Litigation Funding

Third-party litigation funding (TPLF) is a practice where a third-party entity provides funding to a litigant (typically a plaintiff) or law firm in exchange for a share of the potential recovery in a lawsuit. These investments are made on a non-recourse basis meaning plaintiffs do not have to repay the funding if their lawsuit is not successful. This phenomenon has gained significant attention in recent years, with proponents praising it as a way to level the playing field for plaintiffs who may lack the resources to pursue litigation, while critics raise concerns about its ethical implications and potential impact on the legal system. The practice of TPLF is common in Europe and has experienced a significant spike in the United States in the last decade. Third-party litigation funding is estimated to be a multi-billion dollar industry, but despite its ever-increasing popularity, it is still largely unregulated and subject to very little oversight. The lack of transparency characterizing the industry makes it difficult for judges and other parties to know who all has an interest in the outcome of a case. Furthermore, concerns have been raised by some insurers, businesses, and lawmakers that the introduction of a third-party funder can adversely alter the dynamic between plaintiff and attorney by encouraging dubious litigation in the hopes of significant financial gain, the rejection of reasonable settlement offers, and the shifting of control over legal strategy from the plaintiff to the funding entity and so on.

Background

Third-party litigation funding (TPLF) is the practice of a third-party, such as a hedge fund or investment firm, providing funds to plaintiffs to finance litigation. If the plaintiff is awarded a monetary settlement, then the investor is paid out of the winnings, and, generally, at a high rate of return. Investors will consider a case to establish its merits and determine the probability of success. If the litigant loses the case, then the funding entity forfeits its investment, and the litigant owes them nothing. The practice of litigation funding originated in Australia in the mid-1990s, quickly spread throughout Europe, and eventually made its way to the U.S.

There are two primary forms of TPLF: consumer and commercial litigation funding. Consumer arrangements are between a funder and an individual, usually a plaintiff in a tort or personal injury case. TPLF can be helpful in cases where a plaintiff without sufficient means would otherwise get crushed or lowballed by a defendant with deep pockets. The funder provides a relatively small amount of money (usually less than $10,000) for the plaintiff to use as needed throughout the duration of the case. Commercial TPLF arrangements are typically between a litigation funder and a corporate plaintiff or law firm and involve commercial claims, such as breach of contract and antitrust violations. The funding amount is typically in the millions of dollars for these arrangements. As the industry has evolved, litigation funding companies have created different types of funding and payment structures in order to accommodate the clients that commercial litigation funders service. One of the more popular funding structures is a portfolio, which allows a law firm to receive funding for multiple cases in a variety of practice areas. Although this structure results in lower returns for each individual case, the litigation funder has the opportunity to collect capital from a variety of cases in unrelated areas of law, via cross-collateralization, typically leading to greater returns on investment.

Most litigation funders are private firms that obtain investment capital from a variety of investors, such as endowments, pensions, and sovereign wealth funds. With regard to sovereign wealth funds, critics of TPLF are particularly concerned about the potential for foreign financiers to exploit the lack of transparency in the U.S. litigation financing industry in order to influence courts for strategic goals and to gain intelligence. In addition to private firms, there are a small number of funders that are large, publicly traded companies who specialize in TPLF, including firms such as Burford Capital and Omni Bridgeway.

Litigation financing is attractive to investors primarily because of the massive potential upside on their investments coupled with the fact that these investments aren’t subject to the volatility of the stock market. Christopher Bogart, the CEO of Burford Capital, has commented on the appeal of investing in litigation saying, “the benefit that you get from litigation is that litigation doesn’t fluctuate the same way that markets do.” Investors are increasingly viewing litigation funding as a particularly lucrative investment which is reflected in the substantial growth of the market. According to Westfleet Insider’s 2022 Litigation Finance Market Report, new capital commitments to law firms and their clients grew by nearly 16% in 2022, the largest year-over-year growth rate seen to date. Additionally, assets under management across the entire industry grew from $12.4 billion to $13.5 billion during that same period.

