The following piece was contributed by Boris Ziser and John Schneider of law firm Schulte Roth & Zabel. As famed British-American author and journalist Christopher Hitchens astutely observed, “exceptional claims require exceptional evidence.”^[1] Alas, the U.S. Chamber of Commerce’s Institute for Legal Reform (“ILR”) overlooks Hitchens’ directive in its November 2022 paper “A New Threat: The National Security Risk of Third Party Litigation Funding” (“ILR Paper”). The ILR Paper, in short, makes an exceptional set of claims about the bad faith of American lawyers, the implied ineptness of our judges and the way our legal system functions, without providing the requisite evidence to back it up. This most recent piece fits into a pattern in which the ILR has sought at every turn to hinder the growth of third party litigation funding.^[2] In this instance, it argues in favor of a disclosure regime that would identify the presence of litigation funding as well as the beneficial owners of the relevant funds. It takes only a few pages to recognize that this latest publication is without substance. The crux of the ILR’s argument is a two-pronged syllogism: litigation funding could allow third parties to exert control over litigation, and therefore that control could be used to harm national interests. As discussed below, the problem with this formulation — aside from being conditional and tenuous — is that it rests on bad evidence and faulty assumptions. Here’s why: Bad Evidence If the ILR’s contentions are true — if litigation funding increases the number of meritless claims or prolongs litigation; if litigation funding allows funders to exert control over legal decisions —  where is the proof? The answer is there is none, at least not in the ILR Paper. Consider, for example, the ILR’s discussion of abusive patent litigation. The ILR cites no empirical evidence which would suggest that litigation funders are or have ever been likely to support meritless patent suits. Nor does the ILR Paper provide any context which would allow the reader to understand whether trends in patent litigation match trends in litigation funding, or whether funders are even likely to invest in patent suits. Rather, it merely gestures at an endemic problem in the legal system as a means of suggesting that the problem is somehow related to litigation funding.  Given the dearth of evidence, it should not be surprising that the ILR focuses on “opacity” and the fact that “it is not possible to know whether, and to what extent, non-U.S. persons or entities may be exploiting the [third party litigation funding] industry for nefarious reasons.”^[3] The little evidence the ILR does cite undercuts its position. The ILR’s claim that litigation funding could adversely impact national security rests on the notion that third-party funders could effectively control the litigation they fund, and so it sets out to find examples of litigation funding funders controlling litigation. The problem for the ILR is that the litigation it cherry-picked to substantiate this claim proves no such thing. Put another way, a few anecdotes out of a universe of thousands is paltry, but even more notable is that the examples undermine the very claim for which they were invoked to support. Take the Chevron-Ecuador litigation (as the ILR refers to it), which the ILR considers a “prime example of substantial funder control.” The first thing to note is that the ILR fails to identify any substantive legal decisions taken at the behest of the litigation funders. Instead, the alleged control was little more than the ability to approve additional lawyers that the claimants themselves would select. Notably, the ILR omits the fact that one of the attorneys selected by the plaintiffs prior to contracting with the litigation funder (i.e., a lawyer who was not selected by the third-party funder in question) was subsequently disbarred for corrupt practices.^[4] This, in fact, underscores a positive effect of litigation funding, namely, that it introduces a new level of oversight over highly complex litigation. If the funder had in fact selected the counsel, which it did not, its diligence would likely have prevented this embarrassment. With mass environmental torts, as was the case with Chevron-Ecuador, the disparate nature of the class might otherwise leave attorneys unchecked, hence third-party funders can provide additional protection for the plaintiffs. Another example to which the ILR cites is Boling v. Prospect Funding, where a claimant sued the litigation funder with which he had contracted. What the ILR overlooks, however, is that this case actually demonstrates that claimants have adequate tools to pushback should they feel that a third-party funder is acting inappropriately. Indeed, the fact that the court recognized this as an instance where a