District of New Jersey May Require Disclosure of Third-Party Funding

A proposed amendment to the United States District Court for the District of New Jersey’s Local Civil Rules would require disclosure of third-party funding sources. Chief Judge Freda Wolfson announced the proposed new rule on April 14, 2021. “Rule 7.1.1 – Disclosure of Third-Party Litigation Funding” would require all parties to file the disclosure statement within 30 days of filing an initial pleading or transfer of the matter to the District. The disclosure would require information about any non-party person or entity providing funding for attorneys’ fees and expenses in the litigation on a non-recourse basis in exchange for one of the following:

• A contingent financial interest based upon the results of the litigation.
• A non-monetary result not in the nature of a personal loan, bank loan, or insurance.

The new disclosure statement would require all the following information:

• The identity of the funder(s), including the name, address and place of formation for legal entities.
• Whether the funder’s approval is required for litigation or settlement decisions. If so, the nature of the terms and conditions relating to that approval.
• A brief description of the nature of the financial interest.

Further, the new rule contemplates that upon good cause, parties may seek additional discovery into the terms of such funding agreements. The rule would take effect immediately and apply to all pending cases upon its effective date, with the new mandated filing to be made within 45 days of the effective date of the rule.

The Clerk of the Court is accepting comments on the proposed rule until May 21, 2021.

The full text of the proposed rule provides:

Civ. RULE 7.1.1 DISCLOSURE OF THIRD-PARTY LITIGATION FUNDING

(a) Within 30 days of filing an initial pleading or transfer of the matter to this district, including the removal of a state action, or promptly after learning of the information to be disclosed, all parties, including intervening parties, shall file a statement (separate from any pleading) containing the following information regarding any person or entity that is not a party and is providing funding for some or all of the attorneys’ fees and expenses for the litigation on a non-recourse basis in exchange for (1) a contingent financial interest based upon the results of the litigation or (2) a non-monetary result that is not in the nature of a personal or bank loan, or insurance:

1. The identity of the funder(s), including the name, address, and if a legal entity, its place of formation;
2. Whether the funder’s approval is necessary for litigation decisions or settlement decisions in the action and if the answer is in the affirmative, the nature of the terms and conditions relating to that approval; and
3. A brief description of the nature of the financial interest.

(b) The parties may seek additional discovery of the terms of any such agreement upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist, or such other disclosure is necessary to any issue in the case.

(c) Nothing herein precludes the Court from ordering such other relief as may be appropriate.

(d) This Rule shall take effect immediately and apply to all pending cases upon its effective date, with the filing mandated in Paragraph 1 to be made within 45 days of the effective date of this Rule.

The District of New Jersey has also proposed an amendment to Local Civil Rule 33.1 regarding interrogatories. The proposal requires that contention interrogatories not be served until 60 days prior to the close of fact discovery, unless otherwise permitted by the court.

Author Jonathan Krause is a partner in the litigation department at Klehr Harrison.