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Why Reformers Want Disclosure Of 3rd-Party MDL Funding

By Anne A. Gruner, Justin M. L. Stern and Nicholas M. Centrella Jr.
January 13, 2020

Why Reformers Want Disclosure Of 3rd-Party MDL Funding

By Anne A. Gruner, Justin M. L. Stern and Nicholas M. Centrella Jr.
January 13, 2020

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It is no secret that third-party litigation funding, or TPLF, has become an increasingly common practice. One area particularly affected by this trend is that of mass tort actions and multidistrict litigations, where funding is now more than ever being utilized to finance voluminous and prolonged proceedings.

While courts have historically been reluctant to require disclosure of funding agreements and information, precedent suggests that different approaches may be warranted in the MDL context because of considerations unique to those proceedings — including potential for bias, distortions of control and decision-making as between litigants and funders, and conflicts of interest between funders and the judiciary.[1]

Against this backdrop, advocates of disclosure have taken a proactive role in seeking further changes to rules of discovery and disclosure to address these issues. Litigants should be aware of these emerging efforts toward change, and the reasons underlying them, as the use of litigation funding continues to rise.

Background: Courts Have Hesitated to Require TPLF Disclosure

In recent years, courts have largely resisted calls for transparency, sometimes in the form of motions to compel, by finding that TPLF-related documents are not discoverable on the basis that such agreements are simply not relevant to the issues being tried, and, to a lesser extent, may warrant work-product protection.

In 2015, the defendants in Kaplan v. S.A.C. Capital Advisors LP, a putative class action, moved the court to compel certain plaintiffs to produce documents including TPLF agreements.[2] The defendants argued that they were entitled "to explore whether there may be a risk that the … plaintiffs' funding arrangements could affect the strategic decisions they will make on behalf of the class" and that the "plaintiffs' ability to finance the prosecution of this class action is also relevant to whether or not they ‘will fairly and adequately protect the interests of the class'" as required by Rule 23.[3]

Nevertheless, the court found that defendants had offered "no nonspeculative basis" for their concerns, and therefore concluded that "defendants did not show that the requested documents are relevant to any party’s claim or defense."[4]

In early 2018, in Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings Inc., the defendants sought access to communications and agreements between the plaintiff and litigation funding organizations.[5] The court found that the materials were “primarily, perhaps exclusively, for the purpose of preparing for litigation” and thus were protected work product.[6]

In reaching its conclusion, the court disregarded the defendants' arguments centering on the "non-legal" nature of the relationship between the plaintiff and the TPLF firm: "Even if the Court were to fully credit this argument and consider the relationships to be commercial, the materials nonetheless fall within work-product immunity because they were communications with Plaintiff’s agents and in anticipation of litigation."[7]

A few months later, in May 2018, U.S. District Judge Dan Polster of the U.S. District Court for the Northern District of Ohio took a slightly different approach in the MDL context in ruling on the requested disclosure of TPLF materials in the In re National Prescription Opiate Litigation MDL.[8] He issued a succinct order, requiring that any attorney in the MDL that had obtained third-party litigation financing submit documentation of the financing agreement to the court for in camera review.

Among the requested documentation were sworn affidavits from attorneys and lenders affirming that any financing agreements did not create a conflict under a number of specified criteria, including with respect to the funders' ability to control or dictate the direction of the litigation.[9] Judge Polster further required that any attorneys in the MDL who subsequently entered into third-party litigation financing arrangements with lenders comply with the requirements of the order, threatening that the court "[would] deem unenforceable any [TPLF] agreements that are not compliant with this Order."[10]

Despite its mandated submission of TPLF documents for in camera review, the court concluded its order by stating that "[a]bsent extraordinary circumstances, the Court will not allow discovery into [TPLF] financing."[11]

However, this approach was not subsequently replicated in another case that, although not an MDL, confronted similar issues. In January 2019, the court in MLC Intellectual Property LLC v. Micron Technology Inc. ruled on defendant Micron’s attempts to obtain TPLF agreements to which plaintiff MLC was a party, stating that “MLC has complied with the local rules and disclosed persons and entities with a financial interest in this case as defined by 28 U.S.C. § 455(d)(1), (3), and (4).”[12]

In response to Micron’s arguments that TPLF agreements may shed light on bias or conflicts of interest, the court judged such assertions speculative and found that case law advocated by the defendants merely stood for the proposition that TPLF agreements "could be discoverable when there was a specific, articulated reason to suspect bias or conflict of interest."[13]

