Litigation Transparency Act of 2025 Forces Disclosure of Third-Party Payouts in Civil Cases

The Litigation Transparency Act of 2025 is all about shedding light on who's getting paid based on the outcome of civil lawsuits. Specifically, it requires parties or their counsel in any civil action to disclose, in writing, the identity of any person or entity entitled to payment contingent on the result of the case. This means if someone other than the direct plaintiff or defendant stands to gain financially from a lawsuit, everyone involved gets to know who they are and see the paperwork behind it, per Section 2 of the bill.

Pulling Back the Curtain

The core change here is the mandatory disclosure. Section 2 adds a new section (1660) to Title 28 of the U.S. Code. This new section forces the reveal of third-party beneficiaries – those folks who aren't directly suing or being sued, but still have a financial stake in the outcome. Think of it like this: if a company is bankrolling a lawsuit in hopes of getting a cut of the settlement, that arrangement now has to be disclosed to the court and all parties involved. The bill mandates revealing any agreement creating the contingent right to payment, including ancillary documents, for inspection and copying, unless otherwise stipulated by the court.

Real-World Ripple Effects

Imagine a small business owner, Sarah, who's involved in a contract dispute. If an investment firm is funding Sarah's lawsuit with the expectation of a percentage of any winnings, that firm's identity and the terms of their agreement must now be disclosed. This applies to everyone from individuals to corporations. The bill sets a strict timeline: disclosure must happen within 10 days of the agreement's execution or when the action is filed, whichever is later. And, if the information changes, parties have a duty to promptly correct or supplement their disclosures (Section 2).

The Fine Print - and the Exceptions

Now, not every financial arrangement triggers this disclosure. Section 2 specifically exempts situations where the payment is solely for:

• Repaying the principal of a loan.
• Repaying a loan's principal plus interest (as long as the interest doesn't exceed the higher of 7% or two times the annual average 30-year constant maturity Treasury yield).
• Reimbursing attorney's fees.

So, traditional loans and standard attorney fee arrangements are off the hook. This is important because it clarifies that the bill is targeting contingent payments, not standard financial transactions.

Looking Ahead

This law, if enacted, applies retroactively. Section 3 explicitly states that the changes apply to any ongoing court cases, not just new ones. This means that even if a case is already underway, the disclosure requirements kick in. One potential challenge is the added administrative burden on parties and the courts. Ensuring compliance and processing these disclosures could create extra work. Also, there's the question of how this might affect litigation strategy. Knowing who's funding the other side could change how parties approach a case. The bill is focused on preventing hidden financial interests from improperly influencing outcomes in civil litigation.