The "Transparency and Limitations on Foreign Third-Party Litigation Funding" recently went into effect on August 1, 2024. This legislation is designed to regulate the involvement of foreign and third-party entities in litigation funding to increase transparency and protect the integrity of the legal process. This article outlines some provisions and implications of the law which is comprised of Louisiana R.S. 9:3580.1 through R.S. 9:3580.7, and R.S. 9:3580.10 through 3580.12.
Third party litigation agreements involve investors providing funds in exchange for a portion of the proceeds from successful cases. Proponents of the bill argued that the litigation finance industry encourages litigation and unfairly impacts the bottom lines of businesses both large and small.
Mandatory Disclosures
Louisiana's SB 355 requires any foreign third-party who is engaged in litigation funding in a civil action to disclose specific information to the Office of the Attorney General. This information includes:
- The name, address, and citizenship or country of incorporation of any foreign entity with a financial stake in the litigation outcome, or portfolio that includes the civil action and involves the same counsel of record or affiliated counsel, by settlement, judgment etc.
- Details of any foreign entity that received proprietary or national security-related information due to the funding agreement. This requires a disclosure in writing the name, address, citizenship or the country of incorporation or registration of any foreign entity that has received or is entitled to receive proprietary information or information affecting national security interests obtained as result of the funding agreement for such civil action.
- Produce a copy of the agreement to the Attorney General.
Disclosure Timeline
The disclosures detailed above must be made within thirty days of either executing the agreement or filing the civil action. If the agreement is made after the civil action is filed, the disclosure must occur within thirty days of being served.
Penalties for Non-Compliance
Failure to comply with these disclosure requirements can result in the agreement being deemed null and void. Violations are considered deceptive and unfair trade practices, subjecting the violator to legal action, fines or prohibition from operating within Louisiana.
Reporting to the Legislature
The Attorney General is required to report annually to the president of the Senate and the Speaker of the House of Representatives on foreign involvement in litigation financing. This report must include:
- The name, citizenship, or the country of incorporation or registration of any foreign entity and whether they were providing funds intended to defray litigation expenses, or the financial impact of a negative judgment.
- Whether the third party funder violated any portions of this law.
- Details on any enforcement actions taken against violators and the outcomes of those enforcement actions.
- The report should not include any identifying information as the identity of the parties to the civil action, the counsel of record, or the law firm of record.
The Litigation Financing Disclosure Act §3580
The Litigation Financing Disclosure Act strictly limits the involvement a third-party financer may have in a civil action, including its input on settlement negotiations and final decisions. It also requires any litigation financing agreement to be divulged during the discovery process. Specifically, the law states, "A litigation financer with a litigation financing contract or agreement with the party shall not decide, influence, or direct the party or the party's attorney with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding, or make any decision with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding. The right to make these decisions remains solely with the party and the party's attorney in the civil proceeding."
It is important to note that this section does not apply to nonprofit legal organizations funded by private donors that represent clients on a pro bono basis.
Conclusion
By mandating disclosures and setting penalties for non-compliance, Louisiana has taken steps to towards transparency. This new legislation is part of a broader movement across the country to mandate the disclosure of third-party litigation agreements in civil actions. The law went into effect on August 1, 2024.