Florida Bill that would increase the regulation of third party litigation funding potentially harming small businesses stalls

A bill in the Florida legislature that would increase regulation of third party litigation funding “(Litigation Funding”) has stalled.[1] Sixty seven lobbyists have weighed in on the bill according to the Florida House of Representatives Lobbyist Disclosure and Information website, including the U.S. Chamber of Commerce, the Florida Chamber of Commerce, Burford, the International Legal Finance Association and the Personal Insurance Federation of Florida.[2]

House Bill 1179,[3] the Litigation Investment Safeguards and Transparency Act (“LISTA”), if passed, would require[4] a court’s consideration of specified conflicts of interest;[5] prohibit specified acts by litigation financiers (“Funders”); require disclosure and discovery relating to Litigation Funding; require indemnification of specified fees, costs, and sanctions as well as void certain Litigation Funding agreements. Some observers, perhaps mislead by the characterization of interested parties like the American Property Casualty Insurance Association and the Insurance Information Institute, expressed the belief that LISTA is a pro-consumer measure. They may be surprised to learn that LISTA does not apply to an agreement wherein funds are provided to a party to a civil action for such person’s use in paying his or her costs of living or other personal or familial expenses.[6] This is generally referred to as consumer litigation funding and is very common in cases involving personal injury. Such actions are sometimes a plaintiff’s most valuable asset. Readers can learn more about that on the website of the American Litigation Funding Association (“ALFA”).[7] LISTA would generally apply to Commercial Litigation Finance and would be a harmful blow to small businesses with meritorious claims but lack the resources to take on deep pocketed defendants.

Prohibited activity by Funders would include, but not be limited to, appointing or changing counsel, choice or use of expert witnesses, and litigation strategy. This is consistent with provisions we have seen in every Litigation Funding agreement we have worked on or reviewed and the International Litigation Finance Association’s best practices.[8]

Funders would also be prohibited from contracting for or receiving a larger share of proceeds than the share of proceeds recovered by the plaintiffs to an action subject to Litigation Funding. We think this is a good idea and wrote an Insight in January 2020[9] that highlights this issue and suggests a solution.  Reputable funders are already striving to achieve this. LISTA, in a straightforward and simple manner, prohibits a Funder to contract for or receive a larger share of proceeds than the proceeds received by the claimant. Would a contract that provides that a plaintiff shall receive $1.00 more than a Funder comply with the bill should it become law?

Funders would be prohibited from paying a commission, referral fee or other consideration to any person for a referral. Brokers are active in this space and offer a panoply of services in addition to brokering.  In any event, such commissions are paid by the party receiving funding and not the Funder.  In the Commercial Litigation Finance space this would have very little impact and is already a part of what ALFA stands for in the consumer space.

LISTA also prohibits the assignment or securitization of a Litigation Funding agreement in whole or in part.  In the United States there is currently no asset-class where securitization is outright prohibited.[10] This is probably the worst feature of LISTA. If passed in its current form the prohibition on securitization will kill liquidity and make it difficult for Funders to allocate capital which in turn will drive up pricing and further hurt small business in Florida seeking to fight deep pocketed defendants.

LISTA also requires a party who enters into a Litigation Funding agreement to, without awaiting a discovery request, disclose and deliver a copy of the Litigation Funding agreement to all parties to the action, the court and any known person with a preexisting contractual obligation to indemnify or defend a party to the action.  LISTA was amended so that the dollar amounts being financed can be redacted but Florida would stand only with Wisconsin[11] and West Virginia[12] in requiring the disclosure and delivery of the entire Litigation Funding agreement. No Federal Rule of Civil Procedure mandates the automatic disclosure of Litigation Funding agreements. About half of federal circuit courts and a quarter of federal district courts require the disclosure of outside parties with a financial interest in the outcome of a litigation. The purpose of that disclosure is usually to avoid judicial conflicts of interests. The District of New Jersey, enacted a local rule in 2021 mandating the disclosure of non-parties with a contingent interest in a litigation.[13] The Central District of California requires parties to disclose persons or entities with a financial interest in the proceeding or other interest that could be substantially affected by the outcome of the litigation[14]  and Chief United States district judge of the United States District Court for the District of Delaware Colm F. Connolly  issued a standing order for cases assigned to him  which is substantially similar to the District of New Jersey rule.[15] Even if a Litigation Funding agreement is produced in discovery, a court may exclude the evidence at trial for lack of relevance or risk of prejudice (or both). More recently, the Supreme Court of New Jersey’s Civil Practice Committee declined to adopt a third party litigation funding disclosure proposal.[16]

The consequences of a Litigation Funding agreement executed in violation of the proposed law would make the agreement null and void.

Litigation Funding ensures access to justice for claimants with meritorious claims but lack the resources to bring or sustain a cause of action. LISTA, if passed, would harm small businesses in Florida by denying them that access.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

Rimon, P.C. frequently represents lawyers, law firms and claimants in litigation funding transactions. Read more here: John J. Hanley – Rimon Law

[1] This Insight is focused on third party funding for business to business third party litigation funding (“Commercial Litigation Finance”).

[2] Lobbyist House Appearances Search | Florida House of Representatives (myfloridahouse.gov)

[3] House Bill 1179 (2024) – The Florida Senate (flsenate.gov)

[4] The language in the description of the bill uses the word “requires” but the bill itself provides that “[a] court may take into account: . . .”

[5] Among other provisions of the Bill, section 69.103 provides that a court may take the existence of a Litigation Funding agreement into account in a class action when determining whether a class representative or class counsel would adequately and fairly represent the interests of the class and in actions involving a common question of law or fact when determining whether the lead-counsel or co-lead counsel would adequately and fairly represent the interests of the parties to such actions.

[6] House Bill 1179 69.101(5)(a).

[7] Home – American Legal Finance Association

[8] ILFA – International Legal Finance Association

[9]Litigation Finance – A Modest Proposal – Rimon Law

[10] See Shearman & Sterling The Legal 500 Country Comparative Guides United States Securitization usa-chapter-the-legal-500-country-comparative-guide.pdf (shearman.com)

[11] Wisconsin Legislature: 804.01(2)

[12] West Virginia Code | §46A-6N-6 (wvlegislature.gov)

[13] Order7.1.1(signed).pdf (uscourts.gov)

[14] LRs-Effective-2012-December 1-Chapter-1-with-App-B.pdf (uscourts.gov)

[15] Standing Order Regarding Third-Party Litigation Funding.pdf (uscourts.gov)

[16] New Jersey Declines Third Party Litigation Funding Disclosure Pro (natlawreview.com)