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Litigation Funding Scores Regulatory Win Against Uniform Rules

July 31, 2020, 4:42 PM

Litigation funders betting hundreds of millions of dollars on court battles again sidestepped new regulation when an influential oversight group abandoned an effort to propose legal restraints.

The Uniform Law Commission this week officially scuttled a yearlong initiative to consider potential litigation funding laws. The group, whose proposals are often adopted by states, opted not to float uniform litigation finance legislation after finding “no clear path toward uniformity,” Case Western Reserve University Law School professor and ULC member Cassandra Burke Robertson said in a recent memo.

The litigation finance industry has grown by leaps in bounds during the past decade, with more than 40 funders having access to nearly $10 billion in capital, according to a Westfleet Advisors survey last year. Funds this year have raised nearly $1 billion in capital.

Litigation finance has not been regulated at the federal level, despite multiple efforts by the U.S. Chamber of Commerce, which has fought the multibillion dollar industry and sought laws that, among other things, would force more transparency around investing in lawsuits for a share of their returns.

Litigation funders dodged a potential threat earlier this year when a New York City Bar Association group endorsed the practice. The group walked back a controversial opinion issued in 2018 by the same bar association that said litigation finance could violate rules prohibiting fee sharing with non-lawyers.

The Minnesota Supreme Court in June struck down the state’s champerty doctrine, which has prevented outsiders from investing in legal claims in exchange for a share of the returns dating back to the Middle Ages in England.

During the ULC effort, a group of funders including Burford Capital, Omni Bridgeway, Parabellum Capital, and Therium Capital Management suggested a number of provisions they said would reduce barriers to the industry, such as abolishing champerty, limiting disclosure, and clarifying that litigation finance agreements are not subject to usury laws, according to a letter drafted by the funders and obtained by Bloomberg Law.

“The commercial funding industry, along with the litigants and law firms who use litigation finance, would oppose uniform legislation that took an anti-funding approach,” the funders wrote in the letter.

The ULC committee concluded uniform laws were not a priority for the litigation finance industry, citing a lack of problems arising from the varying approaches states take to oversight in the area. The report said 11 states have adopted regulatory rules and others are considering them. Those proposals remain “highly politically charged,” Robertson wrote in a May memo recommending against proposed legislation.

Some members of the committee wanted to move forward with drafting a uniform law that would have hewed toward proposals made by the Chamber of Commerce, Robertson said in an interview. She said the litigation funders “were extremely helpful” in the discussion.

“The ones who talked to us were fairly OK with having registration requirements or more regulation around who can provide litigation funding,” Robertson said. “But there didn’t seem to be a real need for that.”

The ULC last studied the litigation finance industry in 2011, when a committee also decided against proposing legislation.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editor on this story: Chris Opfer at copfer@bloomberglaw.com

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