In recent months we have discussed litigation funding, specifically covering what litigation funding entails, whether such agreements were legal in different jurisdictions and the ethical issues surrounding litigation funding agreements. There’s an opportunity to continue the conversation as we keep a close eye on the Texas Legislative Session, just as we did last month with a recap of bills related to civil litigation. Members of the Texas House and Senate introduced bills relating to the disclosure of litigation funding in state court lawsuits.

Representative Matt Krause (Fort Worth) and Senator Pat Fallon (Prosper) filed identical bills in the House (H.B. 2096) and Senate (S.B. 1567) that would amend Chapter 22 of the Texas Government Code and require the Supreme Court of Texas to “adopt rules to provide for the mandatory disclosure of third-party litigation financing agreements to the parties in a civil action in connection with which third-party litigation financing is provided.”  The bills define “third-party litigation financing” as any provision of financing where repayment is conditioned on, and sourced from, the proceeds obtained from a civil lawsuit. The definitions of “financing” and “third-party litigation financing” in both bills are also broad enough to capture litigation funding agreements between a claimant and a third-party funder, as well as funding agreements between an attorney or law firm and a funder.  However, both bills expressly carve out contingency fee agreements between a lawyer and client from the definition of “third-party litigation financing agreement.”  Also excluded are any “extension(s) of credit” to an attorney or law firm where repayment is not contingent on the outcome of any specific civil lawsuit or lawsuits.

Bill Status

Krause’s bill, filed on February 20, was referred to the Judiciary & Civil Jurisprudence Committee on March 6.  Fallon’s bill, filed March 5, was referred to the State Affairs Committee on March 14.

What Type of Disclosure Would be Required?

Assuming one of these bills is enacted into law, it’s anyone’s guess as to what rules the Supreme Court of Texas would adopt.  The best guess is that the supreme court would amend Texas Rule of Civil Procedure 192.3 to provide that third-party litigation financing agreements are discoverable.  Currently Rule 192.3(f) requires the disclosure of any indemnity or insuring agreements, but states that information concerning such agreements is not by reason of disclosure admissible as evidence at trial.  I would expect the supreme court to place a similar limitation on third-party litigation financing agreements.  The supreme court would also likely amend Rule 194.2 to allow a party to serve a request for disclosure for third-party litigation financing agreements.  Currently Rule 194.2(g) permits a party to serve a request for disclosure seeking any indemnity or insuring agreements described in Rule 192.3(f). The supreme court would likely add another subpart to Rule 194.2 for third-party litigation financing agreements.

Tilting the Scales in Your Favor

Keep abreast of proposed legislative changes, including H.B. 2096 and S.B. 1567, by using the Texas Legislature’s Online Bill Lookup system or stay tuned to Tilting the Scales. We are following these bills closely and will keep you updated if there are any developments throughout the Legislative session.

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