States around the country continue to take steps to address concerns about third-party litigation financing.
So far this year, states that include Colorado, Georgia, Kansas and Oklahoma have adopted rules to regulate third-party litigation funding.
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. At the very least, OOIDA believes plaintiffs should be required to disclose any financing agreement associated with a civil action.
Arizona
Arizona is the latest state to enact guardrails for third-party litigation funders.
State law has not required the disclosure of whether outside dollars are being used to fund a lawsuit.
Gov. Katie Hobbs signed into law a bill to 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.
Previously SB1215, the new law also forbids foreign-influenced funding directly or indirectly.
Supporters said the new rule helps to strengthen the integrity of the state’s legal system and prohibit foreign adversaries from attempting to fund litigation that could undermine the fairness of courts.
The Arizona Trucking Association described the new law as “commonsense legislation that brings much-needed accountability to third-party litigation financing practices.”
The group added that the new rule “ensures that those who are directly impacted by a lawsuit maintain their control of their case – not outside financiers with hidden agendas.”
Litigation financing measure becomes law, delivering win for Ariz. legal systemhttps://t.co/3MFhmZ2qYi
— Chamber Business News (@chamberbiznews) June 30, 2025
Montana
A new Montana law expands on a two-year-old rule that covers third-party litigation financiers.
In 2023, Gov. Greg Gianforte signed into law a bill to require disclosure of financing agreements in all civil cases. Litigation funders are also jointly liable for costs.
Additionally, the state has a 25% cap on the amount a financier may receive or recover from a lawsuit.
SB511 is touted to further limit “nuisance lawsuits” and reduce litigation risks.
Specifically, lawsuit financiers are prohibited from having influence on decisions about counsel, expert witnesses, litigation strategy and settlement or other resolutions.
Another provision requires the disclosure and registration of any third-party funders that could include a foreign investment firm. Also, any “foreign adversary” or “foreign person of concern” is barred from financing litigation in the state.
New York
New York could soon be added to the list of states to take action on third-party litigation funding.
The state does not regulate third-party funding.
A bill headed to the governor’s desk would change that distinction by setting contract and disclosure requirements.
Sen. 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 guarantee that victims receive a fair settlement.
California
A California bill that could soon become law addresses third-party litigation financing.
Assembly lawmakers voted unanimously to advance a bill that would require commercial litigation financiers to obtain a license from the state. The bill, AB743, has moved to the Senate.
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.
Rodriguez told Assembly lawmakers that while originally intended to provide financial assistance to primarily noncommercial plaintiffs, commercial lawsuit financing 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. LL
More Land Line coverage of state news is available.
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