Delaware To Become Less Popular for NPEs?

This past Monday, Chief Judge Connolly of D. Del issued a standing order for all pending litigation before him requiring disclosure of certain financial relationships from litigating parties. The information is due 30 days from filing of an initial pleading, and includes arrangements made between parties and third party funders.

While eminently sensible in terms of identifying true decision makers for settlement purposes, or identifying potential conflicts of interest, the new requirements will surely send NPEs screaming into the night.

The Order (here), explains that the required disclosure is triggered:

[W]here a party has made arrangements to receive from a person or entity that is not a party (a “Third-Party Funder”) funding for some or all of the party’s attorney fees and/or expenses to litigate this action on a non-recourse basis in exchange for (1) a financial interest that is contingent upon the results of the litigation or (2) a non-monetary result that is not in the nature of a personal loan, bank loan, or insurance:

(a) The identity, address, and, if a legal entity, place of formation of the Third-Party Funder(s); (b) Whether any Third-Party Funder’s approval is necessary for litigation or settlement decisions in the action, and if the answer is in the affirmative, the nature of the terms and conditions relating to that approval; and (c) A brief description of the nature of the financial interest of the Third-Party Funder(s).

2. Parties may seek additional discovery of the terms of a party’s arrangement with any Third-Party Funder upon a showing that the Third-Party Funder has authority to make material litigation decisions or settlement decisions, the interests of any funded parties or the class (if applicable) are not being promoted or protected by the arrangement, conflicts of interest exist as a result of the arrangement, or other such good cause exists.

Presumably a “Third-Party Funder” would also include contingency counsel in accordance with the definitions above — a double whammy for NPEs.

You don’t have to be Nostradamus to see the likely chilling impact on future NPE filings in Delaware. Of course, any NPE filing in Delaware is likely doing so because Texas is not a viable venue option….where do those plaintiffs go next?