Litigation Finance Disclosure Rules: All Portfolios Are Equal. But Some Portfolios Are Subject To Disclosure.

Portfolio funding is often described as diversification. Spread risk across multiple matters. Reduce exposure to any single outcome. Smooth out volatility.

But here is a signpost that surprises even sophisticated litigants and investors:

Sometimes one case in the portfolio can trigger disclosure obligations for the financing arrangement.

Most courts do not require automatic disclosure of litigation funding. Communications with funders are typically protected by work product doctrine. Funding agreements are rarely produced absent unusual circumstances. That remains the majority rule.

Yet certain jurisdictions have moved beyond discovery fights to affirmative disclosure requirements.

The District of New Jersey requires parties using certain non-recourse, contingent funding arrangements to disclose the identity of the funder, the nature of its financial interest, and whether it holds approval rights. Judge Colm Connolly in the District of Delaware has imposed a similar requirement in matters on his docket. The Northern District of California requires parties in proposed class actions to identify entities with a financial interest in the litigation in their case management filings.

At the state level, Wisconsin, West Virginia, and Illinois have enacted statutes requiring disclosure of litigation funding agreements in civil actions. New York has taken a different approach, regulating consumer litigation funding contracts without imposing a general court disclosure requirement in commercial cases. A brief overview of that framework is available here.

It is important to be clear about what these rules do and do not require. In most instances, disclosure is limited. Courts generally require identification of the funder and a brief description of its financial interest. They do not typically require production of litigation strategy or privileged communications. For many litigants, compliance is straightforward and not especially burdensome.

The significance lies elsewhere.

Diversification reduces financial risk, but it does not eliminate venue risk. A portfolio that spans multiple jurisdictions may carry a disclosure obligation in one court even if the rest of the cases would never trigger one. Capital that is invisible in most districts may become part of the public record in another.

Disclosure is not catastrophic. It is, however, increasingly predictable in certain venues. And predictability changes planning.

For litigants and investors, structure and forum must be evaluated together. The diligence question is not only whether the cases are strong. It is whether any one of them sits in a jurisdiction that changes the transparency calculus for the entire financing arrangement.

That is a signpost worth noticing.