On The Case

Litigation funders blast U.S. Chamber, GCs for disclosure push

(Reuters) - (This post has been corrected. The headline in an earlier version incorrectly implied that litigation funders had accused members of the Chamber of Commerce of hypocrisy.)

The apparently never-ending fight between the U.S. Chamber of Commerce and the litigation funding industry took a turn for the personal on Thursday, with three litigation financiers calling out the Chamber for “blatant hypocrisy” and Burford CEO Christopher Bogart accusing the Chamber of using “bare-knuckled tactics” to force its members – including companies that have relied on litigation funding – into line with its mission to force disclosure of funding deals.

The chair of the Chamber’s Institute for Legal Reform, Brackett Denniston of Goodwin Procter, called the funders’ assertions “irrelevant” and “frankly ridiculous.”

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This particular chapter of a years-long story began with a Jan. 31 letter from 30 general counsel or high-ranking lawyers at major corporations, including General Electric, Google and Microsoft, to the federal judiciary’s Committee on Rules of Practice and Procedure. As I’ve previously told you, the Rules Committee received a petition from the U.S. Chamber in 2017 to amend the Federal Rules of Civil Procedure to require the disclosure of third-party funding agreements in all civil litigation. The committee had rebuffed a similar request in 2014 but the Chamber argued in its 2017 letter that litigation funding has vastly expanded in the years since.

The Rules Committee agreed in November 2017 to establish a subcommittee to consider the Chamber’s disclosure proposal. Subcommittee members, according to their May 2018 report, have since traveled around the country, attending conferences to hear about how litigation funding works in practice. The GCs said in their Jan. 31 letter that they wanted to voice support for the Chamber’s petition to amend the rules to require disclosure of third-party funding arrangements.

The GCs’ letter espoused arguments familiar to anyone who has been tracking the rise of litigation funding: Defendants have a right to know who has a stake in litigation against them because that information can affect the course of litigation and settlement negotiations. But the last paragraph of the letter added a new wrinkle. The GCs noted that litigation funders have previously said major companies are generally indifferent to the Chamber of Commerce’s calls for disclosure of litigation funding agreements because corporations often use third-party litigation funding. The letter took exception to that proposition.

“No evidence has been proffered to support (the funders’) assertion,” the letter said. “Nor is it consistent with our experience.”

That representation in the GCs' letter caught the attention of litigation financiers – because a decent percentage of the companies whose GCs signed the letter have, in fact, used litigation funders, according to a Feb. 20 letter to the Rules Committee from Burford CEO Christopher Bogart, and my interview Thursday with Burford managing director David Perla. Perla told me that more than a half-dozen of the companies listed in the Jan. 31 letter have themselves accepted funding from Burford, Bentham and other litigation financiers. In fact, Bogart’s letter said, one of the in-house lawyers whose signature is on the Jan. 31 letter reached out to Burford for a funding deal just weeks after the letter was made public!

Why the discrepancy between the public representations in the letter and the private reliance on capital from litigation funders? Bogart’s letter blamed the Chamber of Commerce and the Institute for Legal Reform for strong-arming members into toeing the anti-litigation funding line. “It’s unfair to their members,” Perla said. “These people come to us for capital … They’re in a very difficult position.”

ILR chair Dennison said Burford’s point is “silly and irrelevant.” The GCs’ letter, he said, is about disclosing funding, not about using money from litigation finance firms. “Disclosure is not inconsistent with using litigation finance,” he said. “Every signer of the letter is in favor of disclosure.”

The GCs’ letter does not mention the Chamber of Commerce or the Institute for Legal Reform. But in interviews, Perla of Burford and Allison Chock of Bentham offered two clues that, in their view, prove the Chamber’s role. First, they said, was the instantaneous announcement of the GCs’ letter by the Institute for Legal Reform, whose president, Lisa Rickard, posted a blog entry about the letter on the same day it was sent to the Rules Committee. Considering that the letter recites the same arguments that the Chamber and ILR have been espousing for years to the Rules Committee and state legislatures, Chock said, the timing left little doubt that those groups pushed for the GCs to write the letter. In a joint Feb. 20 letter to the Rules Committee from Burford, Bentham and Therium, the funders called the GCs’ letter “fundamentally a PR stunt by the Chamber.”

The second giveaway, according to Burford’s Perla, is the lead signatory on the GCs’ letter: Denniston, the former GE general counsel who serves as ILR’s chair. Denniston left GE in 2016, Perla said. (He’s currently senior counsel at Goodwin Procter.) His signature atop the GCs’ letter, Perla said, is proof that ILR organized the effort.

ILR spokesman Bryan Quigley responded to my requests for comment to both ILR and the Chamber. He did not deny the group’s involvement in the GCs’ letter. “We clearly have been leaders on this issue,” he said.

The funders’ joint letter, said Bentham’s Chock, reflects some of the frustration the litigation finance industry feels “at having to respond to the same ill-conceived arguments” over and over again. (For context, funders offered an extensive response to the Chamber’s call for disclosure in 2014, which Bentham supplemented, at length, in a 2017 submission to the Rules Committee.)

In the funders’ latest critique of arguments for mandatory disclosure, they point out that judges can easily address legitimate defense concerns about funders’ undue influence in individual cases. They cited as examples a 2018 order from U.S. District Judge Dan Polster of Cleveland, who said he would review in camera all third-party litigation funding arrangements by plaintiffs in the prescription opioid MDL; and a decision last month by U.S. District Judge Susan Illston of San Francisco, who denied a defendant’s motion for discovery on the source of funding for patent litigation, holding that the plaintiff’s disclosures under the local rules were sufficient to prevent conflicts.

The funders’ joint letter said the Chamber’s call for transparency in litigation funding is deeply at odds with the group’s refusal to disclose information about its donors. (Their exact language was “blatant hypocrisy.”)

The accompanying letter from Burford’s Bogart suggested that Chamber members who signed the GCs’ call for transparency yet count on litigation funders to stay mum about their companies’ funding deals want to have their cake and eat it too. “On the substantive question of disclosure, companies don’t want it when they are plaintiffs and they do want it when they are defendants,” Bogart wrote. “As plaintiffs, they value keeping their financial affairs private, and view litigation finance as no different than any other source of capital to manage legal expenses. But as defendants, they value distraction and delay, and imposing a disclosure regime provides another arrow in that quiver. There is nothing surprising in these positions … But that does not make it correct.”

ILR’s Quigley, like ILR chair Dennison, said there’s nothing hypocritical about the GCs’ letter. The legal officers who signed it did not say their companies never used litigation funding, he said. They simply called for such litigation funding deals to be disclosed.

I asked whether the half-dozen companies on the letter that according to Burford, have taken money from litigation financiers, would voluntarily disclose those agreements. “That’s certainly up to them,” Quigley said. “That’s not an issue we’re going to take up.”