North Carolina Gov. Josh Stein signed HB 315 this week, which is aimed at prohibiting third-party litigation funding (TPLF) in civil proceedings in the state. The bill establishes the “Prohibit Litigation Investments Act,” which states, “It is unlawful for a person to engage in litigation investment in this state or to furnish litigation investment to a party or counsel of record in a civil proceeding in this state.” An earlier summary of the bill says it will “broadly prohibit non-party investment in legal claims and prevent the transformation of the civil justice system into a market for financial investment so that North Carolinians can avail themselves of their right to access the civil justice system free from improper foreign financial influences.”
Industry and business groups, as well as CLM members who have followed efforts around the country to bring rules and transparency to TPLF, praised the bill. The NC Chamber hailed it as the first in the nation to ban TPLF, with Gary Salamido, president and CEO of the NC Chamber, saying in a statement, “By becoming the first state in the nation to ban third-party litigation investment, North Carolina is further strengthening the competitive legal and business climate that has made our state one of the nation’s top places to live, work, and do business.”
Loretta Worters, vice president, media relations at Triple-I, tells CLM Magazine, “As the first state to prohibit third-party litigation funding, North Carolina is taking a significant step to address a practice that has contributed to rising litigation costs and legal system abuse. By removing the financial incentives for outside investors to profit from lawsuits, the law has the potential to reduce excessive litigation and help reduce litigation-driven costs borne by insurers that ultimately affect insurance affordability for businesses and consumers.
“Because this is the first law of its kind in the nation, its effects on litigation costs, claim outcomes, and insurance affordability will be closely watched by the insurance industry and other stakeholders,” Worters adds.
Ron Jackson, vice president of state government relations for the American Property Casualty Insurance Association (APCIA), applauded the passage of HB 315, stating, “APCIA thanks North Carolina policymakers and the North Carolina Chamber of Commerce for their leadership and work on this important issue." Jackson outlined how outside-investor interest and a lack of regulation have combined to change the litigation landscape though TPLF. “TPLF is a secretive and unregulated practice that allows outside investors—often hedge funds or foreign actors—to bankroll lawsuits and influence case strategy, which raises concerns about transparency, inflated litigation costs, and national security risks. The lack of regulation also means that courts and defendants do not know when a third party lender is involved or who they are.
CLM Member JD Keister, attorney at McAngus Goudelock & Courie LLC, points out the efforts in recent years by the industry and others to bring rules and transparency to TPLF, stating, “We are very happy to see this in North Carolina and are hopeful this is just the first of many states taking this type of action. As the industry knows, across the country, policymakers, businesses, insurers, and defense organizations have raised concerns about the lack of transparency surrounding litigation funding agreements and the potential influence of investors on litigation strategy and settlement decisions. There is no question that TPLF has played a major role in some of the legal system abuse we have seen nationwide.”
Keister notes that North Carolina has taken a new step when it comes to regulating TPLF: “We have seen some trends in other states of disclosure and transparency in the last 18 months; this takes it to a new step of prohibition and allows the true parties at interest and only those parties to have a true seat at the table.”
CLM Member Maryan Alexander, partner, Wilson Elser, who has previously written for CLM Magazine about TPLF and its impact on the litigation landscape, expands on Keister’s point about the new ground North Carolina is breaking with HB 315. She says, “North Carolina’s enactment of HB 315 marks a significant shift in the ongoing national debate over third-party litigation funding. While most recent legislative efforts have focused on disclosure and transparency requirements, North Carolina has taken the more aggressive step of prohibiting litigation funding altogether. This move underscores mounting concerns about the potential for outside financial interests to influence litigation strategy, extend the duration of disputes, and drive up both claim severity and settlement demands.”
Around the States on TPLF
As noted by Keister and Alexander, and as reported previously by CLM Magazine, multiple states have taken action on TPLF. Mark Friedlander, senior director, media relations for Triple-I, previously told CLM Magazine that Arizona, Colorado, Georgia, Indiana, Kansas, Louisiana, Montana, Oklahoma, Tennessee, West Virginia, and Wisconsin have enacted TPLF reform. Rhonda Hurwitz, assistant vice president, liability and counsel, APCIA, added that more than 20 states have considered or proposed TPLF legislation over the past two years.
And there may be more to come. Says Jackson, "There is continued bipartisan momentum across the country to address this issue and ensure businesses and consumers are protected. While North Carolina is the first to ban commercial TPLF, there are a growing number of states in the U.S. that have passed legislation to limit or regulate third-party litigation funding, including funding offered to consumers. We look forward to continuing to work on this issue with policymakers."
New York’s first statute regulating TPLF took effect earlier this month, and while that measure has been widely praised by the defense bar, CLM Member Christopher Theobalt, partner and senior leader of Kahana Feld’s appellate practice in the firm’s New York office, suggested recently that the state’s Consumer Litigation Funding Act is merely “a toothless consumer protection measure intended to mollify TPLF critics by handing them a symbolic ‘step-in-the-right-direction’ legislative win” that allows TPLF on civil litigation in the state to continue unabated.
All of these efforts in other states, though, mainly center around disclosure requirements and transparency, and have not gone as far as HB 315 in North Carolina to prohibit the practice
Will HB 315 shift the momentum and lead other states to ban, rather than merely regulate, the practice? Alexander says, “Whether other jurisdictions follow North Carolina’s lead remains to be seen, but the law will undoubtedly add momentum to the broader conversation surrounding transparency, regulation, and the role of third-party funding in civil litigation. At a minimum, HB 315 signals a growing recognition among lawmakers of the complex challenges posed by third-party funding in civil litigation.”