third-party funder exercised control over litigation shows that litigation funding practices are already effectively policed by the judiciary. There’s an irony to what the ILR is trying to do, arguing that a system needs more regulation by highlighting an example where the regulatory mechanisms already in-place did their job. Moreover, that the ILR provides no other examples of similar infractions suggests that the problem is not widespread, as surely the ILR would have gladly provided them. Faulty Assumptions The ILR has another problem: its argument only works if one makes a set of bad assumptions. In essence, the ILR is asking readers to assume that lawyers will disregard their professional obligations, that bar associations will fail to discipline them, and that judges will fail to notice or do anything about it. None of these assumptions hold water. Is the ILR really saying that our entire legal system is incapable of monitoring its participants? The practice of law is highly regulated. The American Bar Association’s ("ABA") Model Rules of Professional Conduct (“Rules”) are a set of rules and commentaries on the ethical and professional responsibilities of attorneys. Adopted in every state, these Rules and analogous regulations obligate attorneys to observe stringent ethical obligations to their clients, their adversaries and to the courts. More to the point, these Rules act as guardrails against any attempt by foreign and domestic actors alike to use litigation funding for nefarious ends. For instance:

• Rule 1.2 establishes that a lawyer must abide by the client’s decisions concerning the objectives of litigation and settlement;
• Rule 1.8(f) bars an attorney from accepting compensation for representation from third parties unless the client gives informed consent and unless the funding will not interfere with independent professional judgment;
• Rule 2.1 mandates that an attorney exercise independent professional judgment;
• Rule 3.1 makes clear that a lawyer should not bring claims unless there is a basis in law and fact for doing so that is not frivolous;
• Rule 3.2 directs that a lawyer should make reasonable efforts to expedite litigation consistent with the interests of the client;
• Rule 5.4(c) provides that an attorney may not allow the person paying the legal fees to direct or regulate the lawyer’s professional judgment.

These Rules work to ensure that claims supported by litigation funding are meritorious, that litigation and settlement discussions are not unnecessarily prolonged, and that clients (rather than funders) have control over cases. Indeed, a 2012 white paper on litigation funding published by the ABA noted that the industry did not raise novel professional responsibilities and that “numerous specific provisions” of the ABA’s Rules already “reinforce the importance of independent professional judgement.^[5] Any failure to abide by these ethical obligations not only threatens an attorney’s reputation, it subjects the attorney to discipline, including sanctions and possibly disbarment. Indeed, this system of professional ethics is robustly enforced. The ABA’s 2022 Profile of the Legal Profession, for example, noted that in 2019, over two thousand lawyers were disciplined for misconduct.^[6] By contrast, the average number of serious disciplinary actions taken against physicians in the U.S. between 2017 and 2019 was 1,466.^[7] Claims by the ILR that litigation funding could allow foreign adversaries access to confidential or proprietary commercial information are simply without merit, and are already addressed by federal and state rules of civil procedure. For instance, Fed. R. Civ. P. 5(d) and 26 permit defendants to move to seal or exempt from filing or disclosing privileged and confidential information. On top of this, most if not all funding agreements prohibit funders from accessing anything subject to a protective order, which covers numerous trade secrets and proprietary technologies. The point, in short, is that there exists an extensive system of ethical and professional rules that call on attorneys to be loyal to their clients and honest about the merits of their cases. The ILR ignores this system and hopes that its audience will do the same. The ILR provides no demonstrable evidence and no basis for readers to embrace its assumption that by-and-large, lawyers will disregard their professional obligations. And of course, the ILR overlooks that these Rules are not applied on an honor system. Rather, our adversarial system of law and our judiciary act as a gate-keepers, policing all aspects of litigation, enforcing the Rules as necessary and ensuring that nefarious actors cannot abuse the system. Conclusion In December of 2022, the U.S. Government Accountability Office published a report (“GAO Report”) on litigation funding.