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Thursday, April 05, 2018

Erie and litigation financing

Wisconsin enacted a law amending its discovery rules to require that a party's initial disclosures include "any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise." (§ 12 of the legislation). The political valence is that this is a victory for business defendants over the plaintiff's bar (which is how it was fought in the state), although there is some broader support for disclosure of third-party funders in the wake of Peter Thiel's funding of Hulk Hogan's suit against Gawker.

There also is an interesting Erie/Hanna question of whether a plaintiff must disclose this information in state-law actions in federal court. Since I am afraid I am not going to reach Erie (at least not in-depth) this semester, it may have to wait until next year. After the jump, I take a stab at what I think should be the analysis.

The quick answer would seem to be no, it is not required. The disclosure requirement is in the state discovery rules. The Federal Rules contain a provision that covers mandatory disclosures and does not include funding arrangements. Rule 26 is a rule of practice and procedure because it at least arguably regulates the manner and means by which rights are enforced or the fairness and efficiency of the truth-finding process. And since no procedural rule has ever been held to abridge, enlarge, or modify a substantive right, it is unlikely this one does (especially since incidental A/E/M is permissible). Were Scalia on the Court, this would be his approach.

But the disclosure requirement is part of a broader state effort (pushed by the Chamber of Commerce) at tort reform (or "civil-justice reform," which now seems to be the lingo), in furtherance of substantive policies of protecting and encouraging businesses to relocate, expand, and remain in the state. This might raise an A/E/M concern, that applying FRCP 26(a) to not require this undermines the substantive rights created by state law. And to avoid that problem, a court might narrow 26(a) to be not controlling, as providing a list of materials that must be disclosed that does not exhaust other disclosure obligations from other sources. And that pushes us to the "relatively unguided Erie analysis." And while disclosure will not materially alter outcomes, it may affect plaintiff's choice of state or federal court. And the recognized state substantive policy at work means the analysis requires application of state law (as it almost always does). I could see Ginsburg doing something like this (this is basically how she resolved Gasperini).

On the other hand, maybe none of this matters. The real question may be whether funding arrangements are discoverable. So even if not subject to automatic disclosure, defense counsel know enough to ask for the information.





Posted by Howard Wasserman on April 5, 2018 at 11:24 AM in Civil Procedure, Howard Wasserman, Law and Politics | Permalink


Not to be snippy, but asking because there's already an example of one way to handle this (Louisiana, where one names an insurer as a party):

Is sauce for the goose sauce for the gander here? That is, should ALL third parties picking up the legal tab be fully disclosed? How about when, say, a trade association is picking up the tab for a member? And more to the point, what definition of "contingent" really applies here, since next year's insurance premium is at least arguably contingent upon keeping this year's legal costs (and claims payments!) under control?

There's also an issue that should probably be considered, but is in all fairness outside the quoted language: The source of funds for institutional intervenors. One obvious -- but far from exclusive -- example is ideological repeat objectors to class-action settlements. It seems to me that this bears some consideration if the objective is to ensure disclosure that would assist all parties in evaluating settlement posture, etc. Of course, at this level it also runs into problems disturbingly parallel to the State of Alabama demanding the NAACP's membership list...

Of course, we could well state that only one aspect is administratively workable so that's the only one we're going to concern ourselves with. Plausible deniability and all that.

Posted by: C.E. Petit | Apr 5, 2018 3:08:41 PM

How the claim may proceed, and particularly one or the other party's willingness to settle, seems to me emphatically NOT to be relevant to the claims or defenses of the parties, as the federal courts seem to be reasonably construing those terms. The word "substantive" seems to me to be clearly implied here, and it would be a real stretch for a defendant to argue credibly that any information about third-party litigation funding could possibly lead to the discovery of admissible evidence regarding the substance of the plaintiff's case (or a substantive defense other than bias of a witness, not the plaintiff's bias to keep fighting). This, it seems to me, is precisely why Rule 26(a)(1) allows (indeed, requires) the disclosure of insurance information on the defense side, but note that it does NOT say that defense-cost insurance must be disclosed, only insurance that might be liable to satisfy a judgment. The former definitely relates to D's willingness to settle, but I believe it remains out of bounds in terms of relevancy. Without this specific provision, I don't believe even ultimate liability insurance was within the bounds of relevancy, and it seems to me that's precisely why Wisconsin legislators added the provision you describe on P's side. If you are aware of any case supporting the notion that any of this litigation-willingness discovery might be relevant under R.26(b), I'd really appreciate knowing about it. Interesting stuff!

Posted by: Jason Kilborn | Apr 5, 2018 1:47:17 PM

I could see an argument that it affects how the claim may proceed--wilingness of the other party to settle. It also could affect the bias of particular witnesses. Given that evidence need not be admissible to be discoverable (recall the old "reasonably calculated to lead" standard), there may be an argument there.

Posted by: Howard Wasserman | Apr 5, 2018 1:14:12 PM

Interesting indeed , just worth to read further , about the greater purposes it seems of such novel attitude , here I quote major one for example (Institute for legal reform ) :

The U.S. Chamber Institute for Legal Reform (ILR) has long warned that the practice leads to more lawsuits, unnecessarily prolongs litigation, and undercuts plaintiffs’ control of a case. Indeed, an executive at one of the world’s largest litigation funders recently admitted to the WSJ, “We make it harder and more expensive to settle cases.” Wisconsin’s new law brings litigation funding out of the shadows, so that funders in the state can’t anonymously “pull the strings” of a lawsuit without other parties’ knowledge.

One may read here :



Posted by: El roam | Apr 5, 2018 12:58:02 PM

A real question, trying to move toward an answer to yours, not intended to be rhetorical or snippy: How would litigation funding be "relevant to any party's claim or defense" [R.26(b)(1)]? Discovery on the defendant's eventual wherewithal to pay a judgment is not "relevant" until post-judgment, so why would the eventual allocation of an award and/or the related funding of the plaintiff's side be relevant for discovery? I understand, of course, why defendants might want to know this, but unless it can be linked to bias in a witness or something, it doesn't appear to fall within the scope of relevancy in 26(b).

Posted by: Jason Kilborn | Apr 5, 2018 12:50:43 PM

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