Burford Capital Logo Light Burford Capital Logo Dark

Common sense vs. false narratives about litigation finance disclosure

October 11, 2019
Christopher Bogart

This article by Christopher Bogart was originally published in Bloomberg Big Law Business. Read the original version here.  

The US Chamber Institute for Legal Reform (ILR), a separately incorporated affiliate of the U.S. Chamber of Commerce, has waged a multi-year campaign against litigation finance. Its opposition presents a paradox: The Chamber’s members are the ultimate users of litigation finance capital, and Burford’s growth has been fueled in no small part by business demand for legal finance alternatives.

Its opposition has also failed at every turn. Some years ago, the ILR’s position was that litigation finance should be banned. That argument got nowhere—because businesses value litigation finance and the access to capital and financial flexibility it provides. Next, the ILR called for the creation of a new federal regulator for litigation finance, and again failed. Now, after years of rhetoric and millions spent lobbying, its latest strategy is to create obstacles that would make litigation finance more difficult and more expensive. One arrow in its quiver has been an attempt to weaponize disclosure, despite the U.S. having clear and robust litigation disclosure rules that have worked well for many decades. Setting aside its motivations, what the ILR is advocating is not only unnecessary, it would also make litigation slower, more expensive and more burdensome—imposing a painful price on the businesses the Chamber says it represents.

In this article, I discuss the current state of disclosure obligations in U.S. litigation and differentiate between different kinds of litigation. In doing so I seek to refute the two false narratives at work in the ILR’s argument. The first is that mandatory disclosure of litigation finance is inevitable, and that the trend in the courts and legislatures is bending in favor of full disclosure in every instance. The second false narrative is that mandatory and full disclosure of litigation finance is advisable in every civil matter, and that litigants should be forced to disclose not only whether their legal costs are being paid for by third parties, but also the financiers’ identities and the arrangements made with them. Neither narrative survives scrutiny. There is no reason to force disclosure of litigation finance in single-claimant commercial matters, and (with one obscure exception) there is no law requiring such disclosure. There may be some rationale for disclosing litigation finance in collective actions—but even then, there is a stark difference between litigation finance disclosure done right and the irresponsibly broad disclosure advocated by the ILR. Note that I limit my remarks to commercial litigation finance, as the issues and concerns are different for litigation funding to individual consumers.

What Rules Require Litigation Finance Disclosure?

With one extreme outlier, courts and legislatures have very sensibly stepped back from requiring disclosure of litigation finance. A simple review of federal and state rules and laws makes this clear:


  • No federal rule requires automatic disclosure of litigation finance agreements.
  • The U.S. Supreme Court and Federal Rules of Civil Procedure do not require providers of financing to a party or a case—whether specialist financiers or banks—to be disclosed. A party’s parent corporations and any public shareholder owning more than 10 percent of the party’s stock must be disclosed, and that is all (see Rule 29.6. of the Rules of the Supreme Court of the United States; and FRCP Rule 7.1).
  • The Advisory Committee on Civil Rules has twice (in 2014 and 2016) declined to act on proposals by the ILR to amend Rule 26 to “require the disclosure of third-party litigation funding arrangements in any civil action filed in federal court.” In 2017, facing a third such proposal, the Committee elected to consider only the narrow question of disclosure in collective litigation.
  • Six out of 12 federal circuit courts of appeal have local variations on Rule 26.1 that additionally require outside parties with a financial interest in the outcome to be disclosed. None of these rules, however, singles out litigation finance providers for disclosure, and the rules apply equally to any manner of outside financial provider.
  • Similarly, 24 of 94 federal district courts have requirements to disclose outside parties with a financial interest in the outcome. Again, these rules do not single out litigation finance providers for disclosure and apply equally to banks and other types of funders.
  • Anecdotally, and proving the point that too much disclosure would be an impediment to the efficient function of the justice system, these broad disclosure provisions in local rules do not appear to be much-followed or enforced. The breadth of the language typically used would sweep in a large number of potential commercial relationships, and the average disclosure statement is simply much narrower—without any adverse comment from the courts in question.
  • The most noteworthy of the local variants was announced in 2016 in the US District Court for Northern District of California, which amended its Civil Local Rule 3-15 specifically to require disclosure of financing in collective litigation: “In any proposed class, collective, or representative action, the required disclosure includes any person or entity that is funding the prosecution of any claim or counterclaim.” Notably, in requiring disclosure only in collective litigation, the Northern District of California explicitly did not accede to aggressive lobbying by the ILR for a rule revision that would have required disclosure in all civil litigation. Also notably, no other district court has followed the N.D. Cal. example.


