This year, about half of all states have at least considered legislation that addresses concern about third-party litigation financing.
The legal term is used to describe instances when litigation financiers pay for lawsuits they feel have a good chance of being won. In return, investors receive a portion of an award or settlement.
In many cases, the practice makes reaching a reasonable agreement more difficult because of the anonymous third party’s financial stake in the case.
Litigation financiers back many types of commercial and consumer claims, including truck-related incidents.
The Owner-Operator Independent Drivers Association has pointed out that truck drivers – and the people who employ, represent and insure them – are often the target of misguided, excessive and expensive litigation related to personal injury cases. The ripple effects are felt across the entire supply chain.
Many of such cases are funded by financiers with exploitative motives. OOIDA has argued that at the very least, plaintiffs should be required to disclose any financing agreement associated with a civil action.
In recent years, states all over the map have acted to adopt rules to regulate the litigation-financing industry.
Kansas
Kansas is the most recent state to enact a law described as shining a light on third-party litigation financing.
Gov. Laura Kelly acted last week to sign into law a bill to require the disclosure of litigation-funding agreements within 30 days of a legal action or 30 days after execution of a funding agreement, whichever is later. All contracting parties to an agreement must be disclosed to courts.
Any foreign person or “foreign country of concern” providing direct or indirect funding must also be disclosed.
The U.S. Chamber of Commerce reported that third-party litigation financing poses national security risks. The agency said that foreign groups could be using financers to gain access to information or evade sanctions.
China, Iran and Russia are included in the chamber’s definition of a foreign country of concern.
The Kansas Chamber of Commerce previously testified at the statehouse that the new rules would enhance transparency by allowing discovery of persons and entities with a financial stake in a court proceeding.
The new law takes effect July 1.
Georgia
Georgia is close behind Kansas in the pursuit to implement stricter disclosure requirements for litigation financiers.
A bill on the Georgia governor’s desk would prohibit litigation funders from having any input into the litigation strategy or from taking the plaintiff’s whole recovery and would make sure plaintiffs are aware of their rights. It would also require that financing agreements be disclosed to the other party in a case.
Sen. John F. Kennedy, R-Macon, has said the state’s civil justice system should not be treated as a “lottery where litigation financers can bet on the outcome of a case to get a piece of a plaintiff’s award.”
One more provision would mandate that all litigation financiers be registered in the state. Entities affiliated with a “foreign adversary” would be barred from registration.
“Through unregulated third-party financing, foreign-affiliated financiers are manipulating our legal system and influencing court outcomes,” Kennedy said. He added that these firms operate with virtually no oversight.
The bill, SB69, is part of a tort reform package sent to Gov. Brian Kemp for his signature.
Thankful for our partners in the General Assembly who gave final passage to SB 69 today, further ensuring fairness in our courtrooms and a fair shake for job creators. This second piece of our tort reform package will further help us protect Georgia families, businesses, and… pic.twitter.com/nzZEgO4lqJ
— Governor Brian P. Kemp (@GovKemp) March 31, 2025
California
In California, an Assembly bill addresses third-party litigation financing.
Assembly member Michelle Rodriguez, D-Ontario, said that lawsuit financiers are an “unregulated, shadow financial sector in California.”
“Lawsuit financing threatens the ability of California consumers to recover award moneys to which they are entitled,” Rodriguez wrote in her bill.
To help address the issue, AB743 would require financiers to obtain a license from the state.
Rodriguez said licensing by the California Department of Financial Protection and Innovation would help to ensure “only financially responsible, law-abiding financiers can operate in California and prevent exploitative practices, market manipulation and fraud.”
She added that many lawsuit financiers are hedge funds, sovereign wealth funds and other financiers based outside the U.S., including in Russia and China.
The bill is in the Assembly Banking and Finance Committee.
Colorado
A bill introduced last week in the Colorado House focuses on foreign third-party litigation financing.
HB1329 would require foreign financiers to provide certain information to the Colorado Attorney General. The bill creates a deceptive trade practice for violations.
Information provided to the state must identify funders and include a copy of litigation-financing agreements.
Materials must be submitted when civil actions are filed or within 35 days, if civil actions are filed prior to the implementation of financing agreements.
Funders would be prohibited from using a domestic entity to provide funds and from interfering with the right of appropriate parties to direct the course of a civil action.
Failure to comply with the rules would make any financing agreement void and would constitute a deceptive trade practice, which could result in a fine of up to $20,000.
