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Privacy at stake: The unintended consequences of mandated legal finance disclosure

  • Case law & ethics
February 7, 2024
Christopher Catalano


In an article originally published in IAM, Burford's Christopher Catalano explains why mandated legal finance disclosure rules would have unintended consequences.

The financial privacy of litigants should be taken as given. How a party funds its litigation is legally irrelevant, and what matters is the merits of the underlying case, not which party is better funded. Invoking the specter of third-party “control” of lawsuits, however, critics of legal finance say they want to get it “out of the shadows.” But however much media attention these critics attract with slick campaigns and loud but unsuccessful lobbying for rules changes, it’s clear that disclosure is a red herring: These critics just don’t like litigation, and thus wish to hobble any tool that enables businesses to pursue their claims more efficiently. More disclosure equals less litigation, in other words.

But again and again, judges have recognized that the existence of legal finance and the contents of any financing agreements are not proper subjects for discovery or trial. Most courts in the US have no rule requiring parties to disclose who may be financing a case. And when defendants ask for such information in discovery, courts routinely find it off limits. In the pretrial discovery context, Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711 (N.D. Ill. 2014) found financing documents irrelevant to defendant’s maintenance and real-party-in-interest arguments. As for trial, Chief Judge Rodney Gilstrap (E.D. Tex)[1] and Judge Alan D. Albright (W.D. Tex.)[2] recently issued standard orders in limine precluding parties from introducing evidence or argument regarding legal finance.

One outlier is Chief Judge Colm F. Connolly of the US District Court for the District of Delaware, who in 2022 issued a standing order requiring parties in all cases before him to disclose when they have accepted certain kinds of legal financing from an outside source.[3]

But as confirmed in a recent panel discussion at the University of Chicago Law School’s Center on Law and Finance in which Judge Connolly participated,[4] broad disclosure requirements can and do have unintended and negative consequences.

Disclosure’s narrow purpose

In the US, disclosure rules exist primarily to ensure that judges do not inadvertently decide matters in which they have a “financial interest” under Canon 3C(1)(c) of the Code of Conduct for US Judges. Federal Rule 7.1(a) addresses this point but requires only that a party disclose any parent corporation of the party and any publicly held corporation that owns 10% or more of the party’s stock. Neither legal finance nor any other form of outside financing—bank loans, personal loans, etc.—are required to be disclosed under this rule.

At the Chicago conference, Chief Judge Connolly said his rule is primarily intended to supplement Rule 7.1 by ensuring that he does not have a financial interest in a person that may be funding a case before him—not just in the parties themselves. The issue, though, is that his standing order itself is much broader. It requires parties that have received the kind of non-recourse third-party litigation financing that triggers the order to say whether the party providing financing has the right to approve litigation or settlement decisions. Of perhaps greatest consequence, the order gives the court discretion to order “additional discovery” of the terms of any financing not only if the funder has litigation or settlement approval rights, but even absent those rights  if an adverse party can show that “the interests of any funded parties or the class (if applicable) are not being promoted or protected by the arrangement, conflicts of interest exist as a result of the arrangement, or such other good cause exists.” Such open-ended language diverges from the stated purpose of surfacing conflicts, and can lead to costly and time-consuming detours from deciding the merits of a case.

Overly broad disclosure requirements can have far-reaching consequences

There was broad consensus at the conference that rules mandating disclosure—even those with the best of intentions—can have unintended consequences. The economic cost of disclosure is high: Disclosure results in additional litigation expenses and delay generated by discovery and pre-trial motion practice.

Orders requiring disclosure of legal finance also draw an arbitrary distinction between it and the many other types of funding that parties use to finance claims and that give third parties contingent rights to proceeds. These include contingency fee arrangements with law firms, bank loans with litigation claims as security or personal loans among family members. If legal finance arrangements are to be disclosed, arguably so, too, should these and other forms of funding—but that would create even more unintended consequences.

St. John’s University School of Law Professor Keith Sharfman suggested that disclosure of funded matters also could have negative externalities for parties where no funding is disclosed. Since legal finance providers generally fund matters on a non-recourse basis, meaning that they lose their investments if the matters they fund are not successful, adversaries can infer that funded matters are considered strong enough to merit investment and that matters that are not funded are not as strong. Whether they are correct or incorrect, those inferences can affect litigation strategy and distract from the merits.

Any disclosure should be limited

Judges may of course determine that disclosure of legal finance (and other forms of third-party funding) is appropriate in a particular matter. If disclosure is considered necessary, it should be limited and follow the much-cited order of Judge Polster in In Re: National Prescription Opiate Litigation.[5] Disclosure was made ex parte and in camera to the judge, who stipulated that the purpose of the disclosure was simply to affirm the absence of conflict and that the funder exercised no control over the matter. He also made clear that no discovery would be permitted into litigation finance agreements, which are protected attorney work product.


The dialogue at the recent Chicago conference underscored the danger of broad disclosure requirements. Were disclosure of legal finance mandated, one can imagine that all types of funding for disputes could end up being disclosed. The repercussions of this would clearly be disruptive to court proceedings and potentially prohibitive to access to justice for claimants. The much better alternative is to let judges decide on a case-by-case basis whether  legal finance is relevant at all.

[1] Standing Order on Motions in Limine in Cases Assigned to Chief Judge Rodney Gilstrap Involving Allegations of Patent Infringement and/or Breach of FRAND Obligations, as well as Declaratory Judgment Actions which Relate to the Same (E.D. Tex. Dec. 14, 2022) (Gilstrap, C.J.)

[2] Corrigent Corp. v. Cisco Systems Inc, Order on Motions in Limine, No. 6:22-CV-00396-ADA (W.D. Tex. Apr. 26, 2023) (Albright, J.)

[3] Standing Order Regarding Third-Party Litigation Funding Arrangements (D. Del. Apr. 18, 2022) (Connolly, C.J.)

[4] The panel was part of the 2023 Chicago Conference on Litigation Finance on October 26, 2023. See https://www.law.uchicago.edu/2023-chicago-conference-litigation-finance

[5] In Re: National Prescription Opiate Litigation, No. 17-md-2804 (N.D. Ohio May 7, 2018).



This article originally appeared in IAM here.