Plaintiffs for Sale: How Third-Party Litigation Funding Threatens Civil Litigation

By: Zach Gilbert

When one hears about the growing trend of wealthy financiers, hedge funds, and private equity firms providing capital to plaintiffs who are unable to afford litigating their claims, the initial reaction is likely positive.[1] But when the full context of the dangers and risks of third-party litigation funding (“TPLF”) is made known, the public, and more importantly, lawyers, should be skeptical of and concerned by this practice. Recent developments and scholarship have demonstrated the dangers of TPLF, such as the exploitation of vulnerable individuals, breaches of attorney-client privilege, and even threats to the national security of the United States.[2] This blog post will discuss these noted dangers of TPLF and provide examples of how various states have taken steps to mitigate and prevent them.

TPLF occurs when a plaintiff gains access to funds, used solely for pursuing legal claims, by entering into a contractual relationship with a third-party litigation funder.[3] Generally, TPLF agreements provide that the funder obtains the right to a certain percentage of the potential recovery should the plaintiff succeed, in exchange for enabling the plaintiff to pursue the case.[4] If the plaintiff loses, typically the funder receives nothing.[5] In practice, third-party litigation funders treat the legal system as an alternative stock market or casino, wherein they gamble by investing in a plaintiff’s case with the hope that, if the plaintiff succeeds, a substantial payout awaits them outside the courtroom doors.[6]

Despite the apparent benefits that TPLF provides, such as enabling individuals with limited financial resources to pursue claims they otherwise could not, serious concerns arise regarding its impact on the attorney-client relationship. For lawyers representing plaintiffs backed by third-party funders, ethical issues emerge when those funders attempt to exert pressure or otherwise influence the course of the litigation. Under ABA Rule 1.2, the client holds ultimate authority over the objectives of the representation, and the lawyer’s duty is to advance those objectives free from competing loyalties.[7] As it pertains to TPLF, attorneys may face subtle or overt pressure from funders whose financial interests diverge from the client’s own, creating a risk that litigation strategy, and even case objectives, are shaped by the funder rather than the client. This dynamic threatens to undermine the lawyer’s duty of loyalty and erodes the principle that the client controls the direction of the case.

Beyond professional responsibility concerns are the serious implications of the exploitation of vulnerable plaintiffs. Generally, individuals seeking litigation funding are more likely to be in desperate financial situations than those capable of affording their own attorneys. Third-party litigation funders are aware of this imbalance and can easily exercise unfair leverage by offering funding only through adhesive agreements. As a result, plaintiffs may be compelled to agree to litigation funding contracts in which their ultimate recovery is substantially marked off to be received by the funders. The presence of unequal bargaining power in these situations begs the question whether certain third-party litigation agreements should be held unenforceable by courts under a theory of unconscionability or some other form of lack of meaningful consent.

TPLF also threatens the ability of plaintiffs to pursue what they believe is in their best interests. Because litigation funders profit only when a case succeeds, they can pressure plaintiffs to pursue riskier strategies, such as rejecting settlement offers that otherwise might have been accepted or prolonging litigation in pursuit of a larger payout. The financial stake that litigation funders place in a case can also create indirect pressure, wherein plaintiffs feel obligated to adopt certain litigation strategies to appease the funders’ interests. The inherent danger arising from these concerns is the prioritization of the litigation funder’s return on investment over the best interests of the plaintiff. In other words, TPLF has the potential to transform litigation into a forum driven by gambling investors seeking the highest payout, rather than one focused on effectuating justice and making plaintiffs whole.

A more poignant threat of TPLF lies in its potential impact on national security.[8] Many states still have little or no protection or disclosure requirements for litigation funders.[9] Because many funders remain unidentified, there exists the possibility that foreign adversaries are secretly funding large numbers of TPLF cases[10]. The presence of foreign adversaries as litigation funders allows for potential access to sensitive information, including intellectual property, through the discovery process. If a foreign adversary goes unidentified as a litigation funder and gains access to discovery materials, that adversary could steal, illegally use, or even weaponize this information. From this perspective, TPLF is not only a civil justice issue but also a potential tool of foreign influence and espionage.

In response to these concerns, many states have passed legislation mandating TPLF disclosures.[11] During my time serving as an intern in the Governor’s Office in Georgia, I had the opportunity to witness this process firsthand and contribute to what was ultimately passed as Senate Bill 69, enacted following the 2025 legislative session. This legislation, along with others across the country, demonstrate the growing concern that TPLF can undermine plaintiffs, damage confidence in the judicial process, and even threaten national security.[12] Despite the progress made in various state legislatures, it remains unclear whether more states will mandate TPLF disclosures or if there will be any future federal involvement.

Ultimately, the rise of TPLF forces an essential question about the purpose of civil litigation: if litigation becomes another asset to be leveraged for profit, is the judicial process still fulfilling what it was designed to achieve? Although TPLF can offer financial relief to plaintiffs in need, its long-term impact threatens to reshape civil litigation by turning the courtroom into a securities trading floor. For these reasons, the legal community should view TPLF with careful skepticism and a commitment to protecting those whom the system is designed to serve.

---

[1] See Jennifer Smith, Litigation Investors Gain Ground in U.S., Wall St. J. (Jan. 12, 2014, at 19:48 ET), https://www.wsj.com/articles/SB10001424052702303819704579316621131535960 (describing the increasing level of funding provided by litigation investors in the United States).

[2] See generally Mark Behrens, Third-Party Litigation Funding: A Call for Disclosure and Other Reforms to Address the Stealthy Financial Product that is Transforming the Civil Justice System, 34 Cornell J.L. & Pub. Pol’y 1 (2024) (analyzing the various threats caused by third-party litigation funding and how local court rules and state legislation have provided some protections).

[3] What You Need to Know About Third Party Litigation Funding, U.S. Chamber of Com. Inst. for Legal Reform (June 7, 2024), https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/.

[4] Id.

[5] Id.

[6] See Paul Taylor, Disclosing High Roller Bankrolling in the Patent Litigation Casino: The Need to Regulate Third Party Litigation Financing, 103 J. Pat. & Trademark Off. Soc’y 21, 25 (2023) (describing the high stakes involved with third-party funders gambling on certain outcomes in litigation).

[7] Model Rules of Pro. Conduct r. 1.2 (A.B.A. 1983).

[8] Behrens, supra note 2, at 15.

[9] Id.

[10] See Michael E. Leiter et al.,  A New Threat: The National Security Risk of Third Party Litigation Funding, U.S. Chamber of Com. Inst. for Legal Reform (Nov. 2022).

[11] See Rob Harkavy, Georgia Latest US State to Introduce Third-Party Funding Prohibitions, ICLG.com (Mar. 4, 2025) https://iclg.com/news/22343-georgia-latest-us-state-to-introduce-third-party-funding-prohibitions (discussing the introduction of Senate Bill 69 in the Georgia General Assembly).

[12] Behrens, supra note 2, at 28.