Senator Thom Tillis has introduced the Tackling Predatory Litigation Funding Act in an effort to address practices within the litigation funding industry. The proposed legislation aims to tax profits made by third-party entities that finance civil lawsuits, with a goal of curbing predatory behaviors.
“Predatory litigation financing allows outside funders, including foreign entities, to profit off our legal system, driving up costs and delaying justice,” said Senator Tillis. He emphasized that the bill would enhance transparency and accountability by imposing taxes on these profits and deterring practices that compromise court integrity.
In support of this initiative, Representative Kevin Hern (R-OK) has presented companion legislation in the House of Representatives. “Foreign entities shouldn’t be allowed to meddle tax-free in the American legal system,” Hern stated. He noted that frivolous lawsuits have escalated due to third-party funders fueling a growing market.
Third-party litigation funding (TPLF) involves external parties financing lawsuits for potential financial gain from their outcomes. This practice is criticized for increasing consumer costs and extending legal proceedings unnecessarily. Critics argue it disrupts attorney-client relationships as there is no comprehensive disclosure requirement for TPLF contracts.
The TPLF industry has seen significant growth over recent years, with more than $15 billion estimated to be deployed for U.S. litigation financing. Leading firms have reported substantial increases in assets, partly funded by foreign investments.
Concerns also arise regarding the favorable tax treatment received by TPLF investors compared to plaintiffs, particularly when structured as complex investment vehicles. This can result in lower tax obligations or even avoidance for foreign investors profiting from U.S.-based litigations.
Several organizations back the Tackling Predatory Litigation Funding Act, including Americans for Tax Reform and the National Taxpayers Union among others.
