Third-party litigation is topic of statehouse legislation -

Concern about third-party litigation financing is the subject of state legislative pursuits across the country.

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.

OOIDA backs reform

The Owner-Operator Independent Drivers Association supports legislative action to increase transparency in civil actions without impacting the ability of any plaintiff from pursuing a civil action. The 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.

Many of these cases are funded by outside parties with exploitative motives. OOIDA has noted that at the very least, plaintiffs should be required to disclose any financing agreement associated with a civil action.

Third parties can negatively affect productive negotiations and also can significantly and unnecessarily increase the cost of a settlement.

The ripple effects are felt across the entire supply chain.

Recent state action on issue

In the past year, multiple states have adopted rules to put limits on litigation financing. Statehouse action was taken in Indiana, Louisiana and West Virginia.

In 2018, Wisconsin was the first state to require disclosure of third-party litigation funding. Montana adopted a similar rule in 2023.

Arizona

An Arizona bill is focused on placing guardrails for third-party litigation funders.

Statute does not require disclosing whether outside dollars are being used to fund a lawsuit.

SB1215 would standardize disclosures for litigation financing across Arizona. Specifically, a requirement would be put in place that all funding agreements must be disclosed to the court, to all parties involved in litigation and to members of a class action.

Additionally, a litigation financier would be prohibited 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.

Advocates have said the protection would preserve consumer control by ensuring that financers cannot influence the outcome of decisions.

Georgia

Georgia Gov. Brian Kemp recently unveiled a tort reform bill package that is touted to level the playing field in courtrooms. Third-party litigation financing is among the issues addressed.

The governor highlighted that his reforms 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.

Additionally, third-party litigation funding agreements would have to be disclosed to the other party in a case.

The Senate Judiciary Committee met recently to consider the bill package. The committee voted to advance the legislation to the full Senate.

Maryland

Identical Maryland bills focus on third-party litigation-funding contracts.

SB985 and HB1274 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.

Each litigation-financing contract would be required to disclose information 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 Economic Matters Committee is scheduled to consider HB1274 during a March 4 hearing. The Senate Finance Committee is scheduled to discuss SB985 on March 6.

New Hampshire

In New Hampshire, a House bill would regulate third-party litigation funding.

Dubbed the Third-Party Litigation Funding Transparency Act, HB733 specifies disclosure, registration, funding company and attorney duties and limitations, violations and other concerns.

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

The House Commerce and Consumer Affairs Committee met recently to discuss the topic.

Ohio

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

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

Bill supporters have said this lack of disclosure allows improper monetary influence in litigation that drives up legal costs and judgements.

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

Additionally, foreign entities and nationals would be prohibited from entering into a commercial litigation financing agreement.

Advocates have said it is vital to the integrity of courts to prevent foreign interference and legal tampering.

The U.S. Chamber of Commerce reported that third-party litigation financing poses national security risks. The agency added that foreign groups could be using financers to gain access to information or evade sanctions.

The bill awaits consideration in the Ohio Senate Judiciary Committee. The House version is HB105.

Oklahoma

Multiple Oklahoma bills tackle the topic.

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

The Senate Judiciary Committee approved a bill that is aimed at strengthening legal protections for businesses and ensuring fairness in civil litigation.

Sponsored by Senate Majority Floor Leader Julie Daniels, SB625 would require disclosure of third-party litigation-funding agreements upon request in discovery, including an affidavit certifying whether funds originate from a foreign state or entity.

“Oklahoma must continue to foster a fair and predictable legal environment,” Daniels, R-Bartlesville, said in prepared remarks.

SB625 next heads to the Senate floor.

The House version of the legislation, HB2619, is in the House Civil Judiciary Committee. LL