Michigan lawmakers have advanced a bill that would target the companies that make money off lawsuits in the practice of third-party litigation funding, with a 60-45 House vote last week.
The entities front litigants and lawyers money in exchange for a share of what is recovered in court. That amount usually exceeds state usury laws but since funders receive nothing if the case is a loser, the agreements aren’t considered traditional loan subject to those caps. Still, critics worry the funders exert control over the litigation and that the practice encourages questionable lawsuits.
“Third-party litigation funding sounds like some boring legal jargon out of a law textbook many of us would never read,” said the bill’s sponsor, Republican Rep. Mike Harris. “The truth behind the phrase, and what it means for Michigan citizens, is a lot more threatening.”
Research has shown the hidden costs of TPLF on everyone caused by higher prices, lost income and lost tax revenue. The study, prepared by The Perryman Group and released earlier this year by Citizens Against Lawsuit Abuse, says households lose more than $600 per year thanks to TPLF.
Many states have begun to regulate the industry with legislation requiring funders to reveal themselves in cases in which they have an investment. Though federal attempts have not made their way through Congress, the U.S. International Trade Commission has proposed a rule that would have investors in patent-dispute cases disclose their interests.
The Michigan bill has a similar disclosure requirement and had little support from Democrats. Only Tulio Liberati, Peter Herzberg, Angela Witwer and Will Snyder voted with the GOP majority, and Democrats hold a 20-18 majority in the Senate.
“We should all be asking why politicians want to keep these concerning courtroom deals secret,” Harris said. “Who does it benefit to allow outside investors to influence decisions in Michigan courtrooms?
“Someone is profiting from the shadow cash industry, otherwise these shady outside investors wouldn’t be meddling in Michigan courtrooms. It’s concerning to see so many of my fellow lawmakers essentially sign off on these secret deals.”
Harris’ bill goes well beyond disclosure in court. It would implement a cap on spending and require TPLF companies to pay a $10,000 fee when filing an application for registration with the Department of Insurance and Financial Services.
Those companies would also be mandated to file yearly reports on their funding activities and provide consumers with a 10-day window to cancel contracts. Banned would be kickbacks and referral fees.
As of May, 17 states have signed TPLF legislation into law, with several others considering bills that have been filed.
“In the political spectrum, we’ve all asked each other to make disclosures on where our finances are and so on and so forth, because we think it’s important, right, for that transparency and disclosure,” Harris told the House Judiciary Committee in April.
“I think our court system has the same concerns. So, I think making things transparent is not an evil thing. I think it’s a very fair thing.”
