On September 14, 2023, U.S. Senators Joe Manchin (D-WV) and John Kennedy (R-LA) and U.S. Representative Mike Johnson (R-LA), recently elected as Speaker of the House, introduced the “Protecting Our Courts from Foreign Manipulation Act of 2023,” stating that the proposed legislation will “stop foreign entities and governments from funding litigation in American courts.”
The bill, which would impact civil litigation in U.S. federal courts and apply to any pending civil action as well as cases filed after its passage, has three main components: disclosure requirements, a ban on funding from certain foreign actors, and a Department of Justice reporting requirement.
The proposed legislation requires that parties to a civil litigation make certain disclosures to the court, the other parties, the Attorney General, and the Principal Deputy Assistant Attorney General for National Security. These disclosures include:
- The identity of “any foreign person, foreign state, or sovereign wealth fund” (other than named parties or counsel) that has a right to receive any payment contingent on (1) the outcome of the case or (2) “the outcome of any matter within a portfolio that includes the civil action and involves the same counsel of record or affiliated counsel.”
- The production of the litigation funding agreement.
- A certification that “the money that has been or will be used to satisfy any term of the agreement has been or will be directly or indirectly sourced, in whole or in part, from a foreign person, foreign state, or sovereign wealth fund, including the monetary amounts that have been or will be used to satisfy the agreement” (and the identity of that foreign source) or that the disclosure and certification requirements to not apply.
The disclosures and certifications must take place when the action is filed or 30 days after the execution of a litigation funding agreement, whichever is later.
The bill further makes it unlawful for any litigant or their counsel to enter into a single case or portfolio litigation funding agreement “the terms of which are to be satisfied by money that has been or will be directly or indirectly sourced, in whole or in part, from a foreign state or a sovereign wealth fund.”
Report to Congress
If the bill is enacted, the Attorney General will be required to submit to the Senate and House Judiciary Committees annual reports “on the activities involving foreign third-party litigation funding in Federal courts,” including:
- The identities of foreign third-party litigation funders and foreign sources of money for third-party litigation funding;
- The courts where cases supported by foreign third-party litigation funding have been filed;
- “[A]n estimate of the total amount of foreign-sourced money used for third-party litigation funding in Federal courts, including an estimate of the amount of such money sourced from each country;” and
- “[A] summary of the subject matters of the civil actions in Federal courts for which foreign sourced money has been used for third-party litigation funding.”
The co-sponsors have stated that this legislation is necessary to protect national security because foreign actors are currently supporting third-party litigation funding in the United States and could, via funding, target and control litigation against particular industries, or seek information regarding proprietary technologies via the discovery process.
However, it is not evident that the bill is targeted at a material issue currently facing the federal judiciary, as no evidence of any actual or known foreign state use of litigation finance in this way has been cited. The various statements by the co-sponsors and organizations supporting the legislation reference the possibility of certain outcomes, but do not identify any concrete examples.
It is uncertain if this particular legislation will be passed, and it has a long road to travel to become law.
The bill’s introduction is consistent with a wider push for greater transparency regarding litigation funding in the United States, which has been met with varying degrees of success. To date, there has been no federal law addressing the disclosure of litigation funding. Certain federal courts and judges have adopted individual disclosure requirements (e.g., the U.S. District Court for the District of New Jersey, and Chief Judge Connolly of the
U.S. District Court for the District of Delaware). Meanwhile, earlier this year, Louisiana’s governor vetoed legislation that would have required disclosure in Louisiana state courts.
It is hoped that any federal law which may ultimately come into force is the product of considered debate and analysis and balances the protection of American courts from the theoretical threat of foreign interference with the interests of bona fide parties with legitimate legal claims that rely on litigation finance for access to justice.