Third-party litigation reform continues at statehouses
Multiple states have taken action so far this year to address concern about third-party litigation financing. More could soon follow.
About half of all states this year have at least considered legislation that addresses concern about third-party litigation financing. In 2025, Georgia and Kansas have led the way with adoption of 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.
Many of such cases are funded by financiers with exploitative motives. At the very least, OOIDA has said, plaintiffs should be required to disclose any financing agreement associated with a civil action.
Oklahoma
Oklahoma is the most recent state to enact a rule to address 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 address the issue, Gov. Kevin Stitt has signed into law a bill that is intended to strengthen legal protections for businesses and to ensure fairness in civil litigation.
Previously HB2619, the new law requires disclosure of funding agreements upon request in discovery, including an affidavit certifying whether funds originate from a foreign state or entity.
Rep. Erick Harris, R-Edmond, was instrumental in getting the bill through the statehouse.
He said the new rule is needed 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.
Speaking at an Oklahoma Chamber event, Harris said the new law covers litigation weaponization. He cited instances where a company could decide to invest in a case that is against a competitor to try to help bankrupt the company.
The new law takes effect Nov. 1.
Colorado
The Colorado General Assembly approved a bill that focuses on foreign third-party litigation financing.
HB1329 would require foreign financiers to provide certain information to the Colorado Attorney General. The bill also creates a deceptive trade practice for violations.
Information provided to the state would have to identify funders and include a copy of litigation-financing agreements.
The bill also would require that materials be submitted at the time civil actions are filed or within 35 days, if civil actions are filed prior to the implementation of financing agreements.
Funders would be prohibited from using a domestic entity to provide funds or interfering with the right of appropriate parties to direct the course of a civil action.
Failure to comply with the rules would 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.
HB1329 has moved to Gov. Jared Polis’ desk.
Louisiana
One year removed from enactment of a rule to regulate foreign involvement in third-party litigation financing, Louisiana House lawmakers voted 83-6 to advance a related reform measure.
Rep. Emily Chenevert, R-Baton Rouge, said her bill provides critical reforms to ensure transparency and fairness in third-party litigation financing.
“Last year, this Legislature made great strides in requiring disclosure of third-party agreements, however, there are a number of key provisions that protect Louisiana citizens that did not make their way into the amended bill,” Chenevert told the House Civil Law and Procedure Committee.
This year’s bill, HB432, would prohibit financiers with a contract or agreement from receiving or recovering, whether directly or indirectly, any amount greater than an amount equal to the share of the proceeds recovered by a plaintiff or claimant in a civil action.
The rule would also apply to an administrative proceeding, legal claim or other legal proceeding.
Any attorney who enters into a litigation-financing contract or agreement must disclose the information to the client represented in a proceeding within 30 days after being retained or within 30 days after entering into the litigation-financing agreement, whichever is earlier.
California
A California Assembly panel has advanced a bill 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.
“Lawsuit financing threatens the ability of California consumers to recover award moneys to which they are entitled,” Rodriguez wrote in her bill.
To help address the issue, AB743 would require commercial litigation financiers to obtain a license from the state.
Speaking to the Assembly Banking and Finance Committee, Rodriguez said 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.”
She 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.
The bill has moved to the Assembly Appropriations Committee.
New York
The state of New York does not regulate third-party litigation financing. A bill halfway through the statehouse would remove the distinction.
Senate lawmakers voted to advance a bill that 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 that the Department of State needs to evaluate the character, fitness and financial stability of the applicant.”
The bill, S1104, is in the Assembly Consumer Affairs and Protection Committee.
Ohio
Identical Ohio bills address individuals and special interests who invest in litigation funding in exchange for a percentage of the ensuing settlement or judgement.
Ohio does not require third-party litigation-financing agreements to be disclosed to other parties in the litigation.
HB105/SB10 would help address the issue by forbidding financing firms from directing any decisions of a legal claim, including appointing or changing counsel, litigation strategy and settlement or other resolution.
Foreign entities would also be prohibited from entering into a litigation-funding agreement. LL