The US litigation funding industry has seen significant growth over the past decade
Louisiana introduced new regulations for the litigation funding industry after Republican governor Jeff Landry signed a bill to enhance the growing sector's transparency and oversight.
Reuters reported that the new law mandates that litigation funders from a "foreign country of concern" must disclose their funding in civil actions to the state attorney general. Additionally, third-party litigation funders are prohibited from influencing or directing the parties in cases where they invest. The legislation also makes the existence of a litigation funding contract subject to discovery in civil actions. These provisions will take effect on August 1.
Litigation funders invest in lawsuits or other legal claims in exchange for a portion of any recoveries. The US litigation funding industry has seen significant growth over the past decade, with funders in commercial litigation amassing a combined US$ 15.2 billion in assets under management as of 2023. Critics argue that this practice promotes unnecessary litigation and undermines transparency within the legal system, leading organizations such as the US Chamber of Commerce to advocate for tighter regulation.
"The Louisiana legislation brings much-needed transparency into Louisiana courts," stated Rachelle Mortimer, director of legislative affairs at the Chamber's Institute for Legal Reform. The Chamber and certain lawmakers have expressed concerns since at least 2022 that foreign entities could potentially use investments in US lawsuits to compromise national security.
Supporters of the litigation funding industry argue that it levels the playing field and promotes access to justice. A spokesperson for the International Legal Finance Association, a trade group representing commercial litigation funders, criticized mandatory disclosure proposals as "a solution in search of a problem that does not exist." The association maintains that investors in commercial legal finance do not control litigation decisions or dictate case investments.
Louisiana joins a handful of states that have introduced bills regulating the litigation finance industry. Indiana and West Virginia have recently enacted similar laws, while measures in states like Florida and Kansas stalled in their legislatures this year. Like Louisiana's new law, Indiana’s legislation prevents funders from influencing a case or settlement and bars foreign entities from directly or indirectly funding commercial litigation.
In 2023, Louisiana's legislature passed a broader bill requiring the disclosure of litigation funding agreements in civil cases, but it was vetoed by then-governor John Bel Edwards.
