U.S. Chamber cites foreign enemies in latest call to stem litigation funding

(Reuters) - Calling once again for strict limits on third-party litigation funding, the U.S. Chamber of Commerce said in a new report Wednesday that unspecified foreign actors could use investments in U.S. lawsuits to undermine national security.

The business lobby, which has long sought regulation of litigation funders, called for legislative and regulatory changes to heighten disclosure and reporting requirements, citing a lack of transparency.

Litigation funders provide financing for individual lawsuits or case portfolios in exchange for a cut of any settlement or judgment. The practice has grown in the United States and abroad, particularly over the past decade.

The Wednesday report issued by the Chamber's Institute for Legal Reform said a "largely underexplored" risk of the practice is the "possibility that foreign adversaries of the United States may undermine U.S. national economic and security interests through the infiltration of the American litigation system."

Foreign adversaries could use funding agreements to seek control over a case's strategy, the report said. They could leverage cases they finance to obtain sensitive corporate information, or fund cases focused on "divisive issues" to influence U.S. politics, the report said.

The report was authored by four lawyers from law firm Skadden, Arps, Slate, Meagher & Flom, including Michael Leiter, head of the firm's Committee on Foreign Investment in the United States and national security practice. Leiter did not immediately respond to a request for comment about whether Skadden works with litigation funders.

The Chamber's report said the current extent of foreign investment in U.S. litigation is unclear due to the "secrecy" of funding agreements.

The Chamber and others have largely been unsuccessful in lobbying for mandates to disclose information about sources of lawsuit funding, though courts in a small handful of states have adopted disclosure rules, including the federal court in New Jersey last year. Judges who have ruled on the issue have mostly sided with plaintiffs trying to shield funding agreements from defendants.

Defenders of litigation finance, including a two-year-old trade group representing funders, have criticized proposals to limit or more closely regulate the practice as overbroad.

Gary Barnett, executive director of the International Legal Finance Association, said in a statement the Chamber's report is "light on substance and heavy on speculation and pre-conceived notions." He said courts are well equipped to handle matters related to litigation finance and to protect sensitive information in litigation.

The Chamber's report recommended adding reporting requirements for litigation funding by foreign governments under the Foreign Agents Registration Act, and urged U.S. President Joe Biden's administration to issue an executive order forcing agents of foreign governments to disclose their association if funding litigation against U.S. companies.