Litigation Finance Under Fire: Bills, States, and Rulings

Regulation of third-party litigation funding in the United States is advancing on three tracks at once: federal bills that have stalled, a federal court rulemaking debate that has not produced a uniform rule, and a fast-moving wave of state laws imposing disclosure duties, foreign-investor bans, and caps on how much a funder can take from a plaintiff’s recovery. The result, as of mid-2026, is a patchwork — stricter in some states, essentially unregulated in others, and still uncertain at the federal level.

The industry being regulated is sizable. A 2024 report by Westfleet Advisors identified 42 funders holding roughly $16 billion in litigation assets under management, and a Burford Capital survey found that 82% of law firm lawyers reported using some form of legal finance.¹ Funders have backed major mass tort dockets, including Roundup claims against Bayer AG and talc lawsuits against Johnson & Johnson.² The arrangement is simple: an outside investor pays the costs of a lawsuit and takes a share of any recovery, absorbing the loss if the case fails. The regulatory debate is over who gets to know about those deals, who is allowed to make them, how much the funder can collect, and whether they can steer the case.

Federal Legislation Has Stalled

Several bills in the 119th Congress target litigation funding, but none has become law.

Tackling Predatory Litigation Funding Act

In May 2025, Senator Thom Tillis of North Carolina introduced the Tackling Predatory Litigation Funding Act (S. 1821), with Representative Kevin Hern of Oklahoma introducing a companion bill (H.R. 3512) in the House.³⁴ The bill would tax litigation funders’ profits at the highest individual income tax rate (37%) plus 3.8 percentage points, bar funders from offsetting those proceeds with ordinary or capital losses, and require withholding of 50% of the applicable tax from payments made under funding agreements.⁵ The Senate version was referred to the Finance Committee and failed on procedural grounds, according to a mid-2026 industry analysis.⁶

Litigation Funding Transparency Act of 2026

On February 11, 2026, Senator Chuck Grassley introduced the Litigation Funding Transparency Act of 2026 (S. 3826), joined by cosponsors Thom Tillis, John Kennedy, and John Cornyn. The bill would require disclosure of third-party funding agreements in federal class actions and multidistrict litigation and prohibit funders from controlling litigation decisions.⁷⁸ It was referred to the Senate Judiciary Committee, where it remained as of mid-2026.

Protecting Our Courts From Foreign Manipulation Act

Representative Ben Cline introduced the Protecting Our Courts From Foreign Manipulation Act (H.R. 2675) in April 2025. The bill would ban foreign governments and sovereign wealth funds from investing in U.S. litigation and require disclosure of foreign funding sources. As of June 2026, the bill had been reported out of the Judiciary Committee and placed on the House Union Calendar.⁹ Senator Kennedy had introduced an earlier version in the Senate in 2023 with then-Senator Joe Manchin.¹⁰

A broader bill from Representative Darrell Issa, which would have required disclosure of third-party funding in all federal civil cases, was taken up at a House Judiciary Committee markup on January 13, 2026, but members recessed for floor votes, never reconvened, and the bill was ultimately pulled.¹¹

Federal Courts Have No Uniform Disclosure Rule

There is no nationwide federal rule requiring parties to disclose litigation funding. What exists is a patchwork of standing orders from individual judges, a handful of local rules, and oral or in-camera inquiries in some courts, with inconsistency from one courthouse to the next.¹

The U.S. Judicial Conference’s Advisory Committee on Civil Rules has been studying whether to create one. In October 2025, the committee discussed potential requirements but had not reached consensus on scope or definitions, particularly how to distinguish commercial litigation funding from traditional arrangements like contingency fees.⁶ In March 2026, the U.S. Chamber’s Institute for Legal Reform and Lawyers for Civil Justice submitted a formal proposal asking the committee to amend Federal Rule of Civil Procedure 26(a)(1)(A) to require parties to identify any nonparty funder with a financial interest in the case and produce the underlying funding agreement at the outset of litigation.⁸

States Have Moved Faster Than Congress

With federal action stuck, state legislatures have taken the lead. As of mid-2025, seven states had regulations on the books: Indiana, Kansas, Louisiana, Montana, Oklahoma, West Virginia, and Wisconsin.¹² More acted in 2025:

