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Shining LightThere are many reasons that a person or entity might want to provide funding helping a plaintiff pursue a commercial lawsuit.  It can be for personal reasons such as promoting a cause or settling a score.  But most litigation funding is now coming from professional  3rd parties that make a business on betting which cases will be successful. 

The funding can be in the form of 3rd party financing in exchange for a portion of a successful verdict.  It can also be in the form on an insurance policy where an insurer provides coverage for the litigation expenses if the case is unsuccessful.  Given this financing the plaintiff and plaintiff lawyer motives may change which lawsuits are filed, the amount of a settlement and whether the lawsuit is settled.

3rd party financing entities are raising hundreds of millions of dollars to finance lawsuits.  It is now a big lucrative business.  According The Wall Street Journal, most 3rd party financing is subject to nondisclosure agreements with most arrangements kept secret.  That is starting to change.

Under pressure from corporate defendants, some courts are starting to require 3rd party funding be disclosed.  The US District Court of the Northern District of California has amended their rules to require discloser of 3rd party funders.

“(2) To include in the Standing Order For All Judges of the Northern District of California the following provision to be added at the end of existing paragraph 19 on page 2: 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.

“19. Disclosure of Non-party Interested Entities or Persons: Whether each party has filed the “Certification of Interested Entities or Persons” required by Civil Local Rule 3-15. In addition, each party must restate in the case management statement the contents of its certification by identifying any persons, firms, partnerships, corporations (including parent corporations) or other entities known by the party to have either: (i) a financial interest in the subject matter in controversy or in a party to the proceeding; or (ii) any other kind of interest that could be substantially affected by the outcome of the proceeding. 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.”

It is likely that other courts may require similar disclosures in the future.  Ultimately, whether these disclosers impact lawsuits brought and there outcome only time will tell.

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