Who Pays for the Inventory: Funding, Conflicts, and the Disclosure Gap

Assembling a mass arbitration inventory costs money before it earns any. Advertising to recruit claimants, intake systems to process them, vetting to confirm they are real and in scope, and the claimant share of provider fees all fall due long before a settlement exists to pay for them.

Increasingly, that capital comes from outside the firm.

The structure

Third-party litigation funders advance capital against a share of eventual proceeds. In mass arbitration the funded expenditure is characteristic: it is spent on building a portfolio rather than on litigating a case.

That distinction shapes everything downstream. A funder backing a single commercial claim is exposed to the outcome of that claim. A funder backing a mass arbitration campaign is exposed to the aggregate performance of an inventory — how many claimants were recruited, how many survived vetting, what the average resolution value turned out to be, and how quickly the whole book cleared.

Portfolio economics are rational and, on their own terms, unobjectionable. They are also structurally different from the economics of the claimants whose claims constitute the portfolio.

The conflict, stated precisely

The tension is well identified in the practitioner literature and remains unresolved.

A funder's return depends on aggregate recovery across the inventory. Counsel's professional duties run to each individual claimant.

Those two things point the same direction most of the time and diverge at the moments that matter most. An aggregate settlement that is excellent for the book may be poor for the subset of claimants with the strongest claims, whose individual value exceeds the matrix average. A decision to accept a global resolution at a discount in order to clear the book quickly serves the funder's internal rate of return; it may not serve a claimant whose claim would have been worth more on its own timetable.

Aggregate settlement rules address this by requiring individual informed consent. Whether that requirement can be meaningfully satisfied across an inventory of thousands of claimants recruited through digital intake, many of whom have had no substantive contact with counsel beyond an electronic signature, is a real question rather than a rhetorical one.

The disclosure gap

In litigation, funding disclosure has moved — unevenly, but perceptibly — toward transparency. Some federal district courts require disclosure by standing order; some states have legislated; the issue is live in rulemaking.

Arbitration has no equivalent. No uniform disclosure requirements have been established for third-party funding in arbitral proceedings, and the confidentiality that characterises arbitration works against the visibility that disclosure regimes are designed to create.

The consequences run in several directions. An arbitrator may be unable to assess conflicts arising from a funder's other engagements. A respondent negotiating an aggregate resolution may be unaware of the return threshold shaping the demand across the table. And a claimant, in principle the person with the greatest interest in knowing who else has a claim on their recovery, may know least of all.

Why this is growing

Two developments have increased the role of outside capital.

Intake has become cheap and scalable. Targeted advertising, automated document generation, and generative tools have compressed the cost of assembling an inventory. Cheaper intake means larger inventories, and larger inventories mean more capital deployed per campaign.

The fee reforms shifted risk. The AAA's January 2024 changes lowered initiation-stage costs but moved cost toward the merits stage. A campaign that once generated overwhelming settlement pressure at filing may now need to be funded through a longer process before it produces a return. Longer runways favour institutional capital over firm balance sheets.

What to watch

Three developments would change the picture materially.

Provider disclosure rules. Either major provider could require disclosure of funding arrangements in mass proceedings. It would be a significant step and neither has taken it.

Judicial attention at the enforcement stage. Courts asked to enforce or vacate awards, or to approve aggregate resolutions, may probe funding arrangements as part of assessing whether individual claimants were adequately represented.

Ethics guidance on volume intake. The gap between aggregate settlement rules written for dozens of clients and practice conducted across thousands is not stable, and it is the kind of gap that eventually produces guidance.

For now the position is straightforward to state and uncomfortable to sit with: outside capital is a growing part of how mass arbitration is financed, the structural conflict is acknowledged on all sides, and there is no mechanism that reliably surfaces it.