Litigation Funding Transparency Act of 2026
- Sponsor
- Sen. Grassley, Chuck [R-IA]
- Committees
- Judiciary Committee (primary)
- Last action
- Feb 11, 2026
Bottom line
The bill aims to increase transparency in large-scale litigation by requiring disclosure of third-party funding sources, particularly foreign ones, and restricting funders' influence over legal strategy and access to sensitive information.
What it actually does
This bill amends title 28, United States Code, to mandate increased transparency and oversight of third-party litigation funding in certain civil actions, specifically class actions, multidistrict litigation (MDL), and consolidated proceedings involving at least 100 civil actions. It requires parties to disclose the identity of any third-party funder, especially if the funder is a foreign entity, and to produce funding agreements. Crucially, it prohibits funders from influencing litigation strategy or accessing protected discovery materials and applies these rules to cases pending on or after enactment.
Proponents argue
Proponents argue that the bill is essential to protect the integrity of the U.S. legal system from undue foreign influence and potential conflicts of interest. They contend that hidden financial interests in significant litigation can distort outcomes, and transparency ensures that courts and parties are aware of who is truly funding and potentially benefiting from legal actions, thereby promoting fairness and accountability.
Opponents contend
Opponents might argue that the bill creates unnecessary burdens on litigants and could chill access to justice for individuals and groups who rely on third-party funding to pursue complex and expensive claims against well-resourced defendants. They may also raise concerns that the disclosure requirements and restrictions on funder involvement could be overly broad, impacting legitimate legal finance arrangements and potentially deterring investment in meritorious cases.
The bill is concise and clearly structured, allowing an informed reader to understand its core provisions and implications within the time typically allocated for legislative review.
Section 2, adding 28 U.S.C. § 1747(a)
Definitions of Key Terms for Third-Party Litigation Funding Disclosure
This section establishes the foundational definitions for the new disclosure requirements. It defines 'covered civil action' to include class actions, multidistrict litigation (MDL), and consolidated proceedings with at least 100 civil actions. It also defines 'third-party funder' broadly to include commercial enterprises, foreign states, foreign persons, or sovereign wealth funds that provide monetary support or have a right to receive proceeds from litigation, while carving out specific exceptions for certain types of loans and non-profit legal organizations.
Supporters argue
Supporters argue that precise and comprehensive definitions are crucial to ensure the law effectively targets the intended entities and actions, preventing loopholes that could undermine the goal of transparency while protecting legitimate funding arrangements, such as those by non-profits or traditional lenders.
Critics contend
Critics might contend that the definitions are either overly broad, potentially capturing legitimate financial arrangements and deterring investment, or too narrow, allowing some problematic funding to escape scrutiny. They may also argue that the complexity of the definitions could lead to confusion and increased litigation over their interpretation.
Tradeoffs
The bill navigates the tension between casting a wide net to ensure comprehensive transparency and providing specific carve-outs to avoid stifling legitimate legal finance or pro bono work, which could inadvertently limit access to justice.
Section 2, adding 28 U.S.C. § 1747(b)
Mandatory Disclosure of Third-Party Funders and Agreements
This provision mandates that any party or counsel of record in a covered civil action must disclose in writing to the court and all other named parties the identity of any third-party funder. It specifically requires disclosure if the funder is a foreign state, foreign person, sovereign wealth fund, or a commercial enterprise controlled by such entities. Furthermore, it compels the production of any agreement concerning monetary support or rights to proceeds for inspection and copying, and requires these disclosures to be transmitted to the Administrative Office of the U.S. Courts (AOUSC).
Section 2, adding 28 U.S.C. § 1747(e) and (f)
Enforcement through Federal Rules of Civil Procedure and Public Reporting
This section integrates the new disclosure obligations with existing federal procedural rules, stating they are deemed requirements under Rule 26(a) of the Federal Rules of Civil Procedure, making them subject to Rule 37 sanctions for non-compliance. Additionally, it mandates the Administrative Office of the U.S. Courts (AOUSC) to submit and publicly post reports every 120 days. These reports must list identified foreign funders, case details, and the amount of monetary support provided, to Congress, the Attorney General, and the Principal Deputy Assistant Attorney General for National Security.