Kansas enacted S.B. 54, requiring disclosure of funding agreements within 30 days of a legal action, including whether a funder holds approval rights over settlement or case resolution.¹³
Arizona passed the Litigation Financing Safeguards Act (SB 1215), signed in June 2025, prohibiting funding from “foreign entities of concern” tied to governments identified as national security threats or appearing on terrorism and sanctions lists.¹⁴
Montana enacted SB 511, the Foreign Investment in Litigation Financing Act, barring “foreign adversaries” and “foreign persons of concern” from engaging in or investing in litigation financing in the state, requiring foreign persons to register with the Secretary of State, and capping a funder’s share at 25% of monetary relief.¹⁴¹⁵
Georgia enacted a law prohibiting litigation financiers from making litigation strategy decisions.¹³
Colorado passed legislation requiring foreign financiers to provide certain information to the state Attorney General.¹³

New York and California are considering similar measures.¹³

New York’s Consumer Litigation Funding Act

Governor Kathy Hochul signed New York’s Consumer Litigation Funding Act (A804-C/S1104A) on December 19, 2025, with an effective date of June 17, 2026. The law passed the state Senate 62–0.¹⁶

It caps a funding company’s total recovery at 25% of the plaintiff’s gross recovery, requires contracts to be written in plain language with clear financial disclosures, and gives consumers a 10-day right to cancel without penalty.¹⁷ Funders must register with the state, post a bond, and undergo character and fitness evaluations. They are barred from influencing case strategy, settlement decisions, or referring plaintiffs to specific lawyers or medical providers. Violations can result in forfeiture of the right to recover on that case and civil penalties of up to $5,000 per violation, enforceable by the state Attorney General.¹⁶

A boundary worth noting: the New York law applies only to consumer-facing funding agreements. Commercial and corporate litigation finance — the segment that holds most of the $16 billion in assets under management — is not covered.¹⁸

Consumer Lending Rates and Usury Rulings

The consumer side of the market has drawn particular scrutiny because of its pricing. Critics have described interest rates ranging from 36% to 124%, with some editorial accounts alleging rates as high as 200%.¹⁹ Some state courts have treated these advances as loans subject to usury limits. The Colorado Supreme Court held in Oasis Legal Finance Group v. Coffman (2015) that litigation financing constitutes a “loan” under the state’s consumer credit code, and a Michigan court voided a funding agreement as usurious in Lawsuit Finance v. Curry (2004).²⁰ As far back as 2005, the New York Attorney General’s office had entered into agreements with nine litigation funding firms requiring basic consumer protections like front-page financial disclosures and cancellation periods, foreshadowing the 2025 statute.

Why Foreign Funding Keeps Driving the Debate

A recurring argument for new rules is that foreign investors can profit from U.S. litigation without paying U.S. taxes. Under current rules, foreign investors can classify their returns from lawsuit financing as capital gains, which effectively allows them to pay no U.S. tax on those profits.²²¹²² That example animates both the Tillis tax bill and the Cline foreign-manipulation bill, and it is reflected in the Arizona, Montana, and Colorado state laws that single out foreign funders.

What Courts Have Said When Funders Overreach

Beyond legislation, courts have been drawing their own lines, most visibly in the long-running dispute between Sysco Corporation and Burford Capital, the largest publicly traded litigation funder with over $7 billion in commercial litigation and arbitration assets.²³

Starting in 2019, Burford invested more than $140 million to support Sysco’s antitrust claims against food-industry suppliers. The original agreement barred Burford from controlling or requiring settlement of claims. After Burford alleged breaches, the two sides signed an amended agreement in March 2022 that reversed the dynamic: Sysco could no longer accept settlement offers without Burford’s consent.²³ When Sysco tried to accept settlements anyway, Burford won an arbitration award blocking those deals. Sysco later described itself as a “litigation hostage” to a “greedy funder.”¹⁹

Sysco then transferred its claims to Carina Ventures, a special-purpose vehicle created by Burford in June 2023, and moved to substitute Carina as the plaintiff in multiple antitrust cases. Courts pushed back. In June 2024, a federal judge in Minnesota affirmed the denial of Carina’s substitution in the Pork and Cattle/Beef antitrust litigations, holding that allowing a litigation funder whose primary interest is “maximizing profit on its investment” to replace the party that originally brought suit would undermine the public policy favoring settlement.²⁴

