Nine states pursue third-party litigation reform -

Third-party litigation financing is the subject of a growing number of state legislative pursuits around the nation.

The term is used to describe instances when third-party litigation-financing firms pay for lawsuits they feel have a good chance of being won. In many cases, the practice makes reaching a reasonable agreement more difficult due to the anonymous third party’s financial stake in the case.

Funding companies 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 these cases are funded by financing firms with exploitative motives. At the very least, OOIDA has argued, plaintiffs should be required to disclose any financing agreement associated with a civil action.

H3: State action to address concern

States from Montana to West Virginia have acted in recent years to adopt rules to limit litigation financing. Many more states are pursuing action to do the same.

Georgia

One bill halfway through the Georgia statehouse would set stricter disclosure requirements for litigation financiers.

“Our civil justice system should not be treated as a lottery where litigation financiers can bet on the outcome of a case to get a piece of a plaintiff’s award,” Sen. John F. Kennedy, R-Macon, said in prepared remarks.

SB69 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.

Senate lawmakers voted unanimously to advance the bill, which would also require third-party litigation-funding agreements to be disclosed to the other party in a case.

Another provision would mandate that all litigation financiers be registered in the state. Entities affiliated with a “foreign adversary” would be barred from registration.

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.

“Through unregulated third-party financing, foreign-affiliated financiers are manipulating our legal system and influencing court outcomes,” Kennedy said. “Right now, these firms operate with virtually no oversight.”

The bill has moved to the House Rules Committee. SB69 is part of a two-bill package that addresses tort reform.

Today, we passed SB 69, the “Georgia Courts Access and Consumer Protection Act.” I was proud to sponsor this legislation that will regulate third-party litigation financing practices, ensure transparency in our legal system, and bring us one step closer to protecting consumers!

— John F. Kennedy (@johnfkennedyga) February 27, 2025

Arizona

A bill nearing passage in the Arizona Senate would place guardrails for third-party litigation funders.

State law does not require disclosure of whether outside dollars are being used to fund a lawsuit.

The bill, SB1215, would standardize disclosures for litigation financing in the state. A requirement would be set that all funding agreements be disclosed to the court, to all parties involved in litigation and to members of a class action.

Litigation financiers would be forbidden from paying or offering to pay a commission or referral fee to legal counsel, to a law firm or to a licensed health care provider for a referral.

A change made on the Senate floor removed the prohibition on a litigation financier from receiving directly or indirectly a larger share of the proceeds of an action than the named parties to the action that is subject to a litigation-financing agreement.

The bill awaits a final floor vote. If approved, SB1215 would head to the House.

Iowa

Progress is being made in the Iowa Senate to regulate third-party litigation financing.

SF586 would set clear rules on contract terms. Consumers would be permitted to cancel a contract within five business days without penalty.

A 25% cap is included on the amount a financier can recover from a judgement or settlement.

The Senate Judiciary Committee voted Monday, March 10, to advance the bill for further consideration.

Kansas

The Kansas Senate has advanced a bill that is touted to shine a light on third-party litigation financing.

SB54 would require the disclosure of litigation-funding agreements within 30 days of execution. All contracting parties to an agreement must be disclosed.

Notification must be made available to all parties involved in the litigation.

The bill has moved to the House Judiciary Committee.

Maryland

In Maryland, the Senate Finance Committee met recently to discuss legislation that addresses problems with third-party litigation-funding contracts.

To help counter the problem, SB985 would require specific disclosures and impose fiduciary duties on financiers involved in certain cases.

Payments, fees or commissions to individuals referring consumers to third-party financiers would be banned. Strict disclosure requirements are also outlined.

“Third-party litigation financing has enabled plaintiffs, who would struggle to fund litigation under normal circumstances, to pursue their claims in court,” Sen. Alonzo Washington, D-Prince George’s, testified. “However, third-party litigation-financing firms have used their leverage over plaintiffs to exercise control over litigation, and disguise the terms of the contracts from consumers.”

He added that financing firms often look to maximize their profits by charging exorbitant interest rates and attempting to collect fees even when litigation fails.

“All of these practices are unfair and should be outlawed.”

His bill would require each litigation-financing contract to disclose information that includes notifying consumers of their right to cancel agreements, providing itemization of charges, specifying the total funding amount and confirming that no other charges beyond those listed in the contract would be required.

The House version, HB1274, is in the House Economic Matters Committee.

Ohio

Ohio legislation targets individuals and special interests who “invest” in litigation funding in exchange for a percentage of the ensuing settlement or judgment.

Statute does not require third-party financing agreements to be disclosed to other parties in the litigation.

HB105/SB10 would help address the issue by forbidding financers from directing any decisions of a legal claim, including appointing or changing counsel, litigation strategy and settlement or other resolution.

Foreign entities and nationals also would be prohibited from entering into a commercial litigation-financing agreement.

Oklahoma

The Oklahoma House voted 88-2 to advance a bill that addresses third-party litigation financing.

A study by the Oklahoma Chamber Research Foundation showed that excessive tort claims that include third-party funding result in a $3.7 billion annual loss in gross production in the state.

To help counter the problem, HB2619 is aimed at strengthening legal protections for businesses and ensuring 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.

“This bill strengthens the integrity of Oklahoma’s legal system and prohibits foreign adversaries, like Russia and China, from attempting to fund litigation that could undermine the fairness of our courts,” stated Rep. Erick Harris, R-Edmond.

New Hampshire

A New Hampshire House bill on the move would regulate third-party litigation financing.

The House Commerce and Consumer Affairs Committee approved a bill that specifies disclosure, registration, funding company and attorney duties, as well as limitations, violations and other concerns.

Additionally, a disclosure requirement would be put in place for litigation-financing agreements. Specific prohibitions related to funding agreements would also be listed.

HB733 has moved to the House Finance Committee.

Rhode Island

Rhode Island legislation addresses what is described as “negligible oversight” of third-party litigation-funding companies.

The House bill, H5221, would create a regulatory framework, disclosure requirements and consumer protections around third-party financing.

“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 at a recent hearing.

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%.

Additionally, litigants often receive a tiny fraction of winning verdicts or even owe money due to unfair financing terms. A foreign component also raises concern.

The Senate version of the bill is S534. LL