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Federal Court Decides That Litigation Funders Can ‘Stay In The Shadows’

Litigation funding companies “can continue their work almost entirely in secret” in the United States District Court for the Northern District of California, which this week¬†“rejected a proposed rule change that would have required attorneys to disclose when their cases receive backing from third parties,” the San Francisco Chronicle reported yesterday.

The court had considered adopting a rule change for cases brought in the district that would have – for the first time in U.S. courts – required litigants to disclose when their lawsuits were funded by litigation funding companies.

While the court in June had proposed adding a new provision to the rule concerning disclosure of interested parties in all cases, this month the court instead decided “to make a much narrower change, requiring disclosure only in class-action cases,” the Chronicle reported.

The Chronicle story noted that some welcomed the decision to continue to allow litigation funding companies to operate “in shadows” while others felt the time had come for a broader rule: “Eva Shang, the co-founder of Legalist, a litigation funding startup in San Francisco that uses algorithms to assess whether to invest in a case, said she would prefer to get the industry out of the shadows” and added the litigation funding “has to be more transparent” to become mainstream.

The Chronicle story, Court Quashes Proposed Sunshine Rule For Litigation Finance Firms, is available in full here.

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