  • At the state level, 49 of 50 states do not require disclosure of litigation finance in commercial litigation.
  • The one exception is Wisconsin, whose state legislature in March 2018 passed a law requiring parties in all civil litigation to disclose funding arrangements. The Wisconsin law appears to be an unintentional overreach from an effort to regulate consumer litigation funding. As Wisconsin is hardly a leader in commercial litigation, representing just 0.11 percent of civil matters filed in all US state courts (according to data provided by the Wisconsin Court Systems and the National Center for State Courts), its outlying position is unlikely to have any real effect.

The Purpose of Disclosure

The vast majority of courts and legislatures do not mandate disclosure of litigation finance in commercial matters, and have declined to add unnecessary rules or regulation, implicitly recognizing that litigation finance is like other forms of financing and already adequately addressed by existing rules.

Yet it’s reasonable to ask: What is the purpose of disclosure? And: Does disclosing litigation finance serve that purpose?

We have disclosure rules principally to ensure that adjudicators—judges—aren’t inadvertently deciding a matter in which they have a conflict. We don’t have them to provide an informational advantage to a litigation adversary, and we have deliberately drawn those rules narrowly. As the Advisory Committee noted in connection with the 2002 amendments to the disclosure rules:

Although the disclosures required by Rule 7.1(a) may seem limited, they are calculated to reach a majority of the circumstances that are likely to call for disqualification on the basis of financial information that a judge may not know or recollect. Framing a rule that calls for more detailed disclosure will be difficult. Unnecessary disclosure requirements place a burden on the parties and on courts (Fed. R. Civ. P. 7.1 advisory committee’s note to 2002 amendment).

Thus, when Viptela litigates, we require it to disclose that it is owned by Cisco, in case a busy judge who owns Cisco stock doesn’t know that Cisco bought Viptela last year. However, it would not be required to disclose if, instead of buying Viptela, Cisco provided it with lots of debt capital and took a bevy of warrants in return; we regard those indirect transactions as too attenuated to give rise to judicial conflict—notwithstanding that Cisco could exercise the same amount of influence under either structure. This is a conscious choice: Disclosing every attenuated relationship of capital or influence would bring the litigation system to its knees.

Lawyers’ conflicts are a separate issue, but they are dealt with pursuant to applicable ethical rules. And the ABA has confirmed that litigation finance poses no novel issues not already addressed by existing ethics rules (American Bar Association, Commission on Ethics 20/20, Informational Report to the House of Delegates, Dec. 27, 2011). Certainly no filing-style disclosure is needed to address lawyer conflict issues.

Similarly, there is no basis for one litigant to have disclosure about the confidential financial arrangements of another; courts do not inquire into all the various business relationships that litigants have, because they are rightly considered irrelevant. Litigation finance is simply another such private financial transaction. Litigants need only disclose documents that are relevant to the issues in dispute—but no judge has ever found that the private financial arrangements entered into by litigants pass that threshold of relevance. Quite the contrary: Judges have time and again found that documents created in connection with litigation finance (as any materials prepared in anticipation of litigation) are protected from disclosure by the work product doctrine (see, e.g., Miller UK Ltd. v. Caterpillar, Inc. (N.D. Ill. 2014), discussed below).

Clearly, then, there is no persuasive reason a single claimant engaged in commercial litigation should have to disclose its financing: This would not serve the purpose for which disclosure is intended, and litigation finance poses no novel issues not addressed by existing rules. Such financing is no different than any other kind of capital provision. No one is calling for banks to disclose their security interests over fee receivables in law firms. But those arrangements are just as much “litigation finance” as what specialist finance firms do, and they probably happen in significantly greater volume.

It’s also clear that mandating such disclosure would result in a less just, more costly and burdensome judicial system. Anyone who has witnessed high-stakes commercial litigation knows that demands for disclosure of irrelevant information are a common mechanism of delay, frolic, and detour. Mandatory disclosure would make the problem worse—adding to the already extraordinary cost of litigation.

Insurance and the Issue of Control

There is one type of financial arrangement that is required to be disclosed under the Federal Rules: Insurance (see Fed. R. Civ. P. 26(a)(1)). Indeed, advocates of mandatory litigation finance disclosure argue that as a matter of fairness, plaintiffs should be required disclose their litigation finance arrangements since defendants must disclose their insurance policies.

