Third-party litigation funding (TPLF) is a multibillion-dollar global industry that operates largely in secret and is designed to maximize profits for its investors at the expense of the legal system, defendants, plaintiffs, and consumers. TPLF allows hedge funds and other financiers, including sovereign wealth funds and foreign interests, to secretly invest in and control lawsuits within the U.S. in exchange for a percentage of any settlement or award. TPLF can drive up settlement costs and prolong litigation.
While the problems of TPLF may be clear to defense lawyers and legal reform advocates, the industry continues to promote several myths about the benefits of funding.
A new research paper from the U.S. Chamber of Commerce’s Institute for Legal Reform (ILR), Grim Realities: Debunking Myths in Third-Party Litigation Funding, debunks several of the most pernicious myths perpetuated by the TPLF industry and reveals the “grim realities” of the harms brought about by TPLF. The paper also documents how courts, regulators, and legislators worldwide are starting to take steps to rein in the secretive industry.
Three Common Myths about Third-Party Litigation Funding
Myth: Litigation Funders Don’t Exert Control Over Litigation
Reality: Contrary to their claims of being passive investors, the research shows that litigation funders can and sometimes do exercise significant control over litigation. This control threatens the professional independence of lawyers and disrupts the loyalty that counsel owes to their clients.
Litigation funder Burford Capital and Sysco Corp., a large U.S. food distributor, entered into an arrangement for Burford to fund antitrust litigation Sysco was pursuing against a group of meat producers. Sysco later argued in court that Burford prevented it from accepting reasonable settlements in its own antitrust litigation, effectively trapping Sysco in a lawsuit it wished to settle.
Myth: TPLF Isn’t a National Security Risk
Reality: There are concerns about foreign adversaries using TPLF to undermine the interests of the U.S. and allied countries, gain access to sensitive information, or evade sanctions. The extent of foreign TPLF investment in U.S. litigation remains largely unknown due to the industry's lack of transparency. Still, limited information suggests that non-U.S. citizens, including sovereign wealth funds, participate in the U.S. TPLF market.
Reporting shows foreign actors use TPLF to evade sanctions. A March 2024 Bloomberg Law article outlined how an investment firm established by sanctioned Russian billionaires with ties to Vladimir Putin has funded lawsuits in the U.S. and UK to evade international sanctions.
Foreign entities and governments invest in U.S. litigation through TPLF. In 2023, a Chinese TPLF investment firm called PurpleVine IP financed multiple intellectual property lawsuits against Samsung and a subsidiary in U.S. courts. This funding relationship was made public thanks to the fact that the Chief Judge of the U.S. District Court for the District of Delaware, where one of the lawsuits was filed, has a standing order requiring disclosure of all litigation funding in his courtroom. It appears that Purplevine may have received and relied upon privileged, confidential, and highly sensitive information in pursuing its litigation against Samsung.
Myth: TPLF Has No Financial Impact on Plaintiffs
Reality: TPLF often results in significant portions of settlements and judgments being siphoned off by funders, leaving plaintiffs with significantly reduced recoveries after attorneys’ fees are deducted.
Early in 2024, PBS aired a true-life story of TPLF running amok in a show called “Mr. Bates vs. The Post Office.” The show followed a group of British postmasters who were doubly harmed—first by false accusations of theft and accounting fraud that left many in financial ruin or prison; second, by a lawsuit in which litigation funders and plaintiffs’ lawyers took more than 80 percent of the settlement before the postmasters saw one penny.
Research Details Policymakers and Regulators are Taking Action on TPLF
The new ILR research also documents that TPLF is on policymakers’ radar at the state and federal levels and abroad. In fact, all areas of government.—U.S. courts, legislatures, and regulators—are becoming increasingly proactive in scrutinizing TPLF, requiring greater transparency and setting the stage for much-needed reform.
In Congress, broad TPLF disclosure legislation was recently introduced in the U.S. House of Representatives, and a bill was introduced in both the U.S. Senate and House of Representatives that would bring reforms to TPLF and prohibit foreign entities from investing in U.S. litigation.
Recent important legislative wins in Montana, Indiana, Louisiana, and West Virginia marked a major advancement in reining in third-party litigation funding by requiring transparency of funding agreements and holding funders accountable for financing frivolous lawsuits.
This is just the start. We remain committed to advocating for similar reforms nationwide, striving to create a civil justice system where balance and fairness are paramount.