^[8] Commissioned by three sitting members of Congress, including ranking members of national security and intellectual property subcommittees, and publicly released more than three months after the ILR Paper, the GAO Report raised no national security concerns with respect to litigation funding. It’s easy to recognize why: the litigation funding industry poses no threat to America’s safety. The Chamber's national security arguments in the ILR Paper are nothing more than a solution in search of a problem. Nevertheless, the Chamber’s opposition to litigation funding will march on, and its efforts to compel disclosure will undoubtedly continue. Whether the Chamber is aware of it or not, its position serves only to bolster the view held by some that legal disputes should be resolved by a war of financial attrition, rather than on the actual merits of the case. Instead of access to justice, this would prevent a large portion of the American public from obtaining a rightful remedy when they are injured. Lastly, it’s not hard to understand the benefits of litigation funding. The lack of access to legal representation is a national problem, and litigation funding addresses this endemic by enabling meritorious claims to be vindicated when they otherwise might not be, and by serving to deter wrongful conduct. Litigation funding also levels the playing field between large corporate interests and the small companies and individuals who all too often find themselves in a courtroom without the means to pursue their case. There’s an old adage that bad facts make bad law. Here, it seems we are at risk of no facts making bad law, as the ILR seems to have the ear of a number of attorney generals, each of whom undoubtedly has the public's interest at heart, but remains misguided.^[9] Unfortunately, passing bad law will only hurt the very constituents they serve to protect. Authored by Boris Ziser and John Schneider. Schulte Roth & Zabel New York | Washington DC | London www.srz.com This communication is issued by Schulte Roth & Zabel LLP for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. In some jurisdictions, this publication may be considered attorney advertising. ©2023 Schulte Roth & Zabel LLP. All rights reserved. SCHULTE ROTH & ZABEL is the registered trademark of Schulte Roth & Zabel LLP. -- [1] Hitchens, Christopher. God Is Not Great: How Religion Poisons Everything. 1st trade ed. New York, Twelve Hachette Book Group, 2009. [2] John Beisner, Jessica Miller & Gary Rubin, Selling Lawsuits, Buying Trouble: Third-Party Litigation Funding in the United States, U.S. Chamber of Commerce Institute for Legal Reform, Oct. 2009; John H. Beisner, Jessica Davidson Miller & Jordan M. Schwartz, Selling More Lawsuits, Buying More Trouble: Third Party Litigation Funding A Decade Later, U.S. Chamber of Commerce Institute for Legal Reform, Jan. 2020. [3] Michael E. Leiter, John H. Beisner, Jordan M. Schwartz, James E. Perry, A New Threat: The National Security Risk of Third Party Funding, U.S. Chamber of Commerce Institute for Legal Reform, Nov. 2022, at 2. [4] Michael I. Krauss, Steven Donziger is Disbarred, Forbes, Aug. 13, 2020, https://www.forbes.com/sites/michaelkrauss/2020/08/13/steven-donziger-is-disbarred/?sh=21ecbc7c771a (“Today the infamous Steven Donziger was, in the words of New York’s Appellate Division, ‘disbarred, retroactive to the date of his July 10, 2018 suspension, and his name is stricken from the roll of attorneys and counselors-at-law in the State of New York.’ This column has exhaustively detailed the saga of Mr. Donziger’s misdeeds while representing indigenous Ecuadoreans suing Chevron Corp.”) [5] ABA Comm. on Ethics 20/20, White Paper on Alternative Litigation Finance at 4 (Feb. 2012), https://www.americanbar.org/content/dam/aba/administrative/ethics_2020/20111212_ethics_20_20_alf_white_paper_final_hod_informational_report.pdf [6] ABA Profile of the Legal Profession 2022, American Bar Association, at 84, https://www.abalegalprofile.com/discipline.php. [7] Dr. Sidney Wolfe, Dr. Robert E. Oshel, Ranking of the Rate of State Medical Boards’ Serious Disciplinary Actions, 2017-2019, Public Citizen, Mar. 31, 2021, https://www.citizen.org/wp-content/uploads/2574.pdf. [8] U.S. Gen. Accounting, Office, GAO-23-105210, Third-Party Litigation Financing: Market Characteristics, Data, and Trends, 12(2022), https://www.gao.gov/products/gao-23-105210. [9] Sara Merken, Republican State AGs Sound Alarm over Foreign Litigation Funding, Reuters, Dec. 22, 2022, https://www.reuters.com/legal/legalindustry/republican-state-ags-sound-alarm-over-foreign-litigation-funding-2022-12-22/; Hon. Christopher M. Carr, Hon. Steve Marshall, Hon. Jason Miyares, Hon. Leslie Rutledge, Threats Posed by Third-Party Litigation Funding, https://fingfx.thomsonreuters.com/gfx/legaldocs/movakkoybva/12.22.22%20TPLF%20Letter.pdf.

