Delaware judge requiring disclosure of third-party litigation funders
The action may influence other judges to follow suit, encouraging an increasingly transparent overall legal process.
Chief Judge Colm F. Connoly, a U.S. District Court judge in Delaware, has introduced new rules for cases that come before him, requiring the parties involved in the court proceedings to disclose any financial support from third-party funders.
Judge Connoly’s action may influence other judges to follow suit, encouraging an increasingly transparent overall legal process.
In similar efforts in the past few years, the Northern District of California enacted a rule in 2017 that prohibited anyone not listed as an intended party from participating or benefiting from any decision made during litigation proceedings related to their case file. Wisconsin enacted a rule in 2018, requiring all participants to receive notice about how they will be compensated if they are found liable at trial. In 2019, West Virginia enacted a law governing the use of “litigation financiers,” and requiring litigation financiers to comply with numerous listed statutory requirements. In 2021, the U.S. District Court for the District of New Jersey also proposed an amendment to its rules to require third-party funders to be identified in court documents.
While the rules only apply in his courtroom, Judge Connolly’s order is significant for a number of reasons. More than half of the United States publicly traded companies are incorporated within Delaware’s borders, and thus, Delaware law often governs contracts between businesses.
Third-party litigation funding could potentially have harmful economic and ethical consequences. With third-party litigation funding contributing to social inflation in the US, litigants are incentivized to initiate and prolong lawsuits, higher claim costs drive up insurance premiums, can reduce the availability of liability coverage, and may potentially lead to higher uninsured legal liability risks for U.S. businesses.
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