Arguing Class Actions is a monthly column by Adam J. Levitt for the National Law Journal.
Reprinted with permission from the October 5, 2026, edition of the National Law Journal. © 2026 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
Call something a “transparency” measure and half the argument is already won. Transparency sounds neutral, disclosure sounds harmless, and anyone opposing either can be made to sound as though they have something to hide. That framing is doing considerable work in the latest campaign to require plaintiffs using third-party litigation funding to turn their financing agreements over to their opponents.
The latest salvo comes from Lawyers for Civil Justice and the U.S. Chamber of Commerce Institute for Legal Reform. Their Sept. 8 submission urges the Advisory Committee on Civil Rules to require disclosure not simply of the existence of litigation funding or the identity of a funder, but of the funding agreement itself. Six days later, scores of major corporations and insurers joined the campaign, describing funders as operating on a “clandestine basis” and calling the absence of mandatory disclosure “inexplicable.” Their basic contention is that the Federal Rules already embrace disclosure of significant nonparty financial interests, most notably through Rule 26’s treatment of liability insurance, and that litigation funding is simply the next logical application of that principle.
But the absence of such a rule is hardly inexplicable. The Advisory Committee first received a proposal to add litigation-funding disclosure to Rule 26(a)(1)(A) in 2014 and has been monitoring the subject ever since. The issue went through the committee’s MDL work, returned for broader consideration, and ultimately led to creation of a dedicated TPLF Subcommittee in 2024. By then, the committee’s materials recorded “broad agreement” that judges already can require disclosure when circumstances warrant it and observed that requiring disclosure in every case “might well be regarded as too broad.” The subcommittee’s work remains ongoing today.
That history changes the premise of the current debate. This isn’t a newly discovered procedural problem that somehow escaped the drafters of the Federal Rules. Indeed, the committee has spent more than a decade considering what information about litigation funding might matter, why it might matter, and who needs it and when. The September submissions compress those different questions into a single demand for “transparency,” moving among financial interest, ownership, influence, control, recusal and settlement as though each necessarily leads to the same place: production of the funding contract to the opposing party. But they don’t.
The choice is not binary. Courts already can order tailored disclosure where the facts warrant it, and existing rules and statutes demonstrate that disclosure can be calibrated to the concern at issue. Kansas, for example, requires disclosure of a funder’s identity and the existence of control rights, while providing the agreement itself to the court in camera—a compromise that the chamber itself supported. The federal proposal is also notably one-sided: Its corporate and insurer supporters aren’t offering reciprocal disclosure of the budgets, reserves, or financing arrangements that allow them to sustain litigation for years.
Start with insurance, because it’s the centerpiece of the proponents’ argument. Rule 26(a)(1)(A)(iv) requires disclosure of an agreement under which an insurance business may be liable to satisfy all or part of a possible judgment. The proponents derive from that provision a broader principle: The Federal Rules already require disclosure of important nonparty financial interests even when they don’t bear on liability, so, they argue, third-party litigation finance should receive the same treatment.
The 1970 history of the insurance provision, however, points in the opposite direction. The Advisory Committee expressly said that its amendment was “limited to insurance coverage” and distinguished insurance from other information concerning a defendant’s financial condition. It then explained why insurance was different: The policy is an asset created specifically to satisfy the claim; the insurer ordinarily controls the defense; the information generally is available only from the defendant or insurer; and disclosure doesn’t significantly invade privacy. Those weren’t incidental observations; rather, they were the reasons the committee carved out insurance from the ordinary treatment of a litigant’s financial information.
The current committee has recognized the same weakness in the proposed analogy. Its April 2026 materials expressly say that the insurance analogy “is not airtight” and identify a fundamental distinction: The principal interest in liability insurance was probably its indemnity function—the insurer’s obligation to satisfy a judgment—not merely its financing of the defense. A litigation funder ordinarily has no corresponding obligation to satisfy the judgment against the funded party. The same materials caution that disclosure of all details of funding arrangements could raise serious work-product concerns and question what courts would do with the information once they received it.