This attempted equivalence misses the mark in two ways. First, defendants as well as plaintiffs use litigation finance. Second, the reason for disclosure of insurance simply does not apply to litigation finance: Insurers set limits upon settlement outcomes and thus often control litigation-related decision-making for the defendants they insure, something that providers of commercial litigation finance do not do. In litigation finance as it is practiced in the U.S., control remains with the client.

When the Rule 26 was amended in 1970 to require disclosure of indemnity insurance policies, the Federal Rules Committee based its mandate on factors that distinguish insurance from other forms of financing—for example, “because insurance is an asset created specifically to satisfy the claim [and] because the insurance company ordinarily controls the litigation” (see Fed. R. Civ. P. 26[b][2] advisory committee’s note (1970)). Litigation finance providers neither “satisfy the claim” nor “control the litigation.”

The analogy to insurance was also rejected in a key case, Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, N.D. Ill., Case No. 10 C 3770., 1/6/14. The Miller court held that the defendant could not obtain the plaintiff’s litigation finance agreement through discovery. The terms of Miller’s funding arrangement had “no apparent relevance to the claims or defenses in this case, as required by [Rule 26] as a precondition to discovery.” The court also rejected Caterpillar’s attempt to analogize litigation finance to insurance, finding “nothing” to “remotely support[] Caterpillar’s attempt to equate Miller’s funding agreement to the relationship between an insured and its insurer.” The court noted: “Unlike an insurer, the funder in this case has not paid nor will ever pay Miller for any losses caused by Caterpillar’s claimed misappropriation of trade secrets and breach of contract; it will never be a plaintiff seeking indemnification from Caterpillar.”

Litigation Finance Disclosure in Collective Litigation

In collective litigation, the court often plays a considerably more active role than it does in single-claimant commercial litigation. This is because in collective litigation, there is generally no single plaintiff with the scale and sophistication to manage the proceedings as corporate litigants do.

That‘s not to say that funding disclosures are warranted in all collective actions. Obviously, there will be situations in which disclosure as a precursor to court approval is needed, such as if a litigation funder contracts directly with the class representative to fund the action, but those situations are less about disclosure and more about the court’s usual supervisory role. However, there is clearly a sense from a number of judges that they need more disclosure in collective litigation because of their broader role.

Nonetheless, there is a right way and a wrong way to approach disclosure in such circumstances.

A May 2018 order in the opioids multidistrict litigation by Judge Dan Polster of the Northern District of Ohio provides an example of litigation finance disclosure done right in such a scenario:

  • Judge Polster called for the disclosure to be made ex parte and in camera to him. It makes very good sense for financing to be disclosed to the judge but not the defendant: No defendant yet has provided any justification for being told about a plaintiff’s sensitive financial arrangements other than pure voyeurism.
  • The judge made clear that the purpose of the disclosure is simply to affirm to him that there is no conflict and the funder exercises no control over the matter.
  • He stipulated in advance that no discovery would be permitted into litigation finance arrangements, which he recognized as protected attorney work product.
  • Notably, Judge Polster did not ask to see the funding agreements themselves, merely a summary.

This common sense approach ensures that disclosure may be used in a limited fashion to confirm that the presence of the finance provider neither creates conflicts nor impacts control—but without opening the floodgates into matters that are not relevant to the issues in dispute. Recent proposed legislation introduced by Senators Grassley, Tillis, and Cornyn, The Litigation Funding Transparency Act of 2018, is an example of the wrong way to handle disclosure—mandating broad disclosure in collective litigation to both the judge and the defendant, thereby leading not to “transparency” but to expensive, tactical detours by deep-pocketed litigants. In those collective litigations where disclosure is necessary, Judge Polster shows a far better solution.

Common Sense

As noted above, the vast majority of courts and legislatures have taken the common sense approach: They do not mandate disclosure of litigation finance in commercial matters, and have declined to add unnecessary rules or regulation, implicitly recognizing that litigation finance is like other forms of financing and already adequately addressed by existing rules. And Judge Polster’s approach shows the right approach in collective litigations where disclosure may be deemed necessary.

Common sense is the right choice, as litigation finance continues to grow as an increasingly essential tool to law firms and litigants. The cost and risk of litigation is such that providing financial alternatives is essential in today’s commercial world—and these alternatives are desired by clients and essential to lawyers.