Delaware’s federal court forced litigation funders into the open. Its most important court still lets them hide

Delaware's federal court has made it mandatory for litigation funders to be transparent in their operations, as the state's most important court, the Chancery Court, has allowed them to hide their involvement in lawsuits. Virtu Financial recently announced its relocation from Delaware to Texas, following a series of exits by at least 30 companies over the last two years.

The company's move was prompted by Laster's denial of its motion to dismiss in pending litigation, highlighting the issue of undisclosed litigation funding. The Delaware Chancery Court, once known for its predictability and consistency, has faced criticism due to judicial overreach in a series of decisions. While the state legislature has attempted to address this issue through Senate Bill 21, certain Chancery judges have continued to defy the will of the legislature and the Delaware Supreme Court has undermined efforts to overturn erroneous decisions by remanding cases back to the same judges.

The lack of transparency regarding litigation funders, who often have strategic interests in prolonging litigation, poses significant risks. The potential harms include pushing litigation funders to resist settlement and prolong disputes, which can lead to increased costs for litigants and judicial resources. Moreover, undisclosed litigation funders may not be motivated solely by financial profit and could underwrite suits to impose burdensome costs on competitors or even foreign states, raising concerns of national security.

While the global litigation finance market has seen exponential growth, its opaque nature and strategic deployment have become perverted from its original noble intentions. The Delaware Chancery Court, which matters most to American business, should uphold the principles of transparency and public disclosure, ensuring that the judiciary remains trustworthy and accountable.