An ordinary funder, then, isn’t an insurer in reverse. Its capital isn’t an asset available to satisfy the defendant’s liability, and providing non-recourse financing does not itself make the funder the owner of the claim or give it control over settlement. The other rules invoked by the September letters fail to bridge that gap. Rule 17 identifies the real party in interest; it doesn’t turn everyone with an economic stake in a recovery into the owner of the claim. Rule 7.1 requires disclosure of certain ownership relationships that may bear on judicial disqualification; it doesn’t create an adversary-facing entitlement to examine a party’s financing. And amicus disclosures concern nonparties that affirmatively enter a proceeding to advocate a position before the court. Adding those distinct rules together doesn’t produce a freestanding Federal Rules principle that every economically interested nonparty must disclose its contracts to an adversary.
More fundamentally, the proposed rule would reverse the ordinary logic of Rule 26. Discovery ordinarily follows a showing that information is relevant to a claim or defense and proportional to the needs of the case. In marked contrast, the proposed funding rule would require production first, in every funded case, so that defendants could inspect the agreement to determine whether something relevant might be there. Suspicion would replace relevance as the predicate for disclosure, with discovery becoming a mechanism for finding the justification for the discovery itself.
The cases invoked in this debate show why that inversion is unnecessary. In In re Valsartan N-Nitrosodimethylamine Contamination Products Liability Litigation, the defendants sought broad funding discovery based on what the court called a “parade of horribles” about problems that third-party funding might create. The court rejected carte blanche discovery because the defendants had offered no nonspeculative basis for it, while making clear that discovery could become appropriate if there were a sufficient showing that a nonparty was making ultimate litigation or settlement decisions, plaintiffs’ interests were being sacrificed, or genuine conflicts existed. 405 F. Supp. 3d 612, 615–16 (D.N.J. 2019). The court’s formulation was straightforward: It wouldn’t order funding discovery “in the absence of a demonstratable showing” that the information was relevant to a claim or defense.
MSP Recovery Claims v. Sanofi-Aventis illustrates the other side of that line. There, defendants identified documents suggesting that three specific financing entities had “intimate involvement” in plaintiffs’ litigation decision-making, and the court found the funding documents relevant to real-party-in-interest and champerty defenses. In other words, the court didn’t presume relevance because outside capital existed; rather, defendants supplied a factual and legal predicate for discovery, and the court agreed that the discovery was warranted. Read together, Valsartan and MSP Recovery provide a sensible rule that requires no amendment to Rule 26: evidence first, appropriately tailored discovery second.
The empirical record points the same way. In a recent analysis, Dai Wai Chin Feman, the U.S. chapter chair of the International Legal Finance Association, reviewed 163 federal disclosure rulings and found that only 19 resulted in production of a funding agreement to an adversary, and none did so based solely on the presence of funding. Dai Wai Chin Feman, An Empirical Analysis of Litigation Funding in the Federal Courts, Nat’l L. Rev. (Sept. 23, 2026), https://natlawreview.com/article/empirical-analysis-litigation-funding-federal-courts. That record suggests that the existing case-specific approach is doing exactly what Rule 26 is supposed to do: permit discovery when the facts justify it, not simply because funding exists.
The broader problem is the proponents’ careless tendency to treat financial interest, influence, and control as variations of the same thing, when they clearly aren’t. Every provider of capital has an economic interest in protecting its investment, and commercial agreements routinely include reporting requirements, consultation rights, covenants, default provisions, and other protections. Those terms may create influence in the ordinary economic sense, but without transferring ultimate authority over litigation strategy or settlement. If evidence shows that a funding agreement crosses that line, courts should address it. But the existence of a financial interest can’t, in itself, prove the control that supposedly justifies discovery of the agreement.
