Donald Kochan, an elected member of the American Law Institute, stated during a Judicial Subcommittee hearing on June 12 that third-party litigation funding (TPLF) may create a conflict of interest without the judge’s knowledge. He explained that a party funding a lawsuit may not have the same goals as the plaintiff.
"Indeed, there should be a concern on the part of judges who have a duty to protect the litigants in their courts," said Kochan. "When litigation decisions become controlled by funders, the interests of the individual litigants may suffer for the benefit of the financial interests of the funders or the lawyers who have made deals with such funders. Without disclosure, judges may have no idea whether conflicts of interest are present between the judge and the funder or the funder's investors who have a stake in the litigation."
In 2021, the federal court of New Jersey issued a rule requiring disclosure around TPLF, according to the U.S. Chamber of Commerce Institute for Legal Reform (ILR). The ILR described TPLF as a "multibillion-dollar secretive industry that operates primarily in the shadows," allowing third parties such as hedge funds to exert influence over lawsuits, often without the knowledge of juries and judges.
However, in February, the Civil Practice Committee of the New Jersey Supreme Court rejected a request from the New Jersey Civil Justice Institute (NJCJI) to require TPLF disclosure in civil cases in the state’s Superior Court, Law.com reported. The committee stated, "there is not sufficient experience to meaningfully develop and recommend a rule change at this time. Rather, if at some point in the future, the issue becomes ripe for consideration, the committee can consider a rule proposal."
In requesting the disclosure rule, NJCJI argued that TPLF encourages frivolous lawsuits and can influence case outcomes because funders may wish to deny settlements due to potential higher profits from continued litigation. NJCJI President Anthony Anastasio said, "Due to the lack of transparency in TPLF arrangements, parties to litigation and judges are oftentimes not aware of potential conflicts of interest, have no reasonable way of gauging improper outside influence by funders on litigation strategy or settlement decisions, or other ethical concerns with funding arrangements."
The Insurance Information Institute (III) described TPLF as a form of "legal system abuse" and claimed it is making insurance more expensive for policyholders. In a press release, III CEO Sean Kevelighan said: "The price of insurance is the effect, not the cause of risk, and there must be more work done to curb legal system abuse, as auto insurers – both personal and commercial – are seeing significant increases in claims costs when attorneys enter into the picture."
Kochan is also a professor of law at George Mason University. His focus areas include constitutional law, local government law, and economics. According to George Mason University's website, he serves as director of its Law & Economics Center.
