Litigation Finance Bills Advance, but How Effective Will They Be?

Experts break down legislation that is expected to pass

May 03, 2024 Photo

Two bills imposing litigation finance limits have advanced in the Louisiana House and the Senate: HB336, the “The Litigation Financing Disclosure Act”; and SB355, the “Transparency and Limitations on Foreign Third-Party Litigation Funding.”

HB 336 mandates disclosure of litigation financing and states that litigation financers “shall not decide, influence, or direct the plaintiff or plaintiff’s attorney with respect to the conduct” of the proceeding or settlement. The bill exempts nonprofit legal organizations funded by private donors that represent clients on a pro bono basis. The state House approved the bill, which is now pending with the Senate Judiciary Committee.

Senate Bill (SB) 355, meanwhile, requires disclosure of litigation finance in lawsuits if a foreign entity is the source of funding. The bill is awaiting approval by the full House after clearing the Senate and the House Committee on Civil Law and Procedure.

Breaking Down HB 336

“The bill helps with transparency of outside influencers to litigation,” notes John G. Alsobrook, Partner, Lewis Brisbois Bisgaard & Smith LLP. “Since the bill requires the disclosure of a finance company being involved at the beginning of the litigation, the parties, especially defendants and insurers, are aware of and can anticipate potential pitfalls [that] may be ahead in mediation, arbitration, or trial, and allow them to formulate a strategy to counter this type of influence. It should help in leveling the playing field in the personal injury litigation in Louisiana for years to come,” he concludes.

Sidney W. Degan, III, managing partner, Degan, Blanchard & Nash, says, “The litigation financing market has been growing significantly in the United States, and there is currently little regulation. The new law will add transparency to the litigation process. For example, an insurance company and its insured would be entitled to know if a plaintiff bringing a suit against them had someone else financing the suit. The information would allow them to adjust their strategy, if necessary. In addition, parties would know if a financer has interest in a case. Further, this bill responds to concern that litigation financers may pressure their plaintiffs into making key decisions, such as settling. It may also discourage plaintiffs from bringing frivolous lawsuits if they must disclose that they have a financer. 

Breaking Down SB 355

“This bill’s focus is commendable and needed, but parts of it need modification of the excluded parties. Based upon the definition of ‘third-party litigation funder,’ it is conceivable that a foreign insurer that has members or re-insurers that are not located in the U.S. may have to register to Louisiana’s state attorney general as a potential third-party litigation funder, which does not appear to be the intent of the bill,” explains Alsobrook.

“Although the bill excludes health insurers from the definition of a ‘third-party litigation funder,’ the definition needs to include insurers in general to the list of persons and entities omitted from the definition of ‘third-party litigation funder.’ This would make the bill more in line with the definition in HB 336, which includes insurers as persons or entities that are not included in the definition of a ‘third-party litigation funder.’ Otherwise, the bill will help in reforming Louisiana’s personal injury litigation,” concludes Alsobrook.

“This bill also seeks to bring transparency to litigation funding, but adds requirements for foreign-based financing,” says Degan. “Similar to House Bill 336, this bill requires disclosure of litigation funding from a foreign source. This includes foreign states, persons, entities, and sovereign wealth funds. The bill provides requirements for third-party litigation funders in any civil action in which a foreign third-party litigation funder provides funds to assist with litigation expenses or the financial impact of a negative judgment.

“This bill provides more requirements from foreign-based financing than the requirements laid out in House Bill 336. Assuming both bills are passed, a foreign-based funder would have to not only comply with the requirements of House Bill 336, but also would have to provide significant identifying information to the attorney general within…30 days after execution of any financing agreement. This law also explicitly disallows foreign funders from directing decisions in the course or litigation. Because this bill would require so much information and compliance from foreign funders, it will likely slow down the market for foreign-based litigation financing agreements,” Degan concludes.

Final Words

“The Louisiana legislature is attempting to regulate litigation finance companies through limited and piecemeal action…. While these two bills are a great start, they are very limited,” comments Valerie Theng Matherne, member, Courington, Kiefer, Sommers, Marullo & Matherne, LLC. “Louisiana should adopt the Colorado solution and take the simple yet comprehensive step to classify and regulate litigation funding as loans. Louisiana already has comprehensive statutory and caselaw regulating loans, specifically litigation loans. Most notably, a prohibition on usuary interest rates.

“Litigation finance companies claim that their loans are not loans but sales and assignments of assets. They argue that ‘plaintiffs do not have an obligation to repay borrowed funds if the litigation proceeds recovered are less than the amount paid. The finance companies emphasize that they take on the risk of complete loss.’ (See Oasis Legal Fin. Grp., LLC v. Coffman, 2015 CO 63, ¶¶ 31-32, 361 P.3d 400, 405). However,” she continues, “the state of Colorado has successfully argued that these transactions are indeed ‘nonrecourse loans secured by litigation proceeds, loans hobbled with interest rates sometimes approaching triple digits.’ The Colorado Supreme Court struck down a challenge by litigation finance companies and held that “these transactions are loans” and Colorado will regulate them as loans.

“Louisiana should follow Colorado’s lead and classify and regulate litigation funding as loans under the Louisiana’s existing comprehensive lending laws,” Matherne concludes.

SB355 and HB336 are likely to pass and be signed into law by Louisiana’s new Republican Gov. Jeff Landry, according to James T. Busenlener, branch managing partner, Matthiesen, Wickert & Lehrer, S.C. “Similar bills were passed a few years ago and vetoed by [former Gov. John Bel Edwards (D)], a former trial attorney. Gov. Landry made tort reform a prominent aspect of his campaign. That said, I do not believe either law will greatly impact insurance litigation in Louisiana. There does not appear to be a flood of foreign actors financing civil litigation in Louisiana. Litigation funding has been utilized in Louisiana for decades and simply making those agreements discoverable will not greatly deter their use.”

About The Authors
Angela Sabarese

Angela Sabarese, Associate Editor of CLM.

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