Importantly, there is a difference between litigation funding and what is often referred to as a “lawsuit loan.” If a plaintiff is amid a legal proceeding and needs money to cover basic living expenses as the lawsuit continues, then this individual may qualify for a lawsuit loan. A lawsuit loan, or a lawsuit cash advance, refers to when a plaintiff takes out a loan with a funding company while waiting for the suit to settle. With this loan, the funding company buys your right to a portion or all of your lawsuit award or settlement in exchange for a cash advance that you receive while the case is pending. However, lawsuit loans are incredibly expensive, as the amount borrowed must be paid back with interest, fees, and charges. In this case, most interest rates are not subject to regulation and often run quite high.

While third-party litigation funding may have loan-like characteristics, these contracts are typically made on a non-recourse basis except in some extraordinary situations. "Non-recourse civil litigation advance" means a transaction in which a company makes a cash payment to a consumer who has a pending civil claim or action in exchange for the right to receive an amount out of the proceeds of any realized settlement, judgment, award, or verdict the consumer may receive in the civil lawsuit. So rather, the funding is viewed as an “investment” in the successful outcome of a legal proceeding. The amount that a funder is willing to invest is based on their analysis of the merit and value of the underlying claim. Furthermore, depending on the type of investment and its restrictions, the use of funds is left up to the discretion of the recipient.

The most obvious benefit of third-party litigation funding for a plaintiff is that the funder provides some or all the capital needed to pursue the claim. This situation is particular to a plaintiff with a meritorious claim who lacks the financial resources to pursue the litigation of that claim.

Injuries and Damages

The lack of transparency that characterizes litigation funding has fueled concerns about conflicts of interest that may distort the civil justice system. Many view TPLF as a practice with the potential to tip the scales of the justice system from fairness to profit. Historically, the legal system has frowned upon allowing non-litigants to provide money to a person for pursuing or maintaining a lawsuit. In this view, there are many possible injuries and damages that might result from TPLF, including:

• An increase in the filing of trivial lawsuits in cases where the potential payout is significant
• The external shaping of litigation and the law itself
• The requirements for transparency between funder and plaintiff may inadvertently impede on attorney-client privilege
• The potential to undercut the plaintiff’s control of the litigation if the funder seeks to control the legal strategy of a case
• The creation of ethical problems for the plaintiff’s attorneys, bringing up the question as to whether an attorney NOT funded by the client will act in the client’s best interest
• An increase in the volume and costs of litigation as third-party funding increases
• The curtailment of plaintiff awards and increased profits for the funders given that interest rates charged for TPLF are not regulated in most states

In essence, the practice and unregulated nature of third-party litigation funding poses a series of practical, ethical and legal questions.

Legislation and Regulation

Third-party litigation funding is a rapidly evolving industry, responsible for introducing billions of dollars into the judicial system every year, and yet the U.S. federal government has still not established a comprehensive regulatory framework in response. Presently, all regulation of TPLF exists as a patchwork of state statutes and judicial decisions. The significant variability of state approaches to TPLF regulation has resulted in a number of substantive differences in how consumers and investors can engage in TPLF across the country. For example, given that there is no consensus on whether TPLF should even be permitted, the ability to obtain TPLF is geographically dependent. And the state-based regulatory complexity only increases from there. Some states require some form of TPLF registration or licensure, while others impose agreement-disclosure requirements mandating litigation funders to divulge certain information contained within their funding contracts, including financial terms such as the funding amount as well as the annual percentage rate. Additionally, in an effort to enhance protections against predatory funding, some states have also enacted laws regulating TPLF interest rates or fees.

The following states have passed legislation specific to the regulation of TPLF:

Arkansas
Ark. Code Ann. § 4-57-109

In 2015, Arkansas passed a statute that regulates lawsuit lending and imposes a rate cap. The Arkansas Code was amended to include a section entitled ‘Consumer lawsuit lending’ which defines consumer lawsuit lending as:

Providing money to a consumer to use for any purpose other than prosecuting the consumer’s dispute, the repayment of which is conditioned upon and sourced from the consumer’s proceeds from the outcome of the dispute by judgment, settlement, or otherwise; and

Purchasing from a consumer a contingent right to receive a share of the proceeds of the consumer’s dispute by judgment, settlement or otherwise.

