Legislation advancing in the Assembly would require parties in civil and administrative cases to disclose litigation funding agreements and impose new restrictions on outside funders.
TRENTON, N.J. — A New Jersey Assembly committee has advanced legislation that would require greater transparency in third-party litigation funding and establish new rules governing companies that finance lawsuits.
The Assembly Financial Institutions and Insurance Committee voted to release Assembly Bill 2159 with amendments, moving the proposal forward for additional legislative consideration.
Key Points
• Bill would require disclosure of litigation funding agreements in civil and administrative cases
• Litigation funders would be prohibited from influencing legal strategy or settlement decisions
• Violations could result in agreements being deemed unenforceable and subject funders to consumer fraud penalties
The legislation would require parties involved in civil or administrative actions to provide any litigation funding agreements to the court for in-camera review within 30 days of filing a case or within 30 days of executing a funding agreement, whichever occurs later.
The bill would also permit parties to seek discovery related to litigation funding arrangements if the funding is relevant to claims or defenses, if a funder may have violated the law, or if other good cause exists.
New restrictions on litigation funders
Under the proposal, litigation funders would be prohibited from influencing decisions regarding the initiation, conduct, settlement, or resolution of a case.
The legislation would also bar funders from providing legal advice, selecting attorneys, seeking particular remedies, or receiving more than 25 percent of litigation proceeds. In addition, the combined payment to a funder and an attorney generally could not exceed 50 percent of the monetary recovery without the funded party’s express consent.
The bill would also prohibit the assignment or securitization of litigation funding agreements.
Fiduciary duty established
The measure would establish a fiduciary duty requiring litigation funders to act in the best interests of the parties they fund.
Funders would also become jointly liable for court costs and monetary sanctions imposed against a funded party or that party’s attorney.
If a litigation funder violates the fiduciary duty provisions or engages in prohibited conduct, the agreement could be declared unenforceable by a court, agency, or tribunal.
Consumer fraud penalties possible
The legislation provides that violations would constitute an unfair or deceptive practice under New Jersey’s Consumer Fraud Act.
Courts, executive branch agencies, and tribunals would also be authorized to impose sanctions for noncompliance with the law’s requirements.
Committee amendments expanded the bill’s application to administrative actions and clarified that pre-settlement funding used by individuals for living expenses during the pendency of a case would be exempt from the legislation’s provisions.
The bill now moves forward in the legislative process for further consideration by lawmakers.