Hudson Insights
Michaelmas Term · MMXXVI · 8 min
The Disclosure Turn
Louisiana, S.3826, a proposed Rule 26 amendment and the Civil Justice Council: why the regulation of funding favours the funder who drafted for daylight.
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By Nathaniel Forsythe, General Counsel and Chief Compliance Officer.
The regulation of third-party litigation funding has moved, in the space of about eighteen months, from a subject of academic interest to a live drafting problem. A funder that has organised its papers on the assumption that funding arrangements remain private is now exposed. A funder that has organised them on the assumption that any agreement it signs may one day be read by a judge is not. Hudson has always been in the second camp, and this note explains what has changed and why the change suits us.
What has actually happened
Four developments, taken together, constitute the turn.
The first is at state level. Louisiana adopted a litigation finance disclosure rule on 9 September 2026, joining the minority of states that now require the existence and, in some cases, the terms of a funding arrangement to be put on the record. Reuters, 9 September 2026. The direction of travel across the states is one way only.
The second is federal legislative. The Litigation Funding Transparency Act of 2026 (S.3826) would create a national disclosure regime, and it is one of several bills before Congress addressing transparency and, separately, foreign funding of litigation against domestic companies. S.3826, 119th Congress. Earlier measures in the same family include the Litigation Transparency Act of 2025 and the Protecting Our Courts from Foreign Manipulation Act of 2025.
The third is procedural, and is the one practitioners should watch most closely. At its meeting of 14 April 2026 the Advisory Committee on Civil Rules considered an amendment to Rule 26(a)(1)(A) requiring initial disclosure of any agreement under which a person has a right to receive compensation contingent on, and sourced from, the proceeds of a civil action, together with changes to Rule 16 case management and a new Rule 7 disclosure modelled on the District of New Jersey’s Local Rule 7.1.1. A rule of general application would do in one stroke what the local standing orders have been doing piecemeal since Chief Judge Connolly’s order in the District of Delaware.
The fourth is agency level. The International Trade Commission proposed amendments to its Section 337 adjudication rules on 30 April 2026, and the Patent Trial and Appeal Board already requires identification of all real parties in interest, a category that can include a funder that funds and directs a proceeding.
The same turn outside the United States
The United Kingdom’s Civil Justice Council reported in June 2025, putting the value of the domestic funding market at between one and a half and four and a half billion pounds and recommending a legislative reversal of PACCAR. The European Commission’s mapping study of funding across the Union identifies the same concerns, in the same order: conflicts of interest, the identity of the real party in interest, and control of settlement. Germany and China regulate funding lightly or not at all, and the Unified Patent Court has adopted no funding-specific rules, yet the concerns recited in each jurisdiction are indistinguishable. WilmerHale, 14 July 2026.
Why the turn favours the disciplined funder
Every proposal now on the table asks a funder to answer three questions on the record: who are you, what are you entitled to receive, and do you control the case. A funder whose agreements were drafted to survive that question set is indifferent to disclosure. A funder whose economics depend on the question not being asked is not.
Our own answers were settled before the rules were proposed. The Non-Interference Doctrine states, in the operative documents and not merely in the marketing, that we do not direct the litigation, do not select counsel after deployment, and do not approve or veto settlement. Our participation is expressed as a stated percentage of Net Proceeds, subject to a stated cap, so that what we are entitled to receive can be read off the face of the instrument rather than reconstructed from a schedule of multiples. Our conflicts, know-your-client and source-of-funds checks are conducted at intake, before a preliminary view is expressed, precisely so that the answer to the first question is available on demand.
There is one further point, and it is the reason the national-security strand of the legislation does not trouble us. The concern animating those bills is that an undisclosed foreign interest may be directing litigation against a domestic company. A funder that certifies its own beneficial ownership at the point of engagement, and that maintains the information barriers required where an affiliate funds counterclaims, has nothing to reconstruct after the fact.
What we tell counsel to do now
- Assume the funding agreement will be read. Draft the control provisions so that they survive a judicial reading rather than a commercial one.
- Check the forum before signature. A standing order or local rule in the district of filing may require disclosure that the agreement should anticipate rather than resist.
- Keep the privilege analysis separate from the disclosure analysis. Disclosing the existence of funding is not the same as disclosing diligence materials, and the two should not be conflated in the drafting.
- Preserve the common-interest position in writing at the outset. Retrofitting it once discovery has opened is rarely persuasive.
