HARRISBURG – The leader of a civil litigation reform organization in Pennsylvania questions whether the aims of Wisconsin’s recent groundbreaking legal reform legislation extend far enough.

On April 3, Wisconsin Gov. Scott Walker signed into law AB 773, a bill containing several major litigation reforms that were designed to reduce the cost of legal action for Wisconsin businesses.

Among the reforms contained in AB 773 is a measure that requires any third-party litigation funding agreements to be disclosed “without awaiting a discovery request,” making Wisconsin one of the first states in the nation to require such transparent notice. Litigation funders help finance the pursuit of lawsuits in exchange for a portion of any recovery.

Curt Schroder, Executive Director for the Pennsylvania Coalition for Civil Justice Reform (PCCJR), said the law recently signed by Gov. Walker is “fine," but indicated other problems related to third-party litigation funding that are not covered in the legislation still need to be addressed.

Upon learning of the legal reform legislation package’s passage in Wisconsin, Schroder said, “I was pleased. The law is fine, as far as it goes. It’s a good step to require disclosure of litigation-funding contracts on litigation, but I think there’s a real question as to whether that goes far enough and does enough to deal with all the issues presented by litigation funding.”

Schroder added while it is “useful and helpful to all parties” to know that a third party is funding a plaintiff’s case, other relevant issues not covered in the Wisconsin law remain.

“[First,] I think, prohibiting the investors from actually controlling the cases," he said.

"You have situations where investors will object to a settlement because it’s not a lot [of money], it’s not what they had envisioned receiving when they invested in the case. So, that kind of skews the case and the result of the case, if the plaintiff and the defendant can’t come to an agreement to settle between themselves, and it has to be contingent upon some third-party investor also signing off to it.

Schroder called the resulting problem from that situation “two-fold.”

“One, the plaintiff might be giving up a reasonable settlement that might cause them to go to court and lose, and two, it drags out litigation for the defendant in that situation as well. [Say] the defendant has agreed to settle the case, now all of a sudden, the third-party litigation funder is saying, “No, we won’t accept that settlement,” Schroder said.

Another suggestion Schroder provided is to forbid direct contacts between third-party litigation funders and the case attorneys, without also including the clients.

“The client needs to know, and I think has a right to know, what is going on behind the scenes if a lawyer is talking to the third-party funder. The third-party funder is not a party to the litigation, and the lawyers’ ethical duties run to their clients and not to the third-party funder. It’s important that we have rules that require no separate contact with those entities, and that the client should always be part of any discussion that goes on,” Schroder said.

Furthermore, Schroder stated a key provision of any future measure on this subject would be to prohibit third-party litigation funding in class action lawsuits.

“Class actions are already a drain on our courts, and really are nothing but a bonanza for the plaintiff’s attorney that brings the class action. Very few of the class members are litigants themselves and ever get anything substantial from a class action – so to encourage more lawsuits by investing in them and funding those that would result in class actions, I just think is a very bad idea as well,” according to Schroder.

Schroder emphasized he was glad that Wisconsin passed its law and felt the mandatory disclosure stipulation will certainly help in the area of third-party litigation funding, but said it remains to be seen whether disclosure alone is the remedy which is needed.

In-state, Schroder mentioned that the Superior Court of Pennsylvania already declared one type of litigation funding as “champertous and invalid”, in the WFIC, LLC v. LaBarre Et.Al action in September 2016.

“With that said, I understand that litigation-funding agreements are still used in Pennsylvania. I do think that action of the type that Wisconsin took, as well as action to deal with some of the other issues I raised, is also very important,” Schroder stated.

Schroder believes that a similar law could one day come to Pennsylvania, one which he says may meet with legislative approval if it was presented from the perspective of promoting transparency like Wisconsin’s was. However, he also feels it would meet inevitable resistance from the plaintiffs’ bar, if it attempted to address the other reform issues he cited.

“It’s always a difficult battle to get these types of reforms in, it never happens easily. I’m not aware of any legislation yet that’s been introduced in Pennsylvania on third-party litigation funding. But it is an issue that is starting to get higher on everyone’s radar screen, and certainly now that Wisconsin has taken this step, I think a lot of other states, including Pennsylvania, will start to look at this,” Schroder concluded.

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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Pennsylvania Coalition For Civil Justice Reform Superior Court of Pennsylvania




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