Third-Party Litigation Funding Rule Gets Cold Shoulder In NJ

A New Jersey Supreme Court committee has shot down a proposal to mandate disclosure of third-party litigation funding agreements in civil cases, saying drafting such a rule could be difficult. In its 2024 report recommending rule amendments to the Supreme Court, made available on Tuesday, the civil practice committee indicated a disclosure rule may be appropriate down the road but not at the moment, citing "the need for further development through experience in this area." The rule would apply to cases where lawyers or firms receive funding to work on specific cases in exchange for a contingent interest in the litigation or in cases where a plaintiff uses a loan to pay legal bills while litigation is pending without telling the attorney, the committee said. Those loans can interfere with settlements because it could lead a party to reject an otherwise reasonable settlement offer because it would not pay off the loan. However, the committee and its discovery subcommittee ultimately determined that "there is not sufficient experience to meaningfully develop and recommend a rule change at this time." The committee report noted several potential challenges to drafting a rule to address the question of third-party litigation funding. "Often, attorneys are unaware of their clients' acceptance of TPLF and requiring disclosure by attorneys of the same would prove problematic," the committee said. "While there may be ethical implications where an attorney fails to disclose the existing of TPLF where required, where a client possesses the knowledge, the rule could not be enforced fairly against an attorney."  The committee considered the rule change at the suggestion of the New Jersey Civil Justice Institute, which proposed the change in a letter to the court in April. Anthony Anastasio, president of the NJCJI, told Law360 Pulse on Wednesday that the group is "disappointed" by the decision. "Third-party litigation funding has increased exponentially over the past decade and now constitutes a multibillion-dollar industry," Anastasio wrote in an email Wednesday. "As a result, certain types of civil litigation, such as auto accident cases, mass torts and consumer class actions, are becoming increasingly 'financialized,' with outside money having an outsized influence on case selection and disposition." With no regulation of the issue at the state level, there is a lack of transparency behind these cases, according to Anastasio. Judges and parties may lack the information to identify conflicts of interest and improper influence by funders on litigation strategies or settlement decisions, he added. The NJCJI's letter to the court recommending the change highlighted the case of Sysco Corp. v. Glaz LLC in Illinois federal court. The food distributor Sysco had sued third-party litigation investor Burford Capital, claiming it prevented Sysco from settling with defendants in a price-fixing suit because Burford wanted to continue the litigation against Sysco's wishes. Ultimately, Sysco and Burford agreed to voluntarily dismiss their suits against each other. The NJCJI's letter proposing the change to the court noted that the U.S. District Court for the District of New Jersey mandates disclosure of TPLF and that other states, such as Wyoming and West Virginia, have also enacted their own requirements. "NJCJI's proposal merely sought disclosure of these arrangements in litigation, so that the real parties in interest — namely, the courts, named plaintiffs and defendants — can all ensure that litigants remain in the driver's seat of their own cases and that the desire of third-party funders to maximize profits does not interfere with the administration of justice," Anastasio said.