In response to several bills introduced in both the US House and Senate seeking to put limits and disclosures on finanziamento di contenziosi di terze parti (TPLF) in our justice system, a narrative has crept up among some advocacy organizations e commentators that outside litigation funding is somehow indispensable to the fight against “woke” corporations.
If there was some evidence to this claim, that would be something to contend with, but considering there is none, we instead have to confront what is actually being proposed and why some interest groups would be opposed.
The two bills of note are the Tackling Predatory Litigation Funding Act introduced by Sen. Thom Tillis (R-NC) and the Litigation Transparency Act introduced by Rep. Darrell Issa (R-CA).
The bill put forward by Issa mandates disclosures of outside litigation funding in legal disputes. If a hedge fund, venture capital group, or any other party stands to gain financially from a courtroom settlement or outcome, those relationships should be rendered public to the judge and jury to ensure maximum transparency.
The second bill, authored by Sen. Tillis, mandates that proceeds from court settlements earned by third parties (neither the plaintiffs nor the defendants) are not pure investment vehicles, but should be taxed as ordinary income at the highest rate. This waters down the potential windfall from outside financial interests that gamble on the outcomes of civil litigation.
As I’ve written about on other platforms, including The National Interest, Townhall, Legal Newsline, The American Spectator, e DC Journal, as well as the Consumer Choice Center’s own Youtube page, litigation funding is a booming industry that is quickly reshaping our system of justice.
Estimated to be a $13.5 billion sector of the economy, litigation funding has risen from the costly legal process. Individuals who allege some harm raise capital from outside interests in order to fund better lawyers and cases against defendants.
Increasingly, many of these litigation funders are connected to firms located in China, seeking to break patents or nullify intellectual property of business competitors.
While this arrangement is legal – and should continue to be – if we aim to have neutral justice that is both fair and transparent, it will mean ensuring we know who is funding various legal actions that often have impact on more people and industries than those involved in a case. It has nothing to do with whether a certain party in a lawsuit is “woke”.
Putting reasonable limits on the influence and incentive for litigation funders to intervene in a case without declaring themselves is not just sound for our civil courts, but it’s also sound policy for consumers who may face higher prices as a result of frivolous litigation.
When it comes to the criticism that these bills target the ability for outside funders to hold “woke” corporations accountable, it somehow obfuscates that consumers already have massive power to make their voices heard, and it’s practically the easiest thing a consumer can do.
When it comes to “woke” corporations, consumers don’t need to hire lawyers, tap outside funding, or even make a trip down the courthouse. They can do when they always do when they don’t like a company’s foray into politics or social commentary and just vote with their wallet.
By depriving a company of sales and refusing to be a customer, especially in an organized way, you can have impact.
Just ask Bud Light. Or even the questionable lists of companies that “discriminate” against conservatives and invoke pushback. The most impactful way to “punish” a company that one may deem woke is simply to stop shopping there or using their products, not filing expensive class action lawsuits that will end up only enriching a certain class of lawyers. That’s a fraught avenue to get what you want.
Whether it’s organized boycotts, general awareness campaigns, or just better choosing better competition, consumers are free to choose the companies and firms that sell them goods and services. Making the powerful funding mechanisms for civil lawsuits against companies a cultural or even consumer issue is frankly baffling.
What’s the interest in allowing third-party litigation funding to boom without limits in our nation’s courts?
Investors have created a new avenue for massive gains in a new market and they want to protect that ability. But this isn’t the Indonesia palm oil market or futures contracts on the New York Stock Exchange. It’s the civil justice system that weighs evidence between sparring parties and issues settlements and judgments that can impact our livelihoods as consumers, workers, and citizens. That should warrant some scrutiny.
The judicial system is intended to be a neutral playground that is blind, impartial, and fair. It should not be the next investing playground that will forever tilt the scales toward those who can risk their capital for a future payday.
Those who believe that our courts shouldn’t be cordoned off from outside financial and commercial interests may like unlimited and opaque third-party litigation funding. But for most Americans, I believe they want transparency in our courts as much as any other system that is supposed to render justice to fellow citizens.
Everyone in America should be free to gamble, invest, and play the odds on outcomes, whether that’s horse races or even large-scale class action lawsuits.
But if your bet is titling the scales in an impartial system of law and order that supposed to deliver justice, we deserve to know who you are.
Yaël Ossowski writes about legal reform and is deputy director at the Consumer Choice Center.