Last week, Brown Rudnick hosted its second European Litigation Funding Conference, which brought together a crowd of international thought-leaders from across the industry, and provided attendees with an agenda filled with insightful discussions on a wide array of issues. The conference proved to be a beneficial experience for all, with Augusta Ventures co-founder Robert Hanna describing it as ‘the pre-eminent litigation funding conference in Europe, if not the world’. Following a successful inaugural showing in 2022, this year’s event reinforced the maturation of the litigation funding industry, with panelists keen to dive into the opportunities and challenges that funders, law firms and other industry participants are facing. In addition to the high-level topics that continue to shape the market such as ESG and collective action litigation, the conference featured panels on areas that are still maturing within the litigation funding space, including crypto litigation and opportunities for a secondary market. After an introduction from Brown Rudnick partner Elena Rey, the conference kicked off with a keynote address delivered by Anya Neistat, Legal Director of The Docket initiative at the Clooney Foundation for Justice. Having recently returned from conducting research and investigations in Ukraine, Neistat spoke of the importance of litigation which can help provide justice for victims of atrocities and war crimes. Highlighting the fact that survivors and NGOs often lack the means to take on complex litigation, Neistat emphasised that ‘litigation funding can be absolutely critical to allow survivors to get on the offensive.’ The first panel of the day featured a unique discussion of the emergence of crypto litigation, with the panelists discussing the primary challenge of accurately valuing this bespoke practice of litigation, as well as the underlying crypto-related assets. Moderating the panel, Stephen Palley of Brown Rudnick pointed out that despite the relatively new state of crypto litigation, he has found that courts are adapting well, and has ‘yet to find a judge who just says, “I don’t get it”’. Whilst members of the panel disagreed on whether all cryptocurrency is fundamentally ‘snake oil’, all agreed that valuation was the most important hurdle to overcome, with BDO’s Simon Greaves stating that a major issue is ‘how do you value it at the point of recovery’ when the worth of these assets can vary so wildly over time. James Collins KC of Essex Court encouraged industry participants to take a broad view of what crypto litigation might entail, suggesting that the future will see ‘claims in almost every area of law’. Steven Friel, CEO of Woodsford, kicked off the discussion by defining the current environment as one where ‘opportunities vastly outweigh challenges’ and praised the CAT’s willingness to ‘have an expansive definition of what is a competition claim’. Whilst the speakers expressed some concern about the ongoing Supreme Court appeal, which, as part of the defence strategy, is attempting to call into question certain aspects of the claimant’s funding agreement in the CAT – that strategy has failed at first instance and in the Court of Appeal. There is a high level of sophistication among the judiciary in this area and significant support for funding as a part of the landscape of collective actions in the UK. Without funding, good claims simply are not viable. After a short break, the next panel looked at the investor perspective on litigation funding as an asset class, with Chad Clamage of Victory Park beginning the discussion by reinforcing the central principal that litigation funding remains ‘attractive as an uncorrelated asset class’. Robert Hanna stated that ‘there has never been a better time to be a funder’ with demand at an all-time high, and that ‘in the current economic environment, liquidity is going to be king’, as a wider investor base for funding emerges. D.E. Shaw’s Sarah Johnson cautioned that duration still remains an obstacle for many investors, highlighting that durations that start to approach 7 to 10 years can block investment ‘even if all the other factors are there’. Nick Moore of AON put the spotlight on the increasingly beneficial relationship between funders and insurers, describing it as a situation where ‘two industries with a history of mutual cynical disregard, are now coming