Third Party Litigation Funding: Impact and Future Trends

Third Party Litigation Funding

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Third party litigation funding is a game-changer in the legal landscape.

Most folks are unaware that third-party litigation funding even exists. Yet, it’s revolutionizing civil cases across the globe.

This financial mechanism can be a lifeline for plaintiffs who lack resources to pursue their claims. But like any powerful tool, third party litigation funding comes with its own set of challenges and controversies.

In fact, while some see this as an equalizer in our justice system, others worry about potential misuse and ethical dilemmas. It’s a complex field that needs unpacking – so let’s dive right into it!

The Rise of Third Party Litigation Funding

Third party litigation funding (TPLF) has seen a meteoric rise in the last decade, becoming an influential factor within the legal industry. But what exactly is TPLF? It’s essentially when an independent entity finances a lawsuit with hopes of securing high returns if the case wins.

This financing method started gaining momentum around 2008 and since then it has become increasingly prevalent in civil cases, especially complex commercial matters involving claims that require substantial resources to pursue effectively.

The Unregulated Market for Litigation Financing

TPLF operates largely unregulated, which can lead to questionable practices such as exorbitant interest rates or unfair terms imposed on plaintiffs desperate for financial support. Proponents contend that, despite potential drawbacks, TPLF plays a key role in giving those without sufficient funds the opportunity to seek justice.

  1. A study conducted by RAND Corporation suggests how it generally nudges unfinanced plaintiffs towards pursuing their rightful claims against deep-pocketed adversaries, thereby fostering fairness within our adversarial legal system.
  2. An article from the University Of Pennsylvania Law Review highlights its profound practical implications, particularly where traditional plaintiff law firms may lack necessary funds.
  3. A New York State Trial Court decision emphasizes how third-party litigation funding drives progress even amidst protracted litigations

Impact of Litigation Funding on Settlements

The landscape of legal settlements is undeniably reshaped by third party litigation funding (TPLF). The financial cushion provided by TPLF allows financed parties to hold their ground, even in the face of seemingly lucrative settlement offers. This situation often paves the way for lengthier court battles and escalated settlement awards.

This environment poses a formidable challenge for defendants seeking reasonable settlements. They find themselves up against financially fortified plaintiffs who can afford protracted litigation and demand larger payouts due to their backing from funders.

Case Study – Boling v. Prospect Funding Holdings

A case that clearly exemplifies this dynamic is Boling v. Prospect Funding Holdings.

In this lawsuit, it was evident how significantly TPLF influenced both the duration and outcome of proceedings. In essence, financing gave breathing room to a plaintiff who might have otherwise felt compelled to accept an early offer from eager-to-settle defendants keen on avoiding costly drawn-out trials.

This case underlines how power dynamics within civil cases are disrupted with TPLF at play; creating scenarios where traditional negotiation tactics fail against well-funded plaintiffs ready and willing to prolong proceedings until they secure favorable outcomes.

Disclosure Requirements and Regulations

The landscape of third-party litigation funding (TPLF) is often likened to the Wild West, due in large part to its minimal regulatory oversight. While TPLF can be a lifeline for plaintiffs lacking financial resources, it also introduces new layers of complexity into civil litigation.

In most jurisdictions today, litigants are not required to disclose their use of TPLF. This lack of transparency has led many parties involved in legal proceedings – defendants especially – feeling left in the dark about potential conflicts or other issues that may arise from such arrangements.

Comprehensive Insurance Disclosure Act

New York State has taken significant strides towards fostering increased transparency with its Comprehensive Insurance Disclosure Act. The act mandates that defendants provide more comprehensive insurance information during court proceedings.

This legislation serves as an important precedent by enhancing clarity around litigation funding agreements; this ensures all parties have full awareness regarding available resources on both sides which could impact decisions made throughout a lawsuit’s course.

Court Decisions Impacting Transparency

A number of court cases have tackled requests for disclosure pertaining to TPLF. One case worth noting is Eastern Profit Corporation Ltd v Strategic Vision US LLC where courts denied requests for information related to TPLF unless they directly affected claims before them. [source].

The ruling suggests some courts acknowledge how external financing might influence claim’s validity or value; however, they remain reluctant requiring blanket disclosures without direct relevance specific claims at hand.

Need for Legislation in Third Party Litigation Funding

The debate surrounding third-party litigation funding (TPLF) is gaining momentum, with the spotlight on its potential pitfalls. Although TPLF can provide critical financial support to plaintiffs, there are concerns about unchecked operations.

A significant voice calling for regulatory oversight comes from Kaufman Dolowich & Voluck LLP’s general liability practice group. They suggest that well-considered legislation could help balance any disparities caused by unregulated TPLF practices and protect litigants from possible exploitation or protracted litigation scenarios.

