Third-party litigation financing continues to receive state attention

States around the country continue to take action to address concerns about third-party litigation financing.

About half of all states have at least considered legislation this year to address concerns about third-party litigation financing. In 2025, Georgia, Kansas and Oklahoma have already adopted rules to regulate the litigation-finance industry.

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.

Such cases often are funded by financiers with exploitative motives. OOIDA believes that at the very least, plaintiffs should be required to disclose any financing agreement associated with a civil action.

Colorado

Colorado is the latest state to adopt rules to regulate third-party litigation financing. The new law focuses on setting limitations on financing firms and addressing concern about foreign third-party firms.

Previously HB1329, the new law requires foreign financiers to provide certain information to the Colorado attorney general. Information provided to the state must identify funders and include a copy of litigation-financing agreements.

Foreign financiers are a concern in Colorado and elsewhere for the potential to fund litigation that could undermine the fairness of courts.

The new Colorado law also requires materials to be submitted when filing civil actions, or within 35 days if civil actions are filed prior to the implementation of financing agreements.

Third-party litigation funders soon will be prohibited from using a domestic entity to provide funds or interfering with the right of appropriate parties to lead the course of a civil action.

Failure to comply with the rules will make any financing agreement void and constitute a deceptive trade practice. The finding of a deceptive trade practice could result in a fine of up to $20,000.

“Third-party influence in civil litigation poses a significant risk to Colorado’s economy and national security,” Colorado Chamber President Loren Furman said in prepared remarks. “These safeguards will help protect the integrity of our legal system, ensuring decisions are made in the best interest of justice.”

The new rules take effect Aug. 5.

Arizona

Arizona could soon be added to the list of states to act this year to place guardrails for third-party litigation funders.

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

Senate and House lawmakers voted unanimously to advance a bill to the governor’s desk that would prohibit litigation financiers from paying or offering to pay a commission or referral fee to legal counsel, a law firm or a licensed health care provider for a referral.

SB1215 would also forbid foreign-influenced funding arrangements.

The Arizona Trucking Association described the bill as “commonsense legislation that brings much-needed accountability to third-party litigation-financing practices.”

“SB1215 ensures that those who are directly impacted by a lawsuit maintain their control of their case – not outside financiers with hidden agendas,” ATA President Tony Bradley stated.

The bill was sent to Gov. Katie Hobbs this week. The governor can sign the bill into law, veto it or allow it to become law without her signature.

California

The California Assembly voted unanimously to advance a bill to the Senate that addresses third-party litigation financing.

Assembly member Michelle Rodriguez, D-Ontario, said that lawsuit financiers are an “unregulated, shadow financial sector” in the state.

“The absence of any regulation in the lawsuit-financing industry poses substantial risks to California consumers, the legal system and the state’s economic stability,” Rodriguez wrote.

To help address concerns, AB743 would require commercial-litigation financiers to obtain a license from the state.

Rodriguez recently told an Assembly committee that while the bill originally was intended to provide financial assistance to primarily noncommercial plaintiffs, the financing of commercial lawsuits has exploded.

She 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.”

Rodriguez added that many lawsuit financiers are hedge funds, sovereign wealth funds and other financiers based outside the United States.

“The absence of licensing requirements means that California policymakers and regulators have no means to identify or gauge which foreign and other lawsuit financiers are active in this state,” Rodriguez said.

AB743 would not require disclosure of the lawsuits financed.

New York

The state of New York does not regulate third-party litigation financing. One Assembly bill would remove the distinction.

A804 would set contract and disclosure requirements.

Senate Transportation Committee Chair Jeremy Cooney, D-Rochester, wrote the rule is needed to address “bad actors” who often act in bad faith and charge exorbitant fees for services. He said that 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 required by the Department of State to make an evaluation of the character and fitness of the applicant company.”

Supporters have said that A804 would hold financiers accountable through penalties and would guarantee that victims receive a fair settlement.

Assembly and Senate lawmakers approved the bill. It next heads to the governor.

Ohio

An Ohio Senate bill addresses individuals and special interests who invest in litigation funding in exchange for a percentage of the ensuing settlement or judgment.

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

SB10 would help address the issue by requiring disclosure. Financing firms would also be forbidden 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.

Advocates have said the bill would promote transparency, place parties in equal bargaining positions and protect consumers.

The bill has received two hearings this month in the Senate Judiciary Committee. LL