The Economic Case Against Forced Disclosure of Third Party Litigation Funding

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New York State Bar Journal

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"How did you pay for that?" has always been an inappropriate question in American social life. Whether the inquiry is about the purchase of a house, a car, jewelry, an education, or almost anything else, reasonably fair-minded people do not feel compelled to answer such a question and in so doing compromise their financial privacy. Why should a curious questioner be entitled to know whether you paid for something yourself out of income or savings, or if instead you purchased it on credit or with borrowed funds, or if instead you received the item as a gift from a friend or a relative? So long as the money used to make a purchase wasn't stolen, how the purchase was funded is nobody's business.

Until recently, this basic norm of financial privacy was as true for the purchase of legal services as it was for anything else. No one (and certainly not adversaries in a civil suit) used to think that they had the right to know how a party obtained the funding to finance its case. Whether litigation is funded with a party’s own funds, or with borrowed funds, or by means of a contingent or alternative fee structure agreed to by the party’s attorneys was never the concern of anyone other than the client and its attorneys.