States pursue reform of third-party litigation funding

Third-party litigation financing reform continues to catch the attention of lawmakers around 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 points 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.

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

Georgia

Georgia state lawmakers approved a bill package that includes 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.

The bill, SB69, would prohibit litigation funders from having any input into the litigation strategy or taking the plaintiff’s whole recovery and would make sure plaintiffs are aware of their rights. Additionally, it would be a requirement for 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 Gov. Brian Kemp for his signature. SB69 is part of a two-bill package that addresses tort reform.

Arizona

A bill halfway through the Arizona statehouse would place restrictions on third-party litigation financiers.

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

Senate lawmakers approved the bill that would standardize disclosures for litigation financing in the state. The bill would require that all funding agreements be disclosed to the court, to all parties involved in litigation and to members of a class action.

SB1215 would forbid litigation funders 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.

Financiers would also be prohibited from providing funding that is financed directly or indirectly by a “foreign entity of concern.” The term is used to describe any foreign adversary.

Sen. Vince Leach, R-Saddlebrooke, told the House Judiciary Committee that his bill would provide transparency so that everyone knows who is financing a lawsuit.

“(SB125) protects the decision-making rights of litigants. At the heart, it is a consumer-protection bill,” Leach testified.

The House Judiciary Committee advanced the bill for further consideration after amending it to clarify that a litigation-financing agreement does not entitle the financier to a right of payment in excess of the funding provided.

Kansas

One bill nearing passage in the Kansas Legislature is described as shining 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 would have to be disclosed.

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

Any foreign person or foreign country of concern providing funding would also have to be disclosed.

The Kansas Chamber of Commerce said during a House Judiciary Committee hearing that the bill would enhance transparency by allowing parties to discover persons and entities with a financial stake in a court proceeding and would allow defendants to better determine whether to settle a claim.

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 would also be prohibited from entering into a commercial litigation-financing agreement.

Oklahoma

The Oklahoma House voted overwhelmingly to advance to the Senate 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 at 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.

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

New Hampshire

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

HB733 specifies disclosure, registration, funding company and attorney duties and limitations, violations and other concerns. A disclosure requirement would also be put in place for litigation-financing agreements. Specific prohibitions related to funding agreements would be listed, as well.

Rhode Island

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

H5221/S534 would create a regulatory framework, disclosure requirements and consumer protections around third-party financing.

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. LL