Two months later, defendants in Benitez v. Lopez sought discovery of TPLF agreements on the grounds that they could be relevant to discerning the plaintiffs' motive or credibility.[14] The court disagreed, holding that "the financial backing of a litigation funder is as relevant to credibility as the Plaintiff's personal financial wealth, credit history, or indebtedness."[15]

Although the defendants raised the potential that the third-party funder could intervene and control the litigation, the court was not persuaded; it stated that the "[d]efendants' argument that they are entitled to understand the litigation funder's 'ability to intervene' and ‘dictate the legal strategies or settlement decisions' is just a series of conclusory and irrelevant assertions."[16]

Why MDLs Are Unique in the Context of TPLF

It is not difficult to see why the desire for fairness, consistency and uniformity on TPLF disclosure requirements in MDLs in particular has sparked recent attention. Simply reviewing the numbers makes it evident that determinations on disclosure of TPLF agreements can affect many litigants, and can have a critical impact on case trajectory.

To illustrate, a study in March 2019 from Lawyers for Civil Justice reported that just 24 MDLs represented more than 140,000 individual lawsuits, and MDLs overall made up 52% of the federal docket.[17] Given the consolidation of potentially thousands of similar cases in any given MDL, these types of proceedings may serve as attractive investment vehicles for third-party funders who seek magnified returns on their investment.[18] And, as they are expensive to maintain, plaintiffs lawyers may be more inclined to utilize outside funding in MDLs than in individual lawsuits.[19]

Proponents of disclosure have also cited various issues that uniquely affect MDLs and that may warrant a greater need for transparency to ensure that the funding transaction does not improperly distort or control the litigation. For example, it has been argued that plaintiff-side funding in MDLs may lead to a rise in claims (including meritless claims) where funding is relatively cheap and favors volume over substance.[20]

The existence of funding may also make it more difficult to reach settlement when resources are unlimited, and where the parties receiving funding need to also account for the interests of their outside funders, whose interests may not always directly align with the parties they finance.[21] Against these considerations and precedent, several approaches outside the courtroom have recently been undertaken in furtherance of efforts favoring disclosure of TPLF agreements, particularly in the mass action and MDL context.

Developments Signaling Possible Disclosure Requirements

In January 2019, a group of general counsel representing some of the largest U.S. corporations submitted a letter to the secretary of the Judicial Conference's Committee on Rules of Practice and Procedure, advocating for an amendment to Federal Rule of Civil Procedure 26(a)(1)(A) that would require, in civil cases, "disclosure of agreements giving a non-party or non-counsel the contingent right to receive compensation from the proceeds of the litigation."

The letter, which argued that such disclosure would better enable litigants to identify the real parties in interest, noted the trend over the past nearly 50 years in favor of disclosure, highlighting among other things, the Federal Rule of Civil Procedure change in 1970 that required disclosure of insurance agreements in civil cases. In October 2019, the same group of general counsel wrote to the Rules Committee once more, stressing the need for mandatory TPLF disclosures, but this time arguing specifically for disclosure in MDL proceedings.

Additionally, in February 2019, several senators reintroduced the Litigation Funding Transparency Act to promote transparency in third-party litigation funding.[22] The bill would amend Title 28 of the U.S. Code to require disclosure in both the class action and MDL contexts. The proposed Section 1407 of Title 28 of the U.S. Code would apply specifically to MDLs, and would require plaintiffs counsel to disclose "the identity of any commercial enterprise, other than the named parties or counsel, that has a right to receive payment" contingent on relief in the plaintiffs’ favor by either settlement or judgment.

The bill would also require the production of the financing agreement itself, either at the time that the action is consolidated or coordinated or within 10 days of the execution of the agreement if entered into after the action has begun. Whereas the order issued by Judge Polster in the opioid MDL imposed an ongoing obligation to make similar disclosures to the court for in camera review, the proposed legislation would require production of the agreements for all parties to inspect and copy.

Importantly, the bill provides that production of such agreements would be required "except as otherwise stipulated or ordered by the court," meaning that judges would retain the ability to block the disclosure in certain cases.