Regulation of this industry is not a threat to it. It is the mechanism by which the professional part of it is distinguished from the rest, and we would rather be distinguished on the record than trusted in the dark.
Sources
- Litigation finance disclosure rule in Louisiana expands transparency push in US courts, Reuters, 9 September 2026.
- Litigation Funding Transparency Act of 2026, S.3826, 119th Congress.
- Trends in Third-Party Litigation Funding: A Cross-Jurisdictional Analysis, WilmerHale, 14 July 2026.
- Review of Litigation Funding, Final Report, Civil Justice Council, June 2025.
- Section 337 Adjudication and Enforcement, 91 Fed. Reg. 23190, proposed 30 April 2026.
❦
N. Forsythe
Nathaniel Forsythe, General Counsel and Chief Compliance Officer.
The regulation of third-party litigation funding has moved, in the space of about eighteen months, from a subject of academic interest to a live drafting problem. A funder that has organised its papers on the assumption that funding arrangements remain private is now exposed. A funder that has organised them on the assumption that any agreement it signs may one day be read by a judge is not. Hudson has always been in the second camp, and this note explains what has changed and why the change suits us.
What has actually happened
Four developments, taken together, constitute the turn.
The first is at state level. Louisiana adopted a litigation finance disclosure rule on 9 September 2026, joining the minority of states that now require the existence and, in some cases, the terms of a funding arrangement to be put on the record. Reuters, 9 September 2026. The direction of travel across the states is one way only.
The second is federal legislative. The Litigation Funding Transparency Act of 2026 (S.3826) would create a national disclosure regime, and it is one of several bills before Congress addressing transparency and, separately, foreign funding of litigation against domestic companies. S.3826, 119th Congress. Earlier measures in the same family include the Litigation Transparency Act of 2025 and the Protecting Our Courts from Foreign Manipulation Act of 2025.
The third is procedural, and is the one practitioners should watch most closely. At its meeting of 14 April 2026 the Advisory Committee on Civil Rules considered an amendment to Rule 26(a)(1)(A) requiring initial disclosure of any agreement under which a person has a right to receive compensation contingent on, and sourced from, the proceeds of a civil action, together with changes to Rule 16 case management and a new Rule 7 disclosure modelled on the District of New Jersey’s Local Rule 7.1.1. A rule of general application would do in one stroke what the local standing orders have been doing piecemeal since Chief Judge Connolly’s order in the District of Delaware.
The fourth is agency level. The International Trade Commission proposed amendments to its Section 337 adjudication rules on 30 April 2026, and the Patent Trial and Appeal Board already requires identification of all real parties in interest, a category that can include a funder that funds and directs a proceeding.
The same turn outside the United States
The United Kingdom’s Civil Justice Council reported in June 2025, putting the value of the domestic funding market at between one and a half and four and a half billion pounds and recommending a legislative reversal of PACCAR. The European Commission’s mapping study of funding across the Union identifies the same concerns, in the same order: conflicts of interest, the identity of the real party in interest, and control of settlement. Germany and China regulate funding lightly or not at all, and the Unified Patent Court has adopted no funding-specific rules, yet the concerns recited in each jurisdiction are indistinguishable. WilmerHale, 14 July 2026.
Why the turn favours the disciplined funder
Every proposal now on the table asks a funder to answer three questions on the record: who are you, what are you entitled to receive, and do you control the case. A funder whose agreements were drafted to survive that question set is indifferent to disclosure. A funder whose economics depend on the question not being asked is not.
Our own answers were settled before the rules were proposed. The Non-Interference Doctrine states, in the operative documents and not merely in the marketing, that we do not direct the litigation, do not select counsel after deployment, and do not approve or veto settlement. Our participation is expressed as a stated percentage of Net Proceeds, subject to a stated cap, so that what we are entitled to receive can be read off the face of the instrument rather than reconstructed from a schedule of multiples. Our conflicts, know-your-client and source-of-funds checks are conducted at intake, before a preliminary view is expressed, precisely so that the answer to the first question is available on demand.
There is one further point, and it is the reason the national-security strand of the legislation does not trouble us. The concern animating those bills is that an undisclosed foreign interest may be directing litigation against a domestic company. A funder that certifies its own beneficial ownership at the point of engagement, and that maintains the information barriers required where an affiliate funds counterclaims, has nothing to reconstruct after the fact.
What we tell counsel to do now
Regulation of this industry is not a threat to it. It is the mechanism by which the professional part of it is distinguished from the rest, and we would rather be distinguished on the record than trusted in the dark.
Sources