This statute requires that any contract that governs third-party litigation funding must be in writing and explicatively disclose the annual percentage rate of interest. The statute makes all consumer lawsuit lending contracts subject to the state’s interest rate cap of 17%. Furthermore, any amount paid to a litigation funder above the initial amount provided to the consumer must be included as interest.

Illinois
Passed in May 2022, Illinois’ new legislation regulates several aspects of third-party litigation funding including licensing and contractual requirements, limits on consumer legal funding fees, prohibition of funder control of litigation and settlement decisions, bans on lawyer and medical referral, and provisions extending attorney-client privilege to communications between the consumer’s attorney and the funder.

The statute requires that a funding company’s fee “shall be calculated as not more than 18% of the funded amount, assessed on the outset of every 6 months.” However, the statute lacks clarity as to whether the 18% calculation is simple, compound, or cumulative interest over the 42-month period. This has caused some groups to voice their concerns. The American Property Casualty Insurance Association (APCIA) stated, “This lack of clarity is problematic, as a cumulatively calculated interest rate could run as high as 126 percent! It is essential for the protection of consumers that this interest rate calculation be clarified.” Furthermore, the Illinois Chamber of Commerce also took issue with the imposed rate saying, “[t]he rate is so high as to be both punitive for the consumer and prohibitive towards settlements.”

Notably, this new legislation does not include any provisions related to the disclosure of the consumer legal funding agreement or information about the existence of a funding arrangement to defendants as part of claim litigation.

Indiana
IC 24-12

Indiana passed legislation in 2016 regulating litigation funding companies. The legislation includes notice and disclosure requirements, a prohibition of attorney referral fees, extension of attorney-client privilege and standardized contract language. The state also imposes limitations on annual interest rates and services fees that litigation funders can charge. Annual rates of return cannot exceed 36% and service charges are capped at 7%.

Surprisingly, the very industry these laws seek to regulate has voiced its approval of this legislation. The Alliance for Responsible Consumer Legal Funding (ARC), which represents roughly half of the companies that provide litigation funding, has expressed support for Indiana’s law saying that the state’s approach validates the industry and provides good consumer protections. ARC’s president Eric Schuller also commended the state’s decision to extend attorney-client privilege to funding companies saying, “Sometimes we get privileged information by mistake, and the defense has put subpoenas on funding companies to try and get that information that would otherwise be privileged, [so], extending the privilege is very good consumer protection.”

Maine
Me. Rev. Stat. Ann. Tit. 9-A, art. 12

In 2007, Maine became the first state to pass legislation regulating litigating-finance agreements. Maine requires litigation funders to register with the state. Funding contracts must include the total amount that consumers must repay, in 6-month intervals for 42 months, and the annual percentage fee. Litigation funding contracts are required to include an assertion that the litigation funding provider is not permitted to make any decision with regard to the conduct of the underlying civil action or claim. Maine law also requires annual reporting of certain data from litigation funders including the number and amount of legal fundings, the number of legal fundings required to be repaid by the consumer and the amount charged to the consumer including, but not limited to, the annual percentage fee.

Nebraska
Neb. Rev. Stat. §§ 25-3301 - 25-3309

In Nebraska, litigation funders must register with the state and funding contracts must include the total dollar amount to be repaid by the consumer, in 6-month intervals for 36 months, including all fees and the annual percentage rate. Furthermore, the state legitimizes civil litigation funding companies with a list of prohibited acts, including the stipulation that a funding entity shall neither pay nor accept any attorney commissions or referral fees. Civil litigation funders were content to become a regulated industry within the state of Nebraska, as they helped to inform the legislative process and clarify the legitimacy of TPLF.

Nevada
Nev. Rev. Stat. ch. 604C (2021)

In 2019, Nevada passed a bill creating a new chapter in Nevada Revised Statutes that governs consumer litigation funding. Litigation funders must be licensed. Consumer litigation funding amounts cannot exceed $500,000 per consumer, per legal claim. The law also requires that the amount a consumer must repay may not exceed the funded amount plus charges not to exceed a rate of 40% annually. The funding contract must disclose the maximum amount to be assigned by the consumer to the litigation funder and a payment schedule listing all dates and the amount due at the end of each 180-day period from the funding date.

