A measure to rein in some of the drawbacks of third-party litigation financing (TPLF) has been introduced in Louisiana in the wake of a new report showing that the economic harm caused by TPLF now exceeds $600 per household nationally.
State Rep. Emily Chenevert, R-Baton Rouge, filed House Bill 240 on Feb. 20 as a way to limit the inflationary pressures and reduced economic growth related to TPLF. This third-party method of financing civil litigation allows foreign and sovereign entities to finance lawsuits in exchange for a share of the eventual payout or damages award.
The new report published in January by Citizens Against Lawsuit Abuse (CALA) concludes that TPLF is distorting the civil justice system, leading to excessive litigation and forcing each American to pay $192.79 annually in lost earnings or purchasing power. The cost per household nationwide was estimated at $607.27.
Louisiana Lawsuit Abuse Watch (LLAW), a nonprofit group that supports legal reforms, reported that the study’s findings confirm what Louisianans are already seeing in their monthly bills and expenses.
“TPLF fuels the wave of frivolous litigation that raises costs across the economy, leaving families with less money in their pockets and fewer opportunities to get ahead while these wealthy outside investors earn millions in tax-free profits,” Lana Venable, LLAW’s executive director, said in a statement emailed to the Louisiana Record.
LLAW has described TPLF as highly unregulated and intentionally opaque – a practice that turns the nation’s courtrooms into casinos. Such funding agreements can encourage prolonged litigation that results in “nuclear” verdicts, or awards that exceed $10 million, according to the CALA report, which was prepared by the Texas-based Perryman Group.
In addition to raising insurance costs and diverting resources from productive business activities – to the tune of $54.2 billion in gross domestic product per year – the practice also decreases tax receipts to the federal government by $10 billion, with $2.8 billion siphoned from state governments and local entities losing out on more than $2.3 billion, the report says.
Chenevert said Louisianans are feeling the impact of TPLF through higher prices on goods and services, job losses and less purchasing power.
“With little oversight, TPLF also lends itself to concerns regarding conflicts of interest, since we do not know who is actually controlling the litigation,” she said in a statement. “I have filed HB 240 in the upcoming session that will limit recovery under TPLF agreements and provide more disclosure around these agreements.”
The state Legislature’s analysis of HB 240 indicates the bill would bar a litigation financer from receiving an amount greater than what’s recovered by the plaintiffs in a lawsuit once attorney fees and court costs are paid out. The measure would also require lawyers to disclose the existence of such contracts either within 30 days of being retained as counsel or 30 days after entering into the funding agreement – whichever comes earliest.
Venable said this is not the first year lawmakers have sought to place some guardrails on the practice of TPLF.
“Unfortunately, legislation introduced last year to reinforce initial 2024 reforms did not make it through the process,” she said. “We look forward to Rep. Chenevert’s legislation this year to increase transparency on the involvement of outside financiers and protect litigants from exploitation.”
