This past week, the Florida State Senate’s Judiciary Committee approved Senate Bill 1396, legislation that would bring greater transparency to the legal process and place guardrails on third-party litigation financing. Supporters say the measure represents a win for consumers and national security.
Currently, large investors and investment funds can provide capital to finance lawsuits. The longer a case drags on, the more likely it is to result in a sizable settlement. Investors understand this dynamic and are often willing to fund prolonged legal battles by covering ongoing litigation costs. At first glance, this may appear to be a free-market solution for plaintiffs that should remain unregulated. However, there are significant concerns that justify basic oversight.
Chief among them are national security risks and the protection of American companies’ intellectual property. Peter Charles Choharis of the American Security Project wrote recently that “U.S. adversaries and competitors could be using this practice [third-party litigation financing] to steal or misappropriate intellectual property, obtain confidential business or industry information, and harass U.S. businesses and even entire industries without oversight or accountability.”
He further warned that “the potential for states like Russia and China to use third-party litigation financing as a conduit for economic espionage presents a potential threat to U.S. strategic interests.”
Supporters of SB 1396 argue that juries should know when a plaintiff, who may appear to be acting independently, is being backed by a lawsuit investment entity. The bill would prohibit litigation financiers from controlling legal strategy, require that plaintiffs receive the majority of any recovery or award, mandate disclosure of foreign-linked funding, establish guardrails to prevent lending abuse, and preserve access to litigation financing so long as transparency requirements are met.
At a minimum, proponents argue, juries should be informed when a larger financial entity stands to profit from a lawsuit so they can weigh that information when reaching a verdict. Assuming juries are unaffected by who is funding a case or who ultimately benefits from its outcome is, at best, unrealistic. Greater transparency is essential.
The issue also has implications for consumers. Lawsuit costs aimed at businesses and insurers are frequently passed on to customers. While legitimate litigation is an unavoidable part of doing business, artificially inflating lawsuits through opaque or foreign funding can impose broader costs on American households. Bringing transparency to litigation financing practices is one way supporters say lawmakers can help protect both consumers and businesses.