The September letters’ settlement argument exposes a different problem. They rely heavily on the 1970 insurance Committee Note’s observation that insurance disclosure allows counsel to make a more “realistic appraisal” of a case, and they contend that defendants similarly need funding information to understand the interests affecting settlement. But insurance disclosure doesn’t, by itself, give a plaintiff a realistic appraisal of a defendant’s settlement position. Unless the defendant is otherwise insolvent or uncollectable, that would require additional information—such as how much coverage remains under the policy. The Sept. 8 submission goes further, arguing that corporations cannot make fully informed litigation decisions without knowing the stakeholders who may control litigation and that a settlement may unravel if a nominal plaintiff requires a funder’s approval. Those are legitimate concerns where a funder actually possesses settlement authority. But once the client retains that authority, the argument changes from who can settle the case to the economics influencing settlement.
Of course, those economics would be useful to an adversary. A defendant would negotiate more effectively if it knew how much capital remained available to the plaintiff, whether additional funding had been committed, what return the funder expected, whether that return increased over time, and where the economics might begin placing pressure on the plaintiff to settle. But information doesn’t become discoverable merely because possessing it would make one side a better negotiator. A plaintiff likewise might negotiate more effectively if it knew a corporate defendant’s litigation budget, reserve levels, available credit, internal settlement authority, and the point at which the expected cost of continued defense exceeds the expected cost of settlement. Rule 26, however, doesn’t ordinarily require either side to disclose how much financial pain it can withstand before compromise becomes economically attractive.
The U.S. Government Accountability Office’s 2024 study of patent litigation funding makes the consequences unusually concrete. GAO found that third-party funding can allow resource-constrained patent owners, including small companies, to pursue infringement claims they otherwise couldn’t afford to pursue. But it also documented the strategic consequences that disclosure itself can create. Stakeholders warned that revealing the amount of funding could give defendants an unfair advantage by exposing plaintiffs’ financial resources. One explained that, if a defendant knows a funder’s commitment has a finite limit, it can prolong the litigation and drive up costs in an effort to exhaust the available capital. We’re presently seeing that dynamic now across multiple litigations, where defendants appear to be strategically acting on assumptions about plaintiffs’ available funding.
Settlement leverage is not the only concern. GAO reported that district judges and other stakeholders warned that disclosure could prompt demands for unnecessary information that “distracts from the merits of the case,” while two district judges were among those cautioning that disclosure requirements could “increase the cost and length of litigation.” Thus, the very disclosure being promoted as costless “transparency” can reveal how long a less-capitalized litigant can afford to remain in the fight while generating collateral discovery that makes that fight still longer and more expensive.
That evidence matters because it exposes the difference between information bearing on a legitimate procedural concern and information valuable for strategic reasons. A funder’s identity may matter to judicial recusal. An express settlement veto may matter to control. A transfer of the underlying claim may matter to real-party-in-interest analysis. But the amount of money remaining in a funding commitment may matter principally because it tells an adversary how long the plaintiff can afford to fight. Calling all four categories “transparency” obscures rather than answers the Rule 26 question.
The Sept. 8 submission tries to overcome that distinction by attacking ex parte disclosure. It argues that judges need adversarial assistance to identify problematic contractual provisions, that ex parte review would inhibit development of precedent and appellate review, and that parties need funding information to make litigation and settlement decisions. But that argument still presents a false choice. The alternatives aren’t universal production to the adversary or universal secret disclosure to the judge. The existing alternative is no routine disclosure, followed by appropriately tailored judicial inquiry when—and only when—the facts of a case supply a legitimate reason for one.
That existing framework can accommodate different concerns without pretending they’re the same. If the issue is recusal, identifying the funder may be sufficient. If facts suggest actual control, a court can require production of provisions bearing on control. If privilege, work product, or confidentiality is implicated, courts have familiar tools for addressing those questions, including in camera review where appropriate. And if a genuine dispute develops, courts can issue decisions explaining the relevant contractual provisions and legal standards. Valsartan, MSP Recovery, and the other published decisions themselves refute the suggestion that precedent cannot develop without universal disclosure.