together’. The morning’s final session touched on the in-house perspective on litigation funding, with Suber Akther of Siemes Energy describing the difficulties faced by legal departments where they are ‘always under pressure’ to reduce costs and increase efficiency. Rocco Pirozzolo from Harbour Underwriting advised that whilst it may not always be viable for in-house teams, the best approach is for them to ‘look at the options out there, be open to it’. However, he also noted that work still needs to be done to counter the narrative that funders will control litigation, stating that ‘this myth has to be dispelled’. Andrew Jones of Fortress Investment Group reframed the issue at stake for in-house counsel, arguing that ‘a general counsel is an investor in litigation just like a funder, the only question is whose money you are going to use’. The hot topic of portfolio and law firm financing kicked off the afternoon’s agenda, with Burford Capital’s Leeor Cohen emphasising that one of the core fundamentals for this approach is that a ‘portfolio is not worth more than what is actually in the portfolio’. Looking at the factors that funders must consider in portfolio deals, Tom Steindler from Exton Advisers highlighted four key considerations: open versus closed portfolios, the identity of the borrower, what the capital will be used for, and the method of repayment of proceeds. The panel closed its discussion by looking at future trends with Cohen and North Wall Capital’s Alex Garnier agreeing that we may see the less-specialised and opportunistic financiers exit the market, whilst Chris Neill of Pogust Goodhead predicted more collaborative efforts in the industry. The penultimate panel for the day saw a fascinating discussion around collective redress in Europe, with panelists representing firms in France, Germany, the Netherlands and Spain. Emily Woolcott from Woodsford stated that ‘the Netherlands is the most attractive EU jurisdiction,’ which was widely echoed by the other panelists. Paul de Servigny from IVO Capital contrasted the French market’s unwelcoming environment for class actions with Spain, which stands out as a market ‘becoming an attractive location’. Discussion around the EU’s new collective redress directive featured interesting insights into the differing routes toward implementation in each country, with Tobias Glienke of Greenfort arguing that its introduction ‘could be a real gamechanger in Germany’, where the draft law looks to go beyond the directive by allowing small business participation and also include civil claims. The panel also discussed the crossover between the directive and the prominence of ESG litigation in Europe, with Frank Peters from Bureau Brandeis highlighting that environmental cases will be a major feature in the Netherlands, particularly around ‘polluter pays’ and greenwashing claims. To close out the day, the much-awaited panel on secondary market opportunities provided attendees with an overview of the state of that market, as well as the potential routes for growth in the future. Patrick Rode from Deminor differentiated between jurisdictions, and stated that where countries have a more mature primary litigation funding market, we are also seeing the development of a more ‘advanced secondary market’. Therium Capital Management’s Ben Smyth highlighted that the very concept of secondary deals still faces challenges, as there is ‘a lot of cynicism why the seller wants to get rid of the asset’. The issue of transparency was also one of the main challenges raised, as Ben Moss from Orchard Global asserted that for trust in sellers to exist, ‘the reasoning needs to be visible’. In looking to further develop the market, David Vanaskey from Wilmington Trust Company suggested that lessons can be learned from outside the industry and that there is a ‘need to use technology solutions that are utilised in other secondary markets’. Overall, Brown Rudnick’s second European Litigation Funding Conference once again demonstrated the breadth of experience in the industry and managed to deliver a full day of engaging content with speakers bringing current and relevant insights to each discussion. Attendees across the event remarked on the quality of panelists, which was facilitated by Brown Rudnick’s team of moderators who skillfully guided each discussion across interesting and impactful topics.