decision, Page Faulk, senior vice president of legal reform initiatives at the U.S. Chamber of Commerce Institute for Legal Reform, called on the judiciary “to move forward swiftly in adopting mandatory disclosure requirements.” In contrast, the International Legal Finance Association (ILFA) said that it welcomed “the opportunity to be a part of the conversation to demonstrate how legal finance is a valuable part of the legal economy and has not resulted in any of the negative outcomes that the U.S. Chamber has cut from whole cloth.”

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Commercial Regulatory Issues

International Legal Finance Association (ILFA) Welcomes New ELI Report – ‘Principles Governing the Third-Party Funding of Litigation’

The International Legal Finance Association (ILFA), the global voice of commercial legal finance, has welcomed the findings of the newly published European Law Institute (ELI) report ‘Principles governing the third-party funding of litigation’. 

The report, authored by UK High Court Judge Dame Sarah Cockerill and Professor Susanne Augenhofer, is the product of more than two years of investigative work to develop principles and guidance for the TPLF market, and represents a new, independent contribution to the legitimate and effective use of TPLF. 

Following the publication of the report, Neil Purslow, Chairman of the Executive Committee of ILFA, commented:

‘This new report, authored by seasoned legal observers, recognises that commercial legal finance increases access to justice for European businesses and consumers and provides ‘vital improvement in access to justice’ (pg.19) when made available. Contrary to the repeated claims of big business, funding helps level the playing field for those exercising their rights against multinationals with almost unlimited resources’. 

The report also cautions against imposing new regulations on the TPLF market. Instead, it advances a ‘complementary approach’ involving guidance to funders on issues to be taken into account before entering into a TPLF agreement, together with publishing a new Appendix drawing together the recommended minimum content of a funding agreement.

Purslow commented: 

‘ILFA agrees with the report’s conclusion that proscriptive one-size-fits-all regulation isn’t appropriate for a sector like ours. It risks funders ceasing to offer funding, inevitably leading to what the authors rightly identify as ‘serious access to justice issues’.’

The full report from ELI can be read online here. 

About ILFA

The International Legal Finance Association (ILFA) represents the global commercial legal finance community, and its mission is to engage, educate and influence legislative, regulatory and judicial landscapes as the global voice of the commercial legal finance industry. It is the only global association of commercial legal finance companies and is an independent, non-profit trade association promoting the highest standards of operation and service for the commercial legal finance sector. ILFA has local chapter representation around the world. For more information, visit www.ilfa.com and like us on LinkedIn and X @ILFA_Official. 

About ELI 

The European Law Institute (ELI) is an independent non-profit organisation established to initiate, conduct and facilitate research, make recommendations and provide practical guidance in the field of European legal development. The ELI secretariat is hosted by the University of Vienna, Austria.

The report team was led by Susanne Augenhofer (Professor of Law, Austria), Dame Sara Cockerill (High Court Judge, UK), and Henrik Rothe (Professor of Law, Denmark) (until July 2022). 

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Commercial Regulatory Issues

NJ Appeals Court Rules Funding Agreements are Not Loans

By Harry Moran |

As the litigation funding industry has matured and the practice become more commonplace across the US legal system, most contentious debates revolve around issues of transparency or funder control over lawsuits. However, a recent complaint in New Jersey attempted to argue that a series funding agreement should be considered loans, only to have both the trial and appeals court reject these arguments in their entirety.

An article in Bloomberg Law highlights a decision handed down by the New Jersey Superior Court Appellate with the court ruling that litigation funding arrangements do not constitute ‘loans’ under state law. The ruling arose out of three funding agreements entered into between Covered Bridge Capital (CBC) and plaintiff Christine Ivaliotis between 2016 and 2019, before Ivaliotis filed suit against CBC claiming that it had engaged in “fraudulent lending practices and impermissibly purchasing an interest in prejudgment personal injury proceeds.” The appeals court affirmed the original trial court’s decision, which dismissed Ivaliotis’ complaint “because plaintiff has not shown she sustained a compensable "ascertainable loss" as the result of a CFA violation by CBC”.

The court’s ruling considered the plaintiff’s assertion that funding agreements were loans and therefore required the funder to be licensed by the Department of Banking and Insurance, with the court stating clearly that “this premise is wrong.” The appeals court cited federal precedent and noted that the “distinction between loans and the proceeds of litigation funding agreements has been judicially recognized.” In the damming conclusion to its ruling, the court found that Ivaliotis “lacks standing to call herself an "aggrieved consumer," both as a matter of law, a matter of equity, and common sense.”The full decision from the New Jersey court can be read here.

Case Developments Commercial

Parabellum Capital Funding ‘Daniel’s Law’ Cases in New Jersey

By Harry Moran |

Whilst there is constant debate and discussion over the level of transparency and disclosure that should be required for the involvement of litigation funders in cases, the state of New Jersey is demonstrating how these rules work in practice after a plaintiff disclosed that it anticipated using litigation funds in an ongoing series of lawsuits.

Reporting by Reuters highlights a recent court filing in the United States District Court for the District of New Jersey, where the plaintiff, Atlas Data Privacy Corporation, informed the court that it would soon be using funding provided by Parabellum Capital. The litigation funding was secured by Atlas Data Privacy to support over 140 lawsuits that it has been assigned and brought against businesses who have allegedly breached New Jersey’s Daniel’s Law, which allows public officials to protect against the release of their personal information to the public.

In its filing to the court, Atlas Data Privacy said that as New Jersey’s rules on funding disclosure “requires that a statement be filed promptly following the use of third-party litigation funds”, and because the firm “anticipates utilizing such funds shortly”, it was filing the letter to comply with Local Civil Rule 7.1.1. The two-page letter does not provide many details of Atlas’ funding arrangement with Parabellum Capital but confirmed that it was “non-recourse financing provided to Atlas, collateralized by litigation proceeds”. Unsurprisingly, the letter also confirmed that “the funder’s approval is not necessary for any litigation or settlement decisions in these actions.” 

Reuters’ article also includes comments from spokespersons for both Atlas and Parabellum, with the funder’s spokesperson saying that it was acting as “a passive financial partner of Atlas, which is playing an important role in enforcing compliance with one of the most meaningful privacy laws on record.”Atlas’ letter of disclosure to the court can be read in full here.