The contention that opposing counsel must receive the agreement because judges cannot independently identify every problematic provision is particularly revealing. It effectively asks that defense lawyers be permitted to inspect an opponent’s private commercial arrangements for latent litigation issues before demonstrating that such an issue exists. That’s the opposite of the ordinary discovery sequence. A party doesn’t ordinarily obtain private documents because its lawyers may be better positioned than the court to discover something interesting after reading them. That premise also reflects a striking lack of confidence in judges, who routinely identify and police privilege, work product, conflicts, settlement authority, and other case-specific issues without first giving an adversary a blank check to inspect private documents.
Nor does the existence of differing local practices establish a failure of the Federal Rules. Funding questions arise in different factual settings involving class adequacy, real-party-in-interest defenses, settlement authority, conflicts, champerty, standing, and other issues. Different relevance determinations in different cases may, therefore, reflect exactly what Rule 26 contemplates: discovery tailored to the claims, defenses, and facts actually before the court. Uniformity isn’t an end in itself, and a uniformly overbroad rule isn’t preferable to case-specific application of an adequate relevance standard.
The committee’s own work reflects that caution. Its 2024 materials noted both the broad agreement that judges can order disclosure where warranted and the possibility that automatic disclosure in every case would be too broad. Its 2026 work goes further, recognizing that a supposedly “simple” disclosure rule presents major drafting difficulties, that the insurance analogy is imperfect, that expansive disclosure may create serious work-product problems, and that substantial questions remain about what judges should do with funding information once they receive it. Those aren’t peripheral objections to be solved after deciding that transparency is desirable; they go directly to whether the proposed disclosure is justified and how far that disclosure should actually reach.
That asymmetry bears emphasis. The Sept. 14 letter was signed by insurers, pharmaceutical manufacturers, automakers, technology companies, retailers, and other institutional defendants with substantial capacity to finance litigation. Their arguments should rise or fall on their merits, not their identities. But they aren’t proposing reciprocal disclosure of the budgets, reserves, financing arrangements, or other resources that allow major corporations to sustain litigation for years.
Litigation funding doesn’t make a weak claim strong, guarantee a recovery, or insulate anyone from Rule 26. It supplies capital, and sometimes the terms on which that capital is supplied may create a legitimate procedural issue. Courts should investigate when facts support such a concern, whether it involves settlement control, ownership, conflicts, or some other matter genuinely relevant to the case. But that’s an argument for targeted scrutiny of an actual problem, not for treating outside financing itself as sufficiently suspicious to justify automatic production.
After more than a decade of study, the absence of automatic funding disclosure from the Federal Rules is, therefore, anything but “inexplicable.” The committee has repeatedly confronted the distinctions the current campaign tends to collapse: whether funding exists, whether the funder owns anything, whether it controls anything, whether a judge needs to know its identity, whether an adversary needs to see contractual terms, and whether those terms are relevant to an issue actually being litigated. Those are different questions, and the answer to one does not supply the answer to all of the others.
The Rules Committee shouldn’t confuse transparency with entitlement. Defendants are entitled to discovery relevant and proportional to the claims and defenses before the court, and when concrete evidence suggests that a funder has crossed the line from financing litigation into controlling decisions relevant to the case, courts have the capacity to inquire. But defendants aren’t entitled to know how much financial pressure their opponents can withstand merely because that information would improve their settlement leverage. Turning Rule 26 into a license to search an opponent’s financing for either misconduct or economic weakness wouldn’t close an overlooked gap in the Federal Rules; rather, it would give one side strategic access to the capital that allows the other side to remain in the fight—and call the resulting advantage transparency. The only thing “transparent” about this latest letter-writing effort is the writers’ attempt to tilt the table to their liking—a gambit that should be dead on arrival.
Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups. He can be reached at alevitt@dicellolevitt.com
