Louisiana Moves to Enforce Disclosure of Litigation Finance Agreements

Louisiana is joining the ranks of states aiming to regulate the litigation finance industry by introducing legislation that mandates the disclosure of litigation finance agreements. The bill stands out from similar legislation in other states as it requires litigants to provide a copy of their litigation finance agreements, which are typically confidential and rarely seen by others.

Under this comprehensive legislation, litigants must disclose their agreements within 60 days, incorporating it into the legal discovery process. Failure to comply would render the contract unenforceable, according to the provisions of the bill. This measure reflects the ongoing efforts of states to impose restrictions on the opaque litigation finance industry, which managed over $13 billion in assets last year. Previously, Wisconsin and New Jersey implemented disclosure requirements, and US District Judge Colm F. Connolly in Delaware has enforced it in certain patent cases.

While proponents of the legislation argue for increased transparency and oversight, litigation financiers express concerns that regulations might discourage the use of this funding tool, potentially causing delays in the legal process and providing defendants access to confidential information. In litigation finance, funders cover legal costs and attorney fees upfront in exchange for a share in the monetary awards if the lawsuits are successful.

The bill recently passed with an 8 to 5 vote in the Louisiana House Civil Rules and Procedure Committee, following its approval in the full state senate a few weeks earlier.

State Senator Barrow Peacock, the bill's sponsor, cited concerns over national security breaches as a driving force behind the legislation. Given the presence of air force bases and valuable Gulf Coast resources, Louisiana hosts proprietary secrets that foreign entities might exploit, he argued.

Peacock emphasized the necessity of transparency in litigation finance, stating, "It's flourished in the shadows with very minimal oversight."

During the hearing, Dai Wai Chin Feman, the director of commercial litigation strategies at New York-based litigation funder Parabellum Capital, testified against the bill, considering the national security issue to be "entirely speculative." He criticized those spreading baseless accusations without evidence, asserting that such actions undermined national security interests.

The next step for the legislation involves scheduling a house floor debate, anticipated to take place early next week, during which amendments will be discussed. If the Senate agrees with the changes made in the House, the bill will then proceed to the governor's office for signature. The legislative session concludes on June 8.

Senator Peacock mentioned that he had engaged with the International Legal Finance Association regarding potential changes to the bill but had not received any proposals. He expressed his willingness to collaborate, adding, "Through this whole process, I've said we'll work with you, and their position had been they just don't want the bill to be there."

Chin Feman argued that Louisiana already had a rule discouraging the use of litigation finance. According to this rule, if a litigious right is assigned to another party, the debtor can extinguish their obligation by paying the price the assignee paid for the assignment, plus interest.

Nathan Morris, the senior vice president of legal advocacy at the US Chamber of Commerce, which supports the bill and had a representative present at the hearing, highlighted that the legislation already allows the court to modify disclosures upon request, permitting parties to redact proprietary information.

Louisiana is taking a significant stride towards promoting transparency in the litigation finance industry by advancing legislation that mandates the disclosure of litigation finance agreements. This move aligns with the growing trend of states tightening regulations on this secretive industry, aiming to strike a balance between transparency and preserving confidential information.