A California tort reform group is urging the governor and lawmakers to protect consumers from the economic fallout of third-party litigation funding (TPLF) in the wake of a new report concluding that TPLF is costing every U.S. consumers hundreds of dollars annually.
The National Citizens Against Lawsuit Abuse (CALA) released a report late last month from the Texas-based Perryman Group that concluded TPLF is increasing costs for consumers and businesses alike, to the tune of reduced consumer purchasing power of $192.79 per person annually. That translates into lost earnings and inflation costing households on average $607.24 per year, the report said.
TPLF refers to when investors with no real standing in civil lawsuits fund a legal action in exchange for shares of a successful claim or settlement. These agreements, which are not typically disclosed during legal proceedings, can create inefficiencies in the justice system, create excessive or prolonged litigation and lead to a higher probability of “nuclear verdicts” of more than $10 million, according to the report.
“Third parties generally fund consumer and commercial litigation and mass torts with potential for large awards, causing insurance companies to raise rates to cover the increased losses,” the Perryman study says. “Higher insurance expenses to firms such as trucking companies are ultimately passed on to consumers.”
The potential negative effects of TPLF is of particular concern to the tort reform group California CALA, which said the practice is driving up costs for the state’s consumers and businesses.
“Third-party litigation funding tips the scale of justice, knocking the legal system out of balance,” Victor Gomez, California CALA’s executive director, said. “Turning lawsuits into investment vehicles is a dangerous experiment that encourages excessive litigation and ‘nuclear’ verdicts, which cause harm to vulnerable individuals, businesses, the economy and consumers.”
California CALA supported legislation – Assembly Bill 743, sponsored by Michelle Rodriguez (D-Chino) – in 2025 to provide more transparency to the practice of third-party funding.
“We supported AB 743 last year and were upset to see it did not advance last year,” Gomez said in a statement emailed to the Southern California Record. “We are still in the process of reviewing and finalizing our legislative priorities for this year.”
AB 743 would have prohibited a person from taking part in the business of lawsuit financing unless the person obtained a license from the state Department of Financial Protection and Innovation (DFPI). The measure would have also mandated the lawsuit funder to hold a surety bond amounting to at least $250,000 and would have put in place civil penalties up to $250,000 for violations of the law.
Though the measure would have put in place a licensing regime, it would not have required funders to disclose which lawsuits they are financing.
Supporters of AB 743 have pointed out that disbarred Los Angeles attorney Tom Girardi tapped investment firms to fund lawsuits that were later found to be fraudulent. In turn, investors received their share of earnings from Girardi’s Lion Air crash case, but the actual plaintiffs never received their damages awards, according to the Legislature’s analysis of arguments supporting AB 743.
The measure passed the state Assembly unanimously in June of last year but stalled in the state Senate.
California CALA is urging Gov. Gavin Newsom and lawmakers to take action this year to protect businesses and consumers from bearing the costs associated with TPLF.
“… When practices like TPLF cause (the judicial system) to become unbalanced, there is inevitably misallocation of resources and unreasonable strain on economic growth,” Gomez said.
