Junk litigation on the hotseat at statehouses

For many small-business owners, one junk lawsuit could mean the end of the road.

Even if they did nothing wrong, the cost to fight litigation can be so high that owners feel forced to settle. Trial lawyers know that – and they use it.

Now, state lawmakers are digging into who’s really funding these lawsuits. The actions benefit trucking operations.

The Owner-Operator Independent Drivers Association says that truck drivers – and the companies that hire, represent, or insure them – are often slammed with costly personal injury claims. Those bills don’t just hit trucking. They ripple through the entire supply chain.

OOIDA also warns that some lawsuits are backed by outside investors chasing big payouts. That can drag cases out and drive costs even higher.

At the very least, the Association says juries and courts should know when a lawsuit is being bankrolled by outside money.

Over the past year, at least six states have cracked down on lawsuit funding. More could be next.

New York

New York just stepped in.

Gov. Kathy Hochul signed a new law that sets clear rules for consumer litigation funding and demands full disclosure before anyone signs a deal.

Assemblyman Bill Magnarelli, D-Syracuse, said the industry used to be the Wild West. With no rules, “bad actors” moved in, charged sky-high fees and played dirty.

Starting June 17, that changes.

The new law caps the amount of funding companies can take. They can collect no more than 25% of a case’s gross recovery.

Funding companies must also register with the state and prove they meet standards for “character and fitness.”

They can’t mislead people in ads. And they can’t meddle in settlement decisions.

Supporters say the law reins in abuse and helps make sure victims don’t lose big chunks of their payout to hidden players.

Rhode Island

Rhode Island lawmakers are weighing their own crackdown.

S2494 would require litigation funders to register with the state.

Supporters say that kind of transparency is badly needed, especially for small businesses that struggle to fight lawsuits backed by deep pockets.

The bill would force funders to clearly spell out fees, cancellation rights and other contract details.

It would also ban them from paying referral fees to lawyers or medical providers.

And in personal injury cases, the existence of outside funding would no longer be hidden.

Sen. Victoria Gu, D-Charlestown, said it is time to act on litigation financing.

“It’s grown from a niche business into a major source of money for lawsuits,” Gu said. “This is trying to put in some common-sense consumer protections.”

The bill is still in committee.

Missouri

Missouri lawmakers are going even further – especially when it comes to foreign money.

One bill, HB3205, would block foreign players or their front men from funding lawsuits in the state. It would also require funders to share legal responsibility for costs or penalties tied to the cases they bankroll.

Break the rules? It could mean serious penalties – even a felony charge for willful violations involving foreign actors.

Any deal made in violation of the law would be tossed out.

“Missourians deserve to know who is really behind a lawsuit,” said Rep. David Casteel, R-St. Louis.

A separate Senate bill, SB881, would also make litigation funders jointly responsible for court-ordered costs. It would ban anyone tied to foreign entities from taking part in lawsuit funding.

Sen. Curtis Trent, R-Battlefield, is the bill’s sponsor. He said the bill aims to target hostile and frivolous litigation.

“Increasingly, you have bad-faith foreign actors that are willing to use our court system as a sword against Missouri businesses,” Trent said. “This measure will stop that practice.”

The bill has cleared the committee and now awaits more action in the House. LL