The Advisory Committee on the Federal Rules of Civil Procedure has also explored the topic of disclosure. The Advisory Committee had previously considered the issue in January 2019, when it suggested that one approach to disclosure would be to consider the disclosures that would be necessary for judges to evaluate issues related to recusal. This rationale underpins the current disclosure requirements in the Federal Rules: the Judicial Panel on Multidistrict Litigation Rule 7.1 requires only defense counsel to make corporate disclosures mirroring those made under the Federal Rules, which the committee's 2002 notes to the Federal Rules state are aimed at aiding judges in decisions of recusal.

With the advent of corporate litigation funding, such an approach toward disclosure favors transparency on both sides of an MDL proceeding and adequately permits judges — and the parties — to ascertain all the potential parties in interest. As noted by defense counsel in multiple cases cited above, disclosure of all parties in interest may inform strategic decisions related to valuing — and ultimately resolving — MDL proceedings.

In October 2019, the Advisory Committee announced that it had moved the third-party litigation funding issue from the MDL subcommittee for consideration at the full committee level. While the subcommittee concluded that rulemaking geared specifically towards multidistrict litigation was not needed at the time, the growing importance of third-party funding in the MDL context justified the topic for consideration at the committee level.[23]

The discussion surrounding disclosure, particularly in these larger proceedings, is gaining prominence — and TPLF is unlikely to go away soon. Bloomberg Law reports that survey results indicate a high interest in plaintiff-side litigation funding that outpaces the level of funding currently available, a key indicator of potential growth in the industry.[24] As a result, counsel on both sides of multidistrict litigation proceedings, and in litigation more generally, should expect evolving arguments on litigation funding disclosure, and perhaps even codification of some of the proposals currently being considered.


Anne A. Gruner, Justin M. L. Stern and Nicholas M. Centrella, Jr. are associates at Duane Morris LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See In re National Prescription Opiate Litigation , MDL 2804, 2018 WL 2127807, at *1 (N.D. Oh. May 7, 2018).

[2] Kaplan v. S.A.C. Capital Advisors LP , No. 12-9350, 2015 WL 5730101, at *3 (S.D.N.Y. Sept. 10, 2015).

[3] Id.

[4] Id. at *5.

[5] See Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings Inc. , No. 16-538, 2018 WL 466045, at *1 (W.D. Pa. Jan. 18, 2018).

[6] Id. at *5.

[7] Id.

[8] In re National Prescription Opiate Litigation , MDL 2804, 2018 WL 2127807, at *1.

[9] See id.

[10] Id.

[11] Id. (citing Lambeth Magnetic, 2018 WL 466045, at *5).

[12] MLC Intellectual Property LLC v. Micron Technology Inc. , No. 14-03657, 2019 WL 118595, at *2 (Jan. 7, 2019).

[13] Id.

[14] Benitez v. Lopez , No. 17-3827, 2019 WL 1578167, at *1 (E.D.N.Y. Mar. 14, 2019).

[15] Id.

[16] Id. at *2.

[17] Lawyers for Civil Justice: Rules4MDL: MDLs Surge to Majority of Entire Federal Civil Case Load (March 14, 2019),

[18] U.S. Chamber Institute for Legal Reform: Now We Know Why Litigation Funders Make It “Harder and More Expensive to Settle Cases" (April 3, 2019), (“The ideal threshold? Lawsuits asking for at least 10 times the amount of the investment.”).

[19] Williams, Margaret S., et al., Repeat Players in Federal Multidistrict Litigation, 5 J. Tort L. 141, 172 (Jan. 2012).

[20] See, e.g., U.S. Chamber Institute for Legal Reform: Third Party Litigation Funding (TPLF) (last visited Dec. 11, 2019),

[21] See Lawyers for Civil Justice: Request for Rulemaking to the Advisory Committee on Civil Rules: Rules for “All Civil Actions and Proceedings”: A Call To Bring Cases Consolidated For Pretrial Proceedings Back Within The Federal Rules Of Civil Procedure (Aug. 10, 2017), available at; see also Terry, Nicholas P., The Opioid Litigation Unicorn, 70 S.C. L. Rev. 637, at 658-59 (Spring 2019).

[22] S. 471, Sponsored by Sen. Grassley (R-IA).

[23] Advisory Committee on Civil Rules, Standing Committee Meeting — Agenda Book, 207 (Oct. 2019).

[24] Annie Pavia, Bloomberg Law: Analysis: Transparency Wanted in Litigation Finance (Nov. 4, 2019),