New Bill Mandates Disclosure of Secret Litigation Funders in All Federal Civil Lawsuits

This bill, officially called the Protecting Third Party Litigation Funding From Abuse Act, is straightforward: it forces parties in federal civil lawsuits to reveal who is paying for the lawsuit if that funder stands to gain financially from the outcome. If passed, anyone who has a legal right to receive a payout from a settlement or judgment must be identified to the court and the opposing party. This applies to all ongoing and future civil cases.

The Fine Print on Who’s Paying the Bills

When a third party funds a lawsuit, they usually sign a contract detailing their cut of the winnings. Under this new bill (Section 2, adding 28 U.S.C. § 1660), those agreements must be handed over to the court for private review. After the court looks it over, the agreements—which detail the financial arrangement—must be shared with the opposing side. This is a big deal because right now, these funding agreements are often kept completely confidential. If you’re being sued, you usually have no idea if the plaintiff is being backed by a huge investment firm looking for a return.

The bill does try to protect certain groups. It carves out exceptions for standard loans, meaning if someone takes out a regular bank loan to pay for legal fees, that doesn’t need to be disclosed, as long as the interest rate isn't ridiculously high (it has to be under three times the average 30-year Treasury yield). It also protects the general donor lists of non-profits or organizations that might be funding a case, unless a specific donor has a direct financial stake in that particular case’s outcome (Section 2). This means the general membership list of an advocacy group is safe, but if a major donor is promised a percentage of the settlement, they must be named.

The Real-World Impact: Transparency vs. Strategy

For everyday people involved in a lawsuit, this bill is a double-edged sword. On one hand, it brings much-needed transparency to the system. If you’re a small business owner being sued, knowing that the plaintiff is backed by a multi-million dollar hedge fund changes your entire defense strategy. This disclosure could level the playing field by revealing the true financial muscle behind a lawsuit.

On the other hand, this creates a significant new burden for plaintiffs and their attorneys. They now have a tight deadline—10 days after the funding agreement is signed, or at the time initial disclosures are due—to hand over these confidential documents. For those relying on third-party funding, this disclosure requirement could expose their entire financial strategy and settlement expectations to the opposing side, potentially giving defendants a major advantage during negotiations (Section 2). It’s like having to show your poker hand before the river card is dealt.

For attorneys, this means new compliance headaches and the risk of sanctions if they miss the deadlines or fail to disclose accurately. The requirement to produce these agreements applies to any civil lawsuit already in progress or filed after the law takes effect (Section 3). This immediate applicability means lawyers handling current cases will have to scramble to comply with the new rules quickly. While the bill aims to curb 'abuse' by shining a light on litigation finance, it introduces procedural complexities that could slow down the process and increase the cost of litigation for plaintiffs who need external funding to pursue valid claims.