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LF Dealmakers Panel: The Great Debate: Trust and Transparency in Litigation Finance

LF Dealmakers Panel: The Great Debate: Trust and Transparency in Litigation Finance

The day’s featured panel included a discussion around ethical challenges and conflicts of interest, impacts on attorney-client relationships, developing a regulatory framework, and balancing the benefits vs. the risks of litigation funding. The panel consisted of Nathan Morris, SVP of Legal Reform Advocacy at the U.S. Chamber of Legal Reform, Charles Schmerler, Head of Litigation Finance at Pretium Partners, Lucian Pera, Partner at Adams and Reese, and Maya Steinitz, Professor of Law at Boston University. The panel was moderated by Michael Kelley, Partner at Parker,Poe, Adams and Bernstein, LLP. This unique panel was structured as a pair of debates (back-to-back), followed by an open forum involving panelists and audience questions. The first debate was centered around the question of ‘what is litigation finance?’ Essentially, what constitutes third-party financing, what are the key components that make up a litigation funder, and how should we define the practice? Some key takeaways from this part of the discussion:
  • Insurance carriers haven’t been classified as third-party funders, but essentially that is what they are doing
  • A secured bank loan to a law firm is not what we talk about when we talk about litigation funding. So, financing a litigator is not necessarily litigation finance. Litigation funders offer financing related to the litigation, making them an interested party in the litigation., in contrast to a disinterested bank
  • Law firms acting on the contingency model can indeed be classified as litigation funders
  • Litigation funding doesn’t even have to be for profit. Famously, Peter Thiel funded Hulk Hogan’s litigation against Gawker, and it is unclear if there was any profit participation on Thiel’s part, though his likely motivation was revenge (or perhaps justice) after Gawker previously outed him as gay
  • Context matters, especially when we consider how we define litigation finance for the purpose of regulation
The question then came: Is a legal defense fund a litigation funder? It files briefs, and somebody must pay to have those briefs filed. So should their donors be identified? This question led to a robust debate between moderator Michael Kelley and Charles Schmerler over whether the Chamber of Commerce should be classified as a litigation funder. After all, the Chamber accepts donations and then uses its capital to file claims—so would donors to the Chamber be considered litigation funders? Schmerler noted that causal litigation is different from commercial litigation—especially from a public policy perspective. So conflating them under the semantic of ‘litigation funding’ isn’t as useful, even if they can each be technically classified as litigation funding. That robust discussion gave way to the second debate, which focused on disclosure, and control and conflicts in litigation finance transactions. Kelley asked Nathan Morris why he supports disclosure in litigation funding matters. Morris feels that the purpose of disclosure is to understand the nature of the involvement of the funder, and such disclosures should be made, just as they are made in the case of insurance. It’s important to gauge a funder’s measure of influence, the structures and contours of their arrangement with the plaintiff, and how that might impact case decision. Maya Steinitz added that disclosure requires a nuanced analysis, in that impact litigation is different from commercial litigation, which is different from class actions. So identifying a clear line for disclosure leads to conflicting views, because people are responding to the idea of disclosure in different scenarios. Steinitz believes in a balancing test—what is in the best interests of the public, considering variables such as the type of litigation and motive of litigation? We shouldn’t draw a general rule on disclosure, but rather have a bespoke response based on several factors. Other panelists disagreed, believing that ‘disclosure is a solution in search of a problem,’ and that ultimately it will serve no benefit, as it is essentially impossible to determine how much control a litigation funder has over a claim, or whether the law firm in question is in dire need of capital and must therefore cede control to the funder. Morris’ position remains that disclosure is necessary, and insists his views are not predicated on the desire to see the industry regulated out of existence, but rather to protect the public interest. The open forum portion led to some interesting discussion points, including:
  • Whether law firms in a funded claim have abdicated their independence to litigation funders
  • How ethics rules regulate litigation funders and funding agreements
  • Whether disclosure of the existence of funding can even identify any control issues in the case
  • The prospect of litigation being funded for purely financial (as opposed to meritorious) reasons
In the end, this was a very unique structure for a panel discussion, which led to a passionate and spirited debate by the panelists, as well as a thorough degree of engagement from the audience.

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Trucking Industry Backs Federal Liability Bill Amid Litigation Funding Concerns

A bicameral bill introduced in Congress would bar liability claims premised on vehicle safety standards stricter than those set by federal regulators, and has drawn support from a trucking and insurance coalition that counts third-party litigation funding among the pressures driving up its costs.

As reported by Transport Topics, the Uniform Vehicle Safety Standards Act was introduced on August 6 by Rep. Mike Flood of Nebraska, joined by Reps. David Rouzer, Jay Obernolte and Jake Ellzey, with a Senate companion from Sens. Deb Fischer and Cynthia Lummis. The measure would amend Title 49 of the U.S. Code to prohibit common law claims alleging that a vehicle should have met standards exceeding those established by the National Highway Traffic Safety Administration.

"In recent years, we've seen a sharp rise in lawsuits awarding damages based on state standards instead of the federal safety standards trucking companies are already required to meet," Flood said. Alex Rosen of the American Trucking Associations argued that where NHTSA has determined a standard strikes the right balance, "that expert determination should carry greater weight than hindsight judgments."

The bill itself contains no litigation funding provisions. Funding enters through the coalition assembled behind it, which includes the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies alongside nine trucking organizations and Werner Enterprises. Research from the American Transportation Research Institute cited in the piece identifies third-party litigation funding and staged accidents as evolving legal threats to carriers, and links excessive litigation to insurance premiums that have climbed 36% over eight years.

For funders, the significance is positional rather than legal. The trucking sector has become one of the more organized constituencies pressing for disclosure and restriction at the state level, and preemption bills of this kind widen the front without naming the industry directly.

Conservative Columnist Argues Litigation Funding Limits Would Disarm the Right

A guest column published this week makes a right-of-center case against pending federal restrictions on third-party litigation funding, arguing that the measures would strip conservative activists and small business owners of the capital they need to litigate against better-resourced opponents.

Writing in The State Journal, Drew Johnson takes aim at the Protecting Our Courts From Foreign Manipulation Act, led by Rep. Ben Cline of Virginia, and at Senator Thom Tillis's proposal to impose a punitive tax on litigation funding proