Lawyers for Civil Justice (LCJ) and the U.S. Chamber of Commerce Institute for Legal Reform (ILR) recommend amending Federal Rule of Civil Procedure 7.1 to require disclosure of non-party financial interests, especially third-party litigation funding (TPLF), in federal civil cases. They argue that such interests can create conflicts of interest for judges, similar to owning stock in a party to the lawsuit, and that judges need this information to fulfill their statutory and ethical duties regarding recusal.
The document highlights the growing prevalence and complexity of TPLF arrangements, noting that billions of dollars are invested in litigation outcomes by various entities, including public and private companies, hedge funds, and even sovereign wealth funds. Despite the existence of local rules in many federal districts requiring more robust disclosures, compliance is inconsistent, and judges often lack critical information about non-party financial interests that could influence case outcomes or settlement decisions.
LCJ and ILR emphasize that uniform guidance is needed to ensure transparency and fairness in the federal judiciary. They urge the Advisory Committee on Civil Rules to amend Rule 7.1 so that judges are informed about all financial interests directly contingent on the outcomes of cases, not just those of the parties, thereby promoting a culture of compliance and helping judges make informed decisions about recusal, settlement authority, and discovery scope.