Potential Regulatory Measures: A Closer Look

Mandatory disclosure requirements concerning litigation funding agreements might be one of the legislative measures introduced. This would enhance transparency and enable all parties involved to make informed decisions during negotiations and settlements.

In addition, laws regulating interest rates on settlement loans provided by funders could be enacted akin to consumer protection laws applicable in traditional lending sectors. Such a move would prevent profiteering at the expense of financially strained litigants who often find themselves embroiled in complex commercial matters involving claims due to their circumstances.

Ethical Considerations Addressed Through Legislation

Beyond practical aspects, ethical considerations also come into play when discussing TPLF regulations. Conflicts of interest may arise if funders exert undue influence over legal strategies or settlement choices – decisions ideally made within attorney-client relationships alone without interference from counterclaim defendant’s sole director or other external entities associated with financing arrangements.

The Controversy Surrounding Commercial Funding Groups

Commercial funding groups are key players in the litigation funding industry, providing crucial financial support to plaintiffs who might otherwise struggle with legal costs. Yet, their practices have caused quite a stir.

A significant issue revolves around transparency or lack thereof when it comes to disclosing third-party financing involvement. This concern was underscored by none other than the US Chamber of Commerce which pointed out that absent proper disclosure rules, both defendants and courts can be left in the dark about such arrangements.

This opacity could potentially tilt court proceedings as funded parties may reject reasonable settlement offers leading to protracted litigation – a situation nobody wants.

Lack Of Regulatory Oversight

Adding fuel to this fire is the relative absence of regulatory oversight over commercial funders within many jurisdictions. The unregulated nature of this sector allows for practices that some critics deem predatory or exploitative towards vulnerable litigants seeking justice.

In response, calls have grown louder for stricter regulation including caps on returns from successful lawsuits and mandatory reporting requirements regarding business operations and client relationships.

Potential For Unethical Practices

Fears surrounding unethical practices further stoke skepticism towards commercial funders. There’s worry they could prioritize profit over ethical considerations like ensuring fair settlements for claimants or respecting attorney-client privilege during negotiations with law firms considering entering into litigation funding agreements. No public scandals involving sophisticated commercial funders have surfaced thus far but these concerns highlight an urgent need for increased scrutiny within this rapidly evolving segment of our legal system.

The Role of Disclosure in Litigation Funding

When it comes to the world of litigation funding, disclosure is not just a footnote it’s an inevitable chapter. It serves as a conduit for pretrial resolution and settlement discussions, exposes potential conflicts of interest, and offers valuable data that can guide policy decisions on third-party litigation funding agreements.

How Some Jurisdictions Are Taking Action

In response to this need for transparency within the industry, several jurisdictions have taken decisive action by implementing specific disclosure requirements tied to litigation funding agreements. For instance, Wisconsin has legislated that litigants must disclose any agreement with a third party who stands to gain from the outcome of their claim.

Moving over onto California soil, the Northern District adopted Local Rule 3-15 back in 2018 which mandates parties seeking class certification make known whether they are backed by third-party financing or not.
This rule was designed with fairness at its core, preventing undisclosed interests from swaying case outcomes unnoticed.

The Southern District of New York also plays its part in promoting transparency among civil litigants receiving third-party financing; under certain conditions these individuals must reveal information about their financial backers.
All these measures highlight proactive steps individual jurisdictions are taking towards improving clarity within this rapidly expanding sector.

Apart from state-level initiatives though federal judges too aren’t sitting idle, they’re increasingly interested in understanding how TPLF impacts cases before them. According to Federal Judicial Center’s report, many district court judges now inquire about TPLF during initial conferences or discovery phases, even if there isn’t a local rule necessitating such disclosures.

This growing trend towards more open practices likely stems both legal professionals’ desire for greater insight into possible biases introduced through TPLF as well policymakers’ need for comprehensive data on how this novel form finance affects overall judicial system efficiency fairness.


Key Takeaway: 

Transparency is taking center stage in third-party litigation funding, with jurisdictions implementing disclosure requirements to ensure fairness and prevent conflicts of interest. Both state-level initiatives and federal judges are keen on understanding the impact of TPLF, signaling a trend towards more open practices.

Policymakers Interest in Third Party Litigation Financing

Third party litigation financing (TPLF) is more than just a hot topic among legal circles – it’s now on the radar of policymakers nationwide. The growth and potential implications of this industry have sparked curiosity, concern, and calls for regulation.

The Government Accountability Office (GAO), an impartial agency that provides auditing services to Congress, took up the mantle with a comprehensive study on TPLF. This GAO report encapsulates policymakers’ desire to understand how TPLF impacts court systems as well as consumer protection.

