The privacy once enjoyed by investors who finance other people’s lawsuits were rarely questioned before Hulk Hogan brought a media spotlight onto the niche industry by winning a $140 million jury verdict that forced the Gawker website into bankruptcy.
When Terry Jean Bollea (the professional wrestler’s real name) filed an invasion-of-privacy lawsuit against Gawker Entertainment in 2013, it was generally assumed that the existence of a litigation finance agreement was nobody’s business other than the plaintiff and their counsel. But after Bollea reached a $31 million post-judgment settlement agreement with Gawker, the press cited confidential sources to report that Silicon Valley tech billionaire Peter Thiel had funded the lawsuit.
Since then, tort reform advocates have made some progress toward requiring more disclosure when litigation funding agreements are used. Wisconsin in 2018 passed a law that requires disclosure of any litigation funding agreement that is in place. West Virginia passed a similar statute in 2019 but regulates only litigation finance agreements with individual consumers, not corporations.
At least two federal court districts — the Northern District of California in 2017 and the New Jersey district earlier this year have adopted rules requiring disclosure of the existence of any litigation funding contracts in a case.
In the meantime, the American Bar Association has outlined best practices for attorneys who use litigation funders. The California Bar Association has also issued guidance about ethical considerations.
Jonathan H. Colman, a Los Angeles-area insurance defense attorney, discussed those legal developments during the Combined Claims Conference held in Garden Grove, Calif. last month. He said lawyers who aren’t careful when they share information about a case with a litigation funder can potentially open a path for defense attorneys to compel disclosure.
“The concern would be the trap doors for the plaintiff where they inadvertently provide information that violates the attorney work-product privilege or attorney-client privilege,” he said.
The case law is thin. Colman noted only two cases where judges considered whether the identity of litigation funders was relevant to the case, which arguably would make them subject to disclosure through the discovery process.
