CHICAGO – While Wisconsin has enacted a new law requiring the disclosure of the identity of anyone who lends money to fund a lawsuit, Illinois appears unlikely to follow the lead of its neighbor to the north.
However, should courts grow to favor rules requiring disclosure, and particularly in certain kinds of cases, the Prairie State may yet follow with a law more specifically focused than Wisconsin’s version, according to Jonathan Friedland, a Chicago-based attorney with the law firm of Sugar Felsenthal Grais & Helsinger LLP, who has represented some of the biggest players in so-called third party litigation funding.
“If Illinois were to pass legislation (requiring disclosure of lenders financing lawsuits), it would probably be more narrowly tailored than Wisconsin’s law,” Friedland told the Cook County Record. “Most courts that have considered the issue distinguish clearly between consumer and commercial litigation, with courts being far more inclined to require disclosure or other regulation in the consumer context.”
Jonathan Friedland
On April 3, Wisconsin Gov. Scott Walker signed Assembly Bill 773, a third-party litigation financing (TPLF) bill, making it the first state in the country to adopt a law requiring the disclosure of a lender who lends money to a plaintiff hoping to share in the money damages of an awarded court case.
Some attorneys have expressed concern about money lenders with nothing at stake in representing clients except profit, worrying such investment funding could influence the outcome of trials to make more money. Others, however, hold third-party financing isn’t necessarily a threat, if it’s brought out in the open.
Friedland has represented several litigation funding firms, including Gerchen Keller Capital.
Gerchen Keller was later purchased by Burford Capital, today the largest third-party lawsuit lender in the world. Though they declined to comment, officials at Burford Capital said in an emailed statement the Wisconsin law failed to differentiate between consumer and commercial litigation lending and that business interests would come to understand the new law was a mistaken “overreach” by state legislators.
Friedland also said he believes the Wisconsin law was misplaced.
“Those who want to see mandatory disclosure of litigation funding are, whether they know it or not, basing their view on an ancient principal called ‘champerty,’” he said. “The concept originated in ancient Greece and was incorporated into medieval English law as a way to protect common people from feudal lords who would work up meritless claims and work with a third party who would serve as a strawman puppet of sorts as the named plaintiff while the costs were funded by the lord.”
The principal has been largely dead since the 1900s, Friedland believes, bound by new laws that required lawyers not to engage in meritless litigation, and which provided penalties if they did.
He said he believes third-party financing of a lawsuit has a legitimate place in the legal system.
“The fact that a plaintiff may not have a big enough checkbook to fund a lawsuit and may want to turn to a third party for financial support is not a bad thing, nor is it a relevant fact in terms of the merits of a case,” Friedland said. “It can help level the playing field between a plaintiff and a wealthier defendant.”
Travis Akin, executive director of the watchdog nonprofit Illinois Lawsuit Abuse Watch, also said there may be nothing automatically wrong with a plaintiff taking out a lawsuit loan.
“But the loan should be disclosed because the longer the case goes on, the higher the cost that loan is going to be,” Akin told the Cook County Record. "And those cost increases could affect the ability of all parties in a lawsuit to reach a settlement."
Akin indicated a major plus of disclosure is the incentive factor.
“The current unregulated system only adds incentives to file lawsuits in Illinois,” he said. “Requiring disclosure will keep costs down and speed up the court process. Requiring disclosure will benefit the plaintiffs’ lawyers and the defendants in the long run because there will likely be an incentive to reach a quicker settlement to avoid paying increased interest costs as a result of a lawsuit loan.”
Akin said the reality is that having a third party involved is only going to make the cost of litigation more expensive.
“The lawsuit lender has to be paid,” he said. “The plaintiff’s attorney has to be paid and the plaintiff likely wants some money left over.”
Akin said transparency in litigation financing is something the trial courts, attorney groups and business groups should agree on.
“It is in both the plaintiffs’ attorneys and defendants’ best interest to have knowledge of third-party financing,” he said. “The plaintiffs' lawyers would have a better understanding of what kind of money to seek in a settlement. The defendants would have a better understanding of what the cost expectations are going to be in cases involving third-party loans.”
Akin said adoption of full-third party disclosure appears at the moment unlikely to be enacted in Illinois.
“There have been numerous attempts to enact reforms in litigation financing in Illinois,” he said. “Unfortunately, the legislation rarely even gets a hearing, let alone a vote.”