A Closer Look at TPLF Transactions

In their quest for clarity around third-party funding agreements, GAO researchers focused primarily on personal injury claims or commercial disputes. These cases seem most attractive to investors due to potentially high returns.

This information could guide future policy considerations by pinpointing where regulations might be most needed within this burgeoning industry.

Weighing Risks And Benefits To Consumers

Talking about benefits from consumers’ perspective; increased access to justice tops the list – especially when financial constraints would otherwise bar them from pursuing legal action. However, there are also risks such as inflated costs associated with repayment terms if plaintiffs win but receive less money than anticipated after paying back funders.

Federal Laws: Do They Apply?

An important aspect explored by the GAO was whether existing federal laws provided adequate protections for consumers engaged in litigation funding agreements.Their findings indicated some uncertainty mainly because state-level regulations governing these transactions varied widely, further emphasizing why lawmakers need take closer look into practices surrounding third party litigation financing nationwide.

Future Outlook For Third Party Litigation Financing

The landscape of third party litigation funding (TPLF) is evolving rapidly, with several key factors poised to shape its trajectory. One such factor centers around the ongoing discourse on regulation and transparency within this industry.

In many jurisdictions today, there’s no obligation for litigants to disclose their TPLF agreements. This has raised some eyebrows about fairness in our legal system. As a result, we might see more states following New York’s Comprehensive Insurance Disclosure Act or even implementing stricter regulations that aim at boosting transparency levels.

This act could potentially serve as an inspiration for other regions aiming to impose similar requirements regarding insurance information disclosure from defendants involved in civil litigation cases involving claims funded by external parties.

Beyond regulatory changes though, technology advancements are also set to leave their mark on how TPLF operates moving forward. The emergence of legal tech platforms connecting funders with those seeking finance can make access easier while simultaneously enhancing oversight through advanced data tracking capabilities.Law Technology Today offers further insights into these developments.

We may also witness a broadening scope beyond traditional plaintiffs law firms towards new arenas like intellectual property disputes or international arbitration where costs can be prohibitive without financial backing from third-party sources – another potential trend worth keeping tabs on.

Courts Shaping Future Direction:

Judges themselves will likely play an instrumental role in shaping the future direction of TPLF as they become increasingly familiarized with these arrangements and weigh up benefits against drawbacks when it comes down to justice delivery systems overall.

Growth Amid Evolving Landscapes:

All things considered; one thing seems certain: Third-party litigation funding appears primed for continued growth amid changing legislative landscapes and shifting judicial attitudes globally towards its usage within various types of civil lawsuits.


Key Takeaway: 

Third party litigation funding (TPLF) is in flux, with regulation and technology shaping its future. Transparency could increase as states may adopt stricter disclosure laws like New York’s Comprehensive Insurance Disclosure Act. Meanwhile, legal tech platforms are streamlining access to TPLF and enhancing oversight. Additionally, the scope of TPLF might expand into new areas such as intellectual property

FAQs in Relation to Third Party Litigation Funding

What is the problem with third party litigation funding?

The primary concern is that it can skew settlement negotiations, prolonging cases and inflating awards. It also raises transparency issues as few jurisdictions require disclosure of such funding.

What is the third party litigation funding law review?

This refers to scholarly examination and critique of laws governing third-party litigation financing, focusing on areas like regulation, ethical implications, and impacts on justice delivery.

What are third party litigation funders?

Third-party litigation funders are entities or individuals who finance a lawsuit in exchange for a portion of any financial recovery from the case.

How have litigation funders improved the quality of settlements in America?

Litigation funders enable plaintiffs to pursue meritorious claims they might otherwise abandon due to cost constraints, potentially leading to fairer settlements.


The rise of third party litigation funding is transforming the legal landscape. This financial mechanism, largely unregulated since 2008, has significant implications on civil cases.

It’s a double-edged sword. For plaintiffs with limited means, this financial mechanism can be a source of hope in pursuing their claims. On the other hand, it may hinder defendants from negotiating reasonable settlements and inflate settlement awards.

Transparency in this sector remains an issue with few jurisdictions requiring disclosure of litigation funding agreements. Yet some courts are denying requests for such information unless directly related to the case at hand.

New York’s Comprehensive Insurance Disclosure Act sets a precedent towards increased transparency in these agreements while individual jurisdictions take proactive steps towards similar ends.

Policymakers too have shown interest in understanding its impact on court systems and consumer protection as per recent GAO report findings.

With all said and done, there’s no doubt that legislation might be needed to balance any inequities caused by unfettered operation of third party litigation funding industry – but what shape should that take?

This is where Litfunder, your go-to resource for everything about Litigation Funding comes into play. We’re here to guide you through this changing landscape.


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