More recently, a bill was introduced last month at the Nevada Senate Judiciary Committee seeking to implement new disclosure requirements for third-party litigation funding agreements. If passed, this bill would mandate that the funding contracts be visible to attorneys and judges in civil cases “without formal discovery”.

Ohio
Ohio Rev. Code § 1349.55

In 2008, Ohio instituted a series of requirements governing non-recourse civil litigation advance contracts. This legislature overturned the judgment in the Rancman case, which held that “a contract making the repayment of funds advanced to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance.” The legislation determined that non-recourse funding contracts are legal so far as they follow the legislative contractual rules outlined in the statute. The legislature emphasized that if a dispute were to arise between funder and litigant, the responsibilities of the litigant’s attorney must be in congruence with the state’s code of Professional Conduct.

Ohio law requires funding contracts to include the total dollar amount to be repaid by the consumer, in 6-month intervals for 36 months, including all fees and the annual percentage rate of return, calculated as of the last day of each 6-month interval, including frequency of compounding.

Oklahoma
Okla. Stat. tit. 14A, art. 3, pt. 8

In Oklahoma, litigation funders must obtain a license from the state’s Department of Consumer Credit. The law requires funding contracts to include a payment schedule that contains the funded amount and charges and lists all dates and the amount due at the end of each 180-day period from the funding date until the due date of the maximum amount due by the consumer to satisfy the amount owed under the agreement.

Tennessee
Tenn. Code Ann. Tit. 47, ch. 16

Tennessee law requires litigation funders to register with the state and establishes strict limitations on the fees and the amount of interest that can be charged to consumers. Funders are prohibited from charging an annual fee that is more than 10% of the original amount of money provided to the consumer. Additionally, the term of funding transactions is limited to 3 years, and the maximum yearly fees funders can charge consumers (which are separate from the annual fee and include underwriting fees and other charges) are limited to a maximum of $360 per year for each $1000 of the unpaid principal amount of funds advanced to the consumer.

Vermont
Vt. Stat. Ann. tit. 8, ch. 74

Vermont requires litigation funders to be licensed with the Vermont Department of Financial Regulation. In addition to disclosure and contract requirements, litigation financiers are required to file annual reports containing information related to the number of contracts entered into, the dollar value of funded amounts to consumers, the dollar value of charges under each contract (itemized and including the annual rate of return).

West Virginia
W. Va. Code. Ch. 46A, art. 6N

In 2019, West Virginia amended the West Virginia Consumer Credit and Protection Act to include a new article, Article 6N. Under the new law, litigation funders are required to register with the West Virginia Secretary of State. Funding contracts must disclose the total funded amount provided to the consumer and the total amount due from the consumer, in 6-month intervals for 42 months. West Virginia law also stipulates that the contract must not charge an annual fee of more than 18% of the original amount provided to the consumer. Furthermore, the law requires the consumer to disclose the existence of a funding transaction and produce a copy of the contract without waiting for the defendant to request it.

West Virginia’s approach to TPLF has caused some proponents of the practice to point out that such strict regulations are likely to disincentivize the funding industry from doing business in the state. For example, the Alliance for Responsible Consumer Legal Funding, a litigation funding trade group, has characterized West Virginia’s legislation as “cap[ing] interest rates so low that funders have mostly stopped doing business in [West Virginia].”

Wisconsin
Wis. Stat. § 804.01(2)(bg)

In 2018, Wisconsin became the first state to mandate the disclosure of litigation funding agreements. Wisconsin law requires parties, even in the absence of a discovery request, to ‘provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise’.

While efforts are being made to establish federal discovery rules, a handful of courts have promulgated their own TPLF disclosure rules. In 2017, the United States District Court for the Northern District of California instituted a standing order requiring parties to disclose the identity of funders, but only in class and collective actions. In 2021, the United States District Court for New Jersey enacted Local Civil Rule 7.1.1 which requires disclosure of “any person or entity that is not a party and is providing funding for some or all of the attorneys' fees and expenses for the litigation on a non-recourse basis”. Most recently, in April 2022, Chief Judge Colm F. Connolly for the United States District Court for the District of Delaware issued a Standing Order, modeled after N.J. Civ. Rule 7.1.1., which requires the disclosure of certain TPLF information and permits a party to seek additional information in certain circumstances.

