The Trial Lawyer Summer 2018 - Page 38

However, noticeably absent from the proposed Act are any disclosure requirements of the defense counsel’s financing sources, which arguably, could also drag out litigation and are more likely to harm the interest of claimants. Similar to the Wisconsin Act, it is believed that this bill will not mandate the disclosure of more traditional attorney loans or lines of credit because typically payment under those types of financing arrangements is not a contingent right. Additionally, the bill, as drafted, only applies to commercial funders — not litigation financing provided by individuals. Court Rules and Rulings Given that there are no definitive rules governing third-party funding disclosure in most jurisdictions, the courts are left to deal with the issue on a case-by-case basis. Northern District of California With respect to attorney funding (as opposed to plaintiff financing), in 2016 the U.S. District Court for the Northern District of California adopted its own disclosure requirement through a Standing Order. The Court later added to its Order a provision requiring that in any proposed class action, all judges must mandate the disclosure of the identity of third-party lenders that have funded any claim or counterclaim if the lender has a contingent interest in the proceeds derived from the case. The application of the rule was intentionally limited to class actions. In August 2016, a Northern District of California court took up the disclosure issue in the case, Gbarabe v. Chevron Corp. In that case, the defense moved for disclosure of third party funding source to determine the plaintiffs’ counsel’s “adequacy” to represent the class members. The plaintiffs’ counsel did not resist on privilege, work product or “common interest” grounds, but rather, asserted a contractual obligation not to disclose the funder’s identity. Ultimately, the court granted defendant’s motion to compel disclosure of the funding agreement, finding it relevant to the adequacy determination. Northern District of Ohio Recently, on May 7, 2018, a multidistrict litigation court for the first time held in favor of disclosing third-party attorney funding arrangements. Specifically, the court ordered that any attorney who obtained third-party contingent litigation financing must: (1) share a copy of the judge’s order with any lender or potential lender; and (2) submit ex 36 x The Trial Lawyer parte, for in camera review (a) a letter identifying and briefly describing the third-party financing, and (b) a sworn affirmation from each of counsel and the lender that the third-party contingent litigation financing does not: (i) create any conflict of interest for counsel; (ii) undermine counsel’s obligation of vigorous advocacy; (iii) affect counsel’s independent professional judgment; (iv) give to the lender any control over litigation strategy or settlement decisions; or (v) affect party control of settlement. Similar to Wisconsin Act 235, third- party contingent litigation financing was defined by the court as “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 an MDL Case, by settlement, judgment, or otherwise.” The Court in the Opioid MDL further stipulated that absent extraordinary circumstances, the Court will not allow discovery into third-party contingent litigation financing. The issue of whether a party is required to disclose a lender’s identity and/or the terms of a funding agreement will be greatly litigated in the years to come. Although a recipient of funding is not obligated to disclose this information in the normal course of discovery, at this point, the rules will develop on a jurisdictional basis until legislation is enacted. In the meantime, plaintiffs and plaintiffs’ attorneys utilizing third party funding should be aware of rules, regulations and court decisions controlling their cases when deciding whether (1) they should disclose their funder’s information or (2) what type of financing to secure. Currently, financing transactions that are structured as recourse loans or credit lines are immune from any disclosure requirements. Conceptually, any new attempt to prompt disclosure of plaintiff law firm loans or lines or credit could well result in an equivocal request to the defense bar, which often utilize traditional bank lines as well. Citations available on request