Section 2, adding 28 U.S.C. § 1747(g)
Prohibition on Funder Influence over Litigation Strategy
This section explicitly prohibits any third-party funder in a covered civil action from exerting, or being afforded the right to exert, influence, control, or discretion over a party's litigation strategy, decision-making, or settlement negotiations. To enforce this, the court presiding over the action is granted powers to hold in contempt any person who violates this prohibition.
Section 2, adding 28 U.S.C. § 1747(h)
Restrictions on Funder Access to Protected Discovery Materials
This section prohibits any third-party funder, or their agents or representatives, from obtaining, inspecting, copying, or otherwise viewing discovery materials that are subject to a protective order issued under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure, unless the court specifically authorizes such access. Similar to the influence prohibition, courts are granted contempt powers to enforce this restriction.
This clause excludes entities from the definition of 'commercial enterprise' (and thus from being a 'third-party funder') if their right or expectation of payment is limited to the repayment of a loan's principal, principal plus interest not exceeding the greater of 10% or three times the annual average 30-year constant maturity Treasury yield, or reimbursement of fees/grants paid to counsel.
Section 2, adding 28 U.S.C. § 1747(a)(2)(B)
Why it matters:This is standard legislative practice for precisely defining terms and including specific carve-outs to narrow the scope of a definition, ensuring the bill targets only specific types of litigation funding while protecting traditional lending or legitimate fee arrangements.
Case for: Supporters argue this carve-out prevents the bill from inadvertently capturing traditional lending practices or standard legal fee arrangements, ensuring that the legislation focuses on speculative litigation finance and foreign influence rather than legitimate financial services for legal matters.
Case against: Critics might argue that the specified interest rate cap could be arbitrary or that even these 'limited' arrangements can still exert influence or represent a significant financial interest, suggesting the carve-out is too broad and could allow some problematic funding to escape scrutiny.
Estimated impact: This provision significantly narrows the scope of entities considered 'commercial enterprises' for disclosure purposes, potentially excluding many traditional lenders or specific, less speculative, legal finance models from the bill's requirements.
This clause exempts actions brought or funded by non-profit legal organizations from being considered a 'covered civil action,' provided that the donations used to bring or fund the action were not provided by a foreign state, foreign person, sovereign wealth fund, or a commercial enterprise controlled by such entities.
Section 2, adding 28 U.S.C. § 1747(a)(3)(B)
Why it matters:This is a common legislative technique to precisely define the scope of a bill, ensuring that it targets specific concerns (commercial and foreign funding) without inadvertently impacting charitable or pro bono legal aid.
Case for: Supporters argue this exemption is crucial for protecting access to justice provided by non-profit organizations, ensuring the bill focuses on commercial and foreign funding concerns rather than hindering charitable legal aid, which often serves vulnerable populations.
Case against: Critics might argue that the restriction on foreign funding for non-profits is overly broad or difficult to track, potentially impacting legitimate international philanthropic support for legal aid organizations, even when no undue influence is intended.
Estimated impact: This provision preserves the ability of many non-profit legal organizations to operate without the new disclosure requirements, provided their funding sources meet the specified criteria, thus maintaining a pathway for pro bono and public interest litigation.
This section states that the amendments made by this Act shall apply to any case pending on or commenced after the date of enactment of this Act.
Section 3
Why it matters:This is a common legislative practice for specifying effective dates and applicability. However, applying new rules to pending cases can be politically contentious and operationally complex.
Case for: Proponents argue that applying the rules to pending cases ensures immediate transparency and integrity for ongoing litigation, especially those with long durations, where hidden funding interests could already be at play. This prevents funders from simply 'grandfathering in' existing arrangements.
Case against: Opponents would argue that applying new disclosure requirements and restrictions to existing agreements and ongoing cases creates undue burden, potentially disrupts established legal strategies, and could be seen as an unfair retroactive application of law. It could lead to significant legal challenges and motions for exceptions.
Estimated impact: This provision requires immediate compliance for potentially thousands of existing class actions and multidistrict litigations, leading to a flurry of disclosures, potential motions to compel, and adjustments to ongoing legal strategies and funding agreements.