In the separate Broiler Chicken antitrust case, the Seventh Circuit in February 2026 reversed a lower-court ruling that had found Sysco’s email accepting a $50 million settlement offer from Pilgrim’s Pride created a binding agreement, holding that key terms had not been finalized. In a concurrence, Judge Nancy Maldonado called the case a “cautionary tale,” writing that Burford had “wrested total control over the settlement of Sysco’s claims” and “calculated that continued litigation was more profitable than settlement.”²⁵

Older Doctrines Still in Play

Courts have also tested litigation funding against centuries-old doctrines that barred non-parties from financing lawsuits. In 2017, the Minnesota Supreme Court applied the common-law rule against champerty in Maslowski v. Prospect Funding Partners, and an Ohio court banned the practice outright in Rancman v. Interim Settlement Funding Corp. (2003). Other states have moved the opposite way: Massachusetts’s highest court rejected champerty, maintenance, and barratry doctrines in Saladini v. Righellis (1997), and a New York court held in Gowen v. Helly Nahmad Gallery (2018) that a funding arrangement was not champertous because the plaintiff asserted the claim on their own behalf.²⁶ Whether an arrangement is enforceable can still depend heavily on which state’s law governs.

Where the Patchwork Is Heading

Across jurisdictions, the broad regulatory trend favors disclosure and conflict management over outright bans, as policymakers try to balance concerns about funder influence and foreign investment against the risk that restrictions could reduce access to justice for plaintiffs who cannot afford to litigate on their own. International arbitration institutions, for example, now routinely require parties to disclose the existence of funding and the identity of the funder to manage arbitrator conflicts.²⁷ For anyone entering a funding agreement in the United States today, the practical takeaway is that the rules depend on the forum: the state where the suit is filed, whether the court has a local disclosure order, whether the funder has any foreign ownership, and whether the agreement is consumer or commercial. Those answers can change the enforceability of the deal, the amount the funder can collect, and whether the agreement must be produced to the other side at the start of the case.

1
U.S. Courts. Suggestion From LCJ and ILR – Rule 26 TPLF
2
Institute for Legal Reform. Reforming Federal Tax Treatment of Third-Party Litigation Funding
3
Sen. Tillis Official Website. Tillis Introduces Legislation to Target Predatory Litigation Funding Practices
4
Rep. Hern Official Website. Hern Introduces Tackling Predatory Litigation Funding Act
5
Congress.gov. S.1821 – Tackling Predatory Litigation Funding Act
6
GLS Capital. Litigation Finance Trends
7
GovInfo. S. 3826 – Litigation Funding Transparency Act
8
Institute for Legal Reform. Uniform Rule for TPLF Disclosure
9
Congress.gov. H.R. 2675 – Protecting Our Courts From Foreign Manipulation Act
10
Sen. Kennedy Official Website. Kennedy, Manchin Introduce Protecting Our Courts From Foreign Manipulation Act
11
IPWatchdog. Issa’s Latest Litigation Funding Bill Debated at House Judiciary Vote
12
Washington Legal Foundation. Beneath the Surface: A Deeper Dive Into Third-Party Litigation Funding
13
TortReform.com. Two More States Adopt Third-Party Litigation Reform
14
Legal Finance Expert. The American Patchwork: How Six States Redrew the Rules of Litigation Finance
15
Montana Legislature. MCA 31-4-203
16
New York State Senate. S1104A – Consumer Litigation Funding Act
17
The Milestone Foundation. State-Level Consumer Litigation Funding Regulation Expands
18
Milestone Foundation. State-Level Consumer Litigation Funding Regulation Expands
19
New York State Bar Association. New York’s Unregulated Litigation Lending Industry
20
Federal Judicial Center. Third-Party Litigation Finance
21
Fortress. Fortress Management and Mubadala Complete Acquisition
22
Risk & Insurance. Chamber Pushes for Reform as Foreign Investors Exploit U.S. Legal System Through Litigation Funding
23
Harvard Business Law Review. Litigation Finance and the Sysco-Burford Dispute
24
VitalLaw. Denial of Request to Substitute Plaintiff in Pork and Beef Price-Fixing Lawsuits Affirmed
25
Washington Legal Foundation. A Litigation Funding Postmortem: Lessons From the Seventh Circuit in Broiler Chicken
26
Georgetown Journal of Legal Ethics. Third-Party Litigation Funding: Legal Ethics
27
Chambers Practice Guides. Litigation Funding