In addition to state statutes and court rules that are already established, several states also have bills pending that seek to regulate TPLF. New TPLF bills have been introduced in California, Florida, Kansas, Mississippi, Montana, New York, and Texas.

There have also been efforts to introduce some transparency to the TPLF industry on a federal level. In March 2021, the Litigation Funding Transparency Act (LFTA) was reintroduced in the House and Senate. Similar to previous efforts, these bills proposed that the identity of the funder and a copy of funding agreement be disclosed in federal class actions and multi-district litigation (MDL) cases. The LFTA was ultimately not passed into law during the 117th Congress and will need to be reintroduced into the new Congressional session. The importance of establishing some level of transparency in this industry cannot be overstated. Litigation funders are fundamentally reshaping every aspect of the litigation process including which cases get brought, how long those cases are pursued, and how much they’re being settled for. An entire branch of government is being clandestinely transformed and it’s occurring without any oversight. Hopefully, Congress will recognize the importance of transparency when it comes to this issue and institute widespread regulations for TPLF.

Liability and Insurance

Many individuals in the insurance industry have expressed concerns over TPLF. Some have argued that the practice is directly contributing to an increase in the phenomenon known as “social inflation”, which is an increase in insurance payouts and higher loss ratios than can be explained by economic inflation alone. In 2021, Swiss Re published a report titled US litigation funding and social inflation which describes how litigation funding is a primary driver of social inflation. Essentially, TPLF motivates litigants to file and prolong lawsuits, in the hopes of achieving a greater payout. Longer cases typically increase claim costs in part because of higher legal expenses and, in cases where a third-party funder is involved, compounded interest on the litigation finance. Higher claims costs raise insurance premiums and can reduce the accessibility of liability coverage. Consumers ultimately bear the burden of these increased costs.

To learn more about Social Inflation, please reference a report co-authored by the RAA entitled, It’s Not Just the Weather: The man-made crises roiling property insurance markets

Litigation

There have been a series of cases, both in the United States and abroad, that have explored and expanded upon the issue of third-party litigation funding. Oftentimes, the common law doctrines of champerty and maintenance are implicated in such cases. Champerty is “an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuits who support or helps enforce the claim.” Maintenance is defined as “[i]mproper assistance in prosecuting or defending a lawsuit given to a litigant by someone who has no bona fide interest in the case; meddling in someone else’s litigation.” Maintenance and champerty doctrines date back to medieval England where wealthy individuals would provide financial support to plaintiffs in exchange for a share of the recovery. This practice was seen as a form of meddling in the legal system and was consequently prohibited. Today, champerty and maintenance laws have been largely abolished or modified in most jurisdictions. However, some jurisdictions do have restrictions on TPLF based on these doctrines.

The question remains: is it legal for a third-party funder to support litigation in which the funder has no legitimate interest in the claim? Either way, this practice remains controversial: viewed as both an asset to modern litigation and, conversely, a threat to the ethics and transparency of the legal system at large.

Australia

The High Court of Australia set one of the most influential precedents for litigation funding in 2016. In Campbells Cash and Carry Pty Ltd. V. Fostif Pty. Ltd., the High Court held, by a 5:2 decision, that litigation funding is not an abuse of power nor is it discordant to public policy. A joint judgment explained that litigation funding does not violate the law in jurisdictions that had abolished maintenance and champerty as crimes and torts. Therefore, the Court asserted, there were no public policy questions beyond the enforceability of the agreement between plaintiff and funder. The claims against the third-party funder addressed many of the universal concerns about the practice: Can a third-party funder who seeks out claimants be found guilty of “officious intermeddling?” Does this sort of litigation give the funder too much power so that the litigant’s interests come secondary to those of the funder? And finally, is a third-party funder “a speculative investor in other person’s litigation” if the funder has obtained rights to litigate with the intent to profit from the outcome? While some of these questions remain unanswered in the U.S., The High Court of Australia upheld the legality of third-party litigation funding and set an authoritative example of its acceptance.

