Proposed Federal Rule on Litigation Funding Disclosure Threatens Access to Justice and Fairness in U.S. Courts

March 22, 2026 — United States

On March 10, 2026, Lawyers for Civil Justice (LCJ) and the U.S. Chamber of Commerce Institute for Legal Reform (ILR) proposed an amendment to the Advisory Committee on Civil Rules and its Subcommittee that would allegedly promote uniformity and transparency by requiring mandatory disclosure of third-party litigation funding (TPLF) in disclosures under Federal Rule of Civil Procedure (FRCP) 26(a)(1)(A). However, the proposed amendment does not “promote transparency”; it gives deep-pocket defendants a tactical map for exactly how to outspend and outlast a weaker opponent.

1. It turns funding into a weapon, not a neutral fact.

Knowing there is a funder tells a sophisticated defendant far more than “someone is paying the bills”:

• The plaintiff probably could not afford to bring or sustain the case alone.
• The plaintiff’s approximate budget constraints and time horizon can be modeled and exploited.

Armed with that information, the defendant can deliberately:

• Prolong litigation to exhaust the funding term.
• Inflate costs with unnecessary motions and overbroad discovery.
• Time lowball settlement offers to coincide with anticipated funding stress points.

That is not transparency; it is a roadmap to attrition warfare.

2. The proposal is structurally one-sided.

The LCJ–ILR proposal carefully carves out the major categories of defense-side financing:

“The rule does not apply to funding in the nature of contingency fee arrangements, insurance, or ordinary personal and bank loans.”

In other words, corporate defendants can hide:

• Liability insurance arrangements and defense-side litigation management by insurers.
• Indemnities, hold-harmless agreements, and vendor/contractual backstops.
• Bank lines, portfolio hedging, and other sophisticated risk-spreading mechanisms.

Meanwhile, the plaintiff alone must expose:

• The identity of any funder.
• The funding agreements themselves, for inspection and copying under Rule 34.

If the concern were genuinely “case management” and “conflicts,” symmetry would be nonnegotiable: both sides would disclose who is paying, what control they exercise, and what economic constraints exist. Singling out only plaintiffs’ funders betrays the real objective: give repeat-player defendants an informational edge.

3. Existing rules already cover the real problems cited.

The LCJ and ILR’s parade of horribles—hidden conflicts, “zombie” litigation, parties without settlement authority—is already addressable under current law:

Conflicts of interest: Courts can require in camera identification of funders when there is a concrete conflict concern (e.g., potential overlap with the judge’s or counsel’s financial interests). Many courts already do exactly this without forcing disclosure to the opposing party.

Control of litigation / settlement authority: Professional responsibility rules prohibit non-lawyers from controlling litigation strategy or overriding the client’s decisions. Judges routinely inquire about settlement authority and can compel the presence of actual decision-makers at conferences.

“Zombie” cases controlled by funders: If a funder were truly dictating against the client’s wishes, that is an ethical violation by counsel and a basis for court intervention. The remedy is enforcement of existing ethics and procedural rules, not wholesale exposure of financing terms in every case.

Blanket disclosure of funding contracts is a grossly overbroad cure for problems that can already be policed when—and only when—they actually arise.

4. Disclosure does not meaningfully aid fact-finding.

Proponents are conspicuously short on examples where knowledge of a funding agreement changed the legal or factual merits of a dispute. Whether a plaintiff borrowed money to pay counsel has nothing to do with:

• Whether a product was defective.
• Whether a patent was infringed.
• Whether securities fraud occurred.

Yet mandatory disclosure would invite exactly the kind of irrelevant side litigation defendants prize: motion practice over discoverability, privilege, and alleged “bias” by a funder, instead of focusing on liability and damages. That adds cost, delay, and noise—while doing virtually nothing to improve the accuracy of outcomes.

5. It directly undermines access to justice—especially in IP and complex cases.

Small inventors and businesses often cannot realistically litigate against large companies without outside capital. Third-party funding is frequently the only way to stand up to a defendant that relies on delay and intimidation to avoid accountability.

Mandated disclosure hands those same defendants exactly what they need to make that strategy succeed:

• They learn that the plaintiff cannot self-fund an endless legal battle.
• They can pressure plaintiffs and funders by dragging out discovery, seeking continuances, and ratcheting up costs until the economics break—even in strong cases.
• They gain leverage to argue, implicitly or explicitly, that the case is “driven by investors” rather than merit, poisoning the atmosphere around settlement and, if it leaks, around juries.

The effect is predictable: fewer funders willing to enter the market; worse terms for those who do; and more meritorious claims abandoned because the economics no longer work.

6. Uniformity is not a virtue when the rule itself is unfair.

The proposal leans heavily on the theme of “uniformity” and the fact that courts currently differ on TPLF disclosure. But a single, nationwide rule that is structurally biased is worse than a patchwork that lets judges use discretion.

The 40% / 60% grant-denial split under current Rule 26(b)(1) simply shows that many judges correctly recognize that funding information is more often not “relevant to any party’s claim or defense.”

Forcing universal disclosure would override that case-specific judgment and convert what should be a relevance-based inquiry into an automatic windfall of sensitive information for defendants, regardless of whether it has anything to do with the merits.

Uniformity in service of imbalance is not reform; it is codified advantage.

7. If transparency is the goal, start with reciprocal, narrow, judicial disclosure—not adversarial discovery.

There is a narrower, principled path that meets the stated concerns without arming one side:

• Require nonpublic, in camera disclosure of any nonparty with a material financial interest in the litigation to the court alone, solely for conflicts and case-management purposes.
• Apply this symmetrically to all forms of litigation financing: plaintiff funders, defense insurers, indemnitors, and portfolio funders.
• Allow adversarial discovery into those arrangements only upon a specific, substantiated showing that they are directly relevant to a claim, defense, or identified ethical concern.

That approach gives judges what they need to manage conflicts and settlement while avoiding the core harm: turning financial structure into another tool for well-resourced defendants to crush weaker but meritorious claims.

Disclosing the presence and terms of litigation funding does not make litigation fairer; it makes it easier to weaponize wealth. The LCJ–ILR proposal would not “solve” case-management problems so much as institutionalize a one-way mirror where defendants can see and exploit plaintiffs’ financial constraints while keeping their own untouched.

If the justice system is meant to decide cases on evidence and law rather than on who can burn more hours and dollars, mandatory, one-sided TPLF disclosure is a step firmly in the wrong direction.

Media Contact:
Jared Toledo
jared@legallift.co