The House Judiciary Committee voted unanimously on Tuesday, April 15 to advance the bill to the House floor.
Louisiana
One year removed from enactment of a rule to regulate foreign involvement in third-party litigation financing in Louisiana, a related reform pursuit is underway at the statehouse.
The new bill, HB432, would prohibit all financiers with a contract or agreement from receiving or recovering, whether directly or indirectly, any amount greater than an amount equal to the share of the proceeds recovered by a plaintiff or claimant in a civil action.
The rule would also apply to an administrative proceeding, legal claim or other legal proceeding.
Any attorney who enters into a litigation-financing contract or agreement must disclose the information to the client represented in a proceeding within 30 days after being retained or within 30 days after entering into the litigation-financing agreement, whichever is earlier.
The bill is scheduled for consideration Tuesday, April 22 in the House Civil Law and Procedure Committee.
New York
The state of New York does not regulate third-party litigation financing. The Senate voted unanimously to advance legislation that would remove the distinction.
S1104 would require the disclosure of financing agreements.
Senate Transportation Committee Chair Jeremy Cooney, D-Rochester, wrote that the rule is needed to address “bad actors” who often act in bad faith and charge exorbitant fees for services. He said this would change once legislation is enacted to provide a “set of robust provisions that would tightly regulate the services.”
Financiers would be required to submit a registration application containing “all the information that the Department of State needs to evaluate the character, fitness and financial stability of the applicant.”
The bill has moved to the Assembly Consumer Affairs and Protection Committee.
A related Assembly bill, A7599, is in the Assembly Judiciary Committee.
North Carolina
A North Carolina House bill focuses on third-party litigation financing.
Dubbed the “Consumers in Crisis Protection Act,” H925 includes a rule that would prohibit consumers from using financier funds to pay for attorneys’ fees, legal filings and legal document preparation, as well as any other litigation-related expenses.
Legal funding companies would be required to register with the state. Registration would include a fee and proof of financial stability.
Disclosure of litigation-funding agreements would be required within 30 days of a legal action or 30 days after implementation of an agreement.
A consumer would not be responsible for repaying a financier any amount in excess of net proceeds. If a consumer obtains no recovery from the legal claim, the consumer would not be required to repay a funding company.
Charges a financier could collect would also be limited.
Ohio
Ohio legislation addresses individuals and special interests who invest in litigation funding in exchange for a percentage of the ensuing settlement or judgement.
State law does not require third-party litigation-financing agreements to be disclosed to other parties in the litigation.
Two bills, HB105/SB10, would help address the issue by forbidding financing firms from directing any decisions of a legal claim, including appointing or changing counsel, litigation strategy and settlement or other resolution.
Additionally, foreign entities would be prohibited from entering into a litigation-funding agreement.
Both bills remain in committee.
Oklahoma
One bill halfway through the Oklahoma Legislature addresses third-party litigation financing.
A study by the Oklahoma Chamber Research Foundation showed excessive tort claims that include third-party funding result in a $3.7 billion annual loss in gross production in the state.
To address concerns, HB2619 is intended to strengthen legal protections for businesses and to ensure fairness in civil litigation.
Disclosure of funding agreements would be required upon request in discovery, including an affidavit certifying whether funds originate from a foreign state or entity.
Rep. Erick Harris, R-Edmond, said the bill is needed to strengthen the integrity of the state’s legal system and to prohibit foreign adversaries from attempting to fund litigation that could undermine the fairness of courts.
House lawmakers voted overwhelmingly to advance the bill. It is in the Senate Judiciary Committee with an April 24 deadline to advance from committee.
Rhode Island
In Rhode Island, legislation addresses what is described as “negligible oversight” of third-party litigation-funding companies.
H5221/S534 would create a regulatory framework, disclosure requirements and consumer protections around third-party financing.
At a House Judiciary Committee hearing, lawmakers were told that litigants often receive a tiny fraction of winning verdicts or even end up owing money because of unfair financing terms. Additionally, a foreign component also raises concern.
“In essence, these private finance firms turn the judicial system into an investment market, as an otherwise uninterested party bets on the outcome of litigation for prospective profit,” the American Property Casualty Insurance Association testified.
The group added that the financing market is largely unregulated. Financers often charge rates that can be six times the Rhode Island contractual usury limit of 21%. LL
More Land Line coverage of state news is available.
Credit: Source link
