The United States Senate has begun an investigation into the impact of third-party litigation funding over concerns that it may “distort” the civil justice system.
Senate judiciary committee chairman Chuck Grassley and Senate majority whip John Cornyn – who chairs a sub-committee on the constitution – have written to Burford Capital, Bentham IMF and Juridica Investments, all of which invest heavily in US litigation and arbitration despite being publicly listed in other countries, to seek details on the cases they finance, the structure and terms of the agreements they have entered into and their returns on investment.
The senators have also asked for information on firms’ general practices, such as whether the court or interested parties are made aware of any third-party agreement.
In the letters they write: “A growing number of reports have raised concerns about what impact the rapid expansion of third party litigation financing is having on our civil justice system…
“Your burgeoning industry is largely unregulated and operates with no licensing or oversight. Lending agreements between plaintiffs and commercial funders are confidential and generally not disclosed to the courts, the opposing party, or the public unless the terms of the agreement itself are the subject of subsequent litigation.
“And while commercial litigation lenders maintain that plaintiffs retain control over litigation and settlement decisions, the terms and fundamental structure of agreements that are publicly available call into question these assertions.”
In a statement, the pair said the lack of transparency fueled concerns that funding agreements “distort the civil justice system”.
Mr Grassley said: “Litigation speculation is expanding at an alarming rate. And yet, because the existence and terms of these agreements lack transparency, the impact they are having on our civil justice system is not fully known. The information we requested today will help us better understand this industry. It’s vitally important to our civil justice system that litigation decisions aren’t unduly influenced by third parties.”
Mr Cornyn added: “Third-party litigation financing pumps millions of dollars into our justice system, and the current lack of oversight makes it difficult to track this money’s influence on the actions of litigants and the outcomes of litigation. These letters will give us insight into where this money is going and will help us craft effective protection to keep the civil justice system honourable and fair.”
Welcoming the inquiry and pledging to provide all the information necessary, Bentham IMF said it provided the “first real opportunity to introduce and explain the concepts and benefits of litigation funding to the wider US business community, including improved access to justice”.