An Update on New York State Litigation Financing Agreements

In April 2024 the Office of Court Administration (“OCA”) sought public comment on proposed amendments to Sections 202.67 and 207.38 of the Uniform Civil Rules for the Supreme Court and County Court (22 NYCRR §§ 202.67 & 207.38), to require disclosure of information relating to litigation financing agreements. The comment period closed in May 2024 and OCA is scheduled to discuss the proposal in September 2024.

Litigation funding is the practice of a third-party funding litigation for a plaintiff with the promise of repayment after a successful litigation. Generally, this is an unregulated industry in New York. While the proposed rule modifications have been introduced to restrict the use and/or scope of litigation funding agreements, the New York Court’s Advisory Committee on Civil Practice Law and Rules proposes to require disclosure of the agreements in certain cases. Advocates for litigation funding say that the agreements allow plaintiffs who would not otherwise be able to bring claims to court. Opponents of litigation funding argue that the agreements are predatory and reduce the recovery of the injured parties. New York does not currently have any regulations on litigation funding agreements, and the only way to receive information on the agreement is through discovery as part of litigation.

The proposed regulations would require the disclosure of funding agreements in civil cases involving wrongful death and personal injury where the Court must approve the settlement of the case. The disclosures would not just affect litigation funding agreements but also certain other ways of funding litigation. The amended rules affect contingency agreements, deferred payment agreements, and any money borrowed against the anticipated settlement.

The Advisory Committee on Civil Practice Law and Rules requested public comment and the majority of comments wanted to expand the rules to all litigation funding agreements. For example, the City of New York Law Department wrote in support of the proposal that the unregulated litigation funding industry is full of concerns regarding the behavior of the funding companies and the abuses that could and do occur. As an example, the case of Guss v. City of New York is given, where the litigation funding loans were $4,250 at the start of litigation and when litigation was finished and the loans came due, with interest, the amount was $2,838,487.65, an interest rate of over 60%.  The New York State Trial Lawyers Association (“NYSTLA”) opposed parts of the proposal.

If adopted, the proposal would bring the NYCRR in line with other jurisdictional rules, such as Rule 7.1.1 in the United States District Court of the District of New Jersey, requiring: (1) the identity of the funder(s); (2) whether the funder’s approval is necessary for litigation decisions; and (3) a brief description of the nature of the financial interest in the litigation.