The United Kingdom

In Arkin v. Borchard Lines Ltd. (2005), a U.K. court affirmed the use of litigation funding as a method to help ensure equal access to justice. The judgment and the principles it established were intended to balance access to justice against the need for fairness to successful opponents who should be able to recover their costs. In other words, TPLF can give people, with legitimate and meritorious claims, the opportunity to pursue legal action against an entity that they would not be able to pursue otherwise. This case similarly established what became known as the “Arkin cap,” which holds that each funding entity is only liable up to the amount of funding that it provided.

In a later case, Excalibur Ventures LLC v. Texas Keystone Inc., the court upheld its decision in Arkin v. Borchard Lines, reiterating that a funder is only liable to pick up the adverse costs of litigation up to the level of their financial investment in the failed litigation. Though the Arkin cap still holds in the U.K, questions of its appropriateness have arisen now that litigation funding has increasingly become a practice of big business. The court also upheld the legality of TPLF as “third-party funding is a feature of modern litigation.” Though the court recognized the issue of the unenforceability of some funding agreements, it lifted the cloud of uncertainty surrounding third-party litigation funding.

Currently, the Supreme Court is set to rule on a case challenging whether litigation funding agreements are equivalent to damages based agreements (DBAs). Truck maker DAF is challenging funding agreements entered into by two claimant groups, Road Haulage Association Limited and UK Trucks Claim Limited (UKTC), which filed a collective claim against DAF over alleged breaches of competition law. DAF is arguing that these funding agreements constitute DBAs and are therefore unenforceable because they do not comply with DBA regulations nor are DBAs permitted in opt-out collective actions. If DAF is successful in this argument, RHA and UKTC would not meet criteria for being authorized to bring the collective proceedings. The Supreme Court’s decision has major implications for the country’s litigation funding industry. If funding agreements are ruled to be analogous to DBAs, the potential consequence will be that most, if not all, current litigation funding agreements would be unenforceable. However, most believe that the Supreme Court will decide that funding agreements are not the same as DBAs and therefore are not subject to the same regulation.

The United States

In the United States, litigation funding has increased in popularity along with the emergence of big business funders. Among U.S. law firms, litigation funding has grown nearly 20% in just two years and has experienced massive growth since 2013, when the court made an influential decision on TPLF.

In Patton Boggs LLP. V Chevron Corporation, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York was forced to rule on a case that affirmed the concerns of those seeking reform to the practice of litigation funding. In the Lago Agrio lawsuit against Chevron, a mass-tort environmental contamination suit was brought on behalf of Ecuadorians who claimed to have been harmed by the oil exploratory activities in Lago Agrio, Ecuador. New York-based plaintiff’s attorney Steven Donziger and his co-counsel obtained a $4 million investment to help prosecute the action from litigation funding company Burford Capital – a company mostly owned by hedge funds and mutual funds. Investors were promised a percentage of any monetary award. The final award issued by the Ecuadorian court was approximately $9 billion against Chevron, but Chevron subsequently sued Donziger in United States District for fraud in procurement of the judgment.

In a lengthy 2014 opinion, District Court Judge Lewis Kaplan blocked U.S. courts from being used to collect the $9 billion on the basis that the decision in the Lago Agrio case had been obtained by corrupt means. Specifically, Judge Kaplan stated that Donziger and the Ecuadorean lawyers corrupted the case by arranging to write the multibillion-dollar judgment themselves, promising the Ecuadorean judge $500,000 to rule in their favor, and by submitting fraudulent evidence. In the decision, Judge Kaplan referred to the plaintiffs’ counsel’s “romancing of Burford” in relation to a litigation strategy of filing proceedings against Chevron in several jurisdictions, resulting in increased defense costs. This ruling again emphasizes the risks of third-party litigation funding.

With regard to the disclosure of litigation finance agreements, courts across the country have frequently denied discovery requests for TPLF information based on Federal Rule of Evidence 401 which necessitates that the information must have direct bearing on the claim before the court. In Eastern Profit Corporation Ltd. V. Strategic Vision US (2020), the Southern District of New York noted that “courts in this Circuit have rejected claims for [litigation funding] documents where the only asserted relevance is that they will permit the requesting party to peer into its adversary’s strategy” or “the adversary’s rationale for accepting or rejecting settlement offers.” However, oftentimes it can be difficult to determine the difference between “adversary strategy” and “any fact that is of consequence to the determination of the action”, as outlined by Fed. R. Evid. 401. Other courts have demonstrated a similar reluctance to full disclosure of TPLF information. In Miller UK Ltd. v. Caterpillar, Inc. (2014), the Northern District of Illinois found that litigation funding documents are only discoverable if they are relevant to an element of an existing claim or defense in the lawsuit. Additionally, in Mondis Technology, Ltd. v. LG Electronics Inc. (2011), despite employing alternate reasoning, the Eastern District of Texas reached a similar conclusion when it found that “documents and slide presentations created for potential investors … prepared in assistance with [plaintiff's] counsel for the purpose of aiding future litigation” were beyond the scope of discovery based on the attorney work product doctrine. These courts stand in opposition to others who have implemented rules requiring the disclosure of third-party funding information.

Future Outlook

While third-party litigation funding may be viewed as a relatively new phenomenon, the regulatory and legal proceedings that have occurred over the issue have broadened its scope significantly. The anticipated outlook for TPLF is relatively promising, with continued growth and expansion expected in the near future. As litigation funding continues to gain recognition as a viable option for financing lawsuits, the industry is likely to see increased demand and activity.

Though the practice of third-party litigation funding is expanding, its future remains unclear in the United States. Supporters hold that TPLF increases access to justice in civil litigation matters, whereas opponents argue that this practice establishes an uneven playing field and threatens the integrity of our legal system. Nevertheless, as third-party litigation funding continues to expand abroad, so too will it continue to expand in the United States.

The regulatory environment for litigation funding continues to evolve, with various jurisdictions introducing or considering regulations to govern the industry. While regulatory oversight can bring more legitimacy and stability to the industry, it also introduces compliance requirements and potential challenges for litigation funders. As such, the anticipated outlook for TPLF will depend, in part, on how the regulatory landscape develops and how the industry adapts to potential regulatory changes.

Overall, the practice of litigation funding in all forms should be closely monitored as it continues to grow at home and abroad.

In the News

2024

• Most Americans Want Legal Reforms Against Practices Like Litigation Funding: Survey - Chad Hemenway, Insurance Journal (03/06/2024)
  A majority of Americans are unaware of third-party litigation funding but most believe state and federal laws should be changed to address abuses in the legal system. According to the results of a recent survey of 2,000 people conducted by The Harris Poll and commissioned by the American Property Casualty Insurance Association (APCIA) and Munich Re, nearly 90% want legal reforms and 88% said there should be transparency of all parties involved in a civil lawsuit.
• New TPLF bills introduced in the Florida legislature – proposals focus heavily on TPLF disclosure - Mark Popolizio, Verisk (01/18/2024)
  The new year is already off to a fast start on the Third Party Litigation Funding (TPLF) front with two new TPLF bills introduced in Florida. As many will recall, last year several TPLF bills were introduced at the state level across the country, with Montana and Indiana ultimately passing TPLF legislation, while a TPLF bill passed by the Louisiana legislature was ultimately vetoed by that state’s governor. If recent trending continues (which the author expects), we will likely see similar activity regarding TPLF as part of this year’s state legislative sessions.

2023

• Judge Floats Sanctions For Funders In Apple Patent Dispute - Ryan Davis, Law360 (07/19/2023)
  A California federal judge said Tuesday that two litigation funders may have made misleading statements to the court about their relationship to a patent infringement suit against Apple Inc., and he ordered them to explain why they should not be sanctioned.
• EJF Capital Raises $470M For Litigation Finance Fund - Renee Hickman, Law360 (07/18/2023)
  Hedge fund EJF Capital said Tuesday that it had closed the fourth iteration of its litigation finance investment funds — Rocade Capital Fund IV LP and Rocade Capital Offshore Fund IV LP — with roughly $220 million in investor subscriptions and commitments.
• Munich Re’s Haynes: Litigation funding “very worrying” for US casualty market - The Insurer (03/15/2023)
  A big issue for the US casualty market to watch is the growth in litigation funding and the fact that only a small number of states have disclosure requirements related to it, Munich Re US casualty head Maura Haynes has warned, with the executive also citing inflation as a concern.

2018

• Prosecutors Are Said to Issue Subpoenas Over Pelvic-Mesh Surgery Financing - Matthew Goldstein and Jessica Silver-Greenberg, NY Times (10/11/2018)
  Federal prosecutors in Brooklyn are intensifying an investigation into allegations that a network of doctors, lawyers, financiers and consultants lured women into having pelvic mesh implants removed, according to the two people familiar with the matter. . . . In the past month, the prosecutors have issued subpoenas seeking information about whether women had been tricked into undergoing unnecessary surgery and whether doctors or others had received improper payments, said the two people, who spoke on the condition of anonymity because they were not authorized to do so publicly. . . . The prosecutors, from the United States attorney’s office for the Eastern District of New York, began making informal inquiries about the network this year after The New York Times reported that hundreds of women may have been pressured into getting the implants removed to improve their odds of winning large cash settlements in lawsuits against the manufacturers.
• Hedge Funds Look to Profit From Personal-Injury Suits - Matthew Goldstein and Jessica Silver-Greenberg, NY Times (06/25/2018)
  Hedge funds and private-equity firms are deepening their involvement in big-ticket personal-injury lawsuits against drug companies and medical device manufacturers. . . .Investment firms are lending money to law firms that bring so-called mass torts and providing cash advances to plaintiffs involved in such litigation. The activity is increasing just as prosecutors and lawmakers intensify their scrutiny of the industry. . . . Earlier this year, EJF Capital, a $6 billion hedge fund, began raising money for its third investment vehicle that will lend money to lawyers bringing mass-tort cases, according to a February email to prospective investors. The new fund aims to raise $300 million on top of the nearly $450 million the Arlington, Va., hedge fund has already lent to personal injury law firms

2017

• Litigation Funding and Its Implications for US and UK Insurers - Sedgwick LLP, JD Supra (05/23/2017)
  Litigation funding is growing rapidly with the emergence of new funds and wealthy individuals willing to back cases in an ever-expanding number of jurisdictions, including in the US and the UK. It is enabling claims to be brought by private individuals and small to medium sized companies with limited resources. It is being used by large, publicly listed companies as a source of working capital for claims, a tool for managing their legal spending, and a means of moving the costs off their balance sheets.

2016

• Litigation Financing Attracts New Set of Investors - Sara Randazzo, The Wall Street Journal (05/15/2016)
  Commercial litigation funding took hold in the U.S. less than a decade ago, touted as a way for little-guy plaintiffs to fund lawsuits against deep-pocketed defendants. But these days, funders, including publicly traded Bentham and Burford Capital LLC and private funds like Chicago-based Gerchen Keller Capital LLC, cast their mission differently: to give corporations and law firms a way to shed risk from their balance sheets.

2014

• The Real and Ugly Facts of Litigation Funding - Lisa A. Rickard, U.S. Chamber Institute for Legal Reform, Corporate Counsel (05/02/2014)
  Third party litigation funding involves a third party offering financial support to a claimant, typically in return for a share of damages if the claim is successful.
• Tennessee Would Be First State in Nation to Enact Law Regulating Lawsuit Financers - Yahoo!News (04/10/2014)
  Tennessee would become the first state in the country to enact legislation limiting the rate of interest that could be charged by "lawsuit financers" if Gov. Bill Haslam signs recently adopted legislation, according to the National Association of Mutual Insurance Companies.

2013

• Third Party Litigation Funding – A Signaling Model - Ronen Avraham, Abraham Wickelgren, Stanford Law (11/21/2013)
  As litigation financing has grown, a secondary market in legal claims has also been created where funders go public and sell shares of legal-claims-backed securities to the public.

Additional Items

Comer Calls for Transparency in Third Party Litigation Funding to Expose Activist and Foreign Influence
House Committee on Oversight and Accountability Chairman James Comer (R-Ky.) is continuing to investigate activist and foreign influence in third party litigation funding (TPLF) and is calling for disclosure requirements to ensure fairness and integrity in litigation decisions. In a letter to Chief Justice of the United States John Roberts, Chairman Comer requests that the Judicial Conference review the role TPLF plays in litigation and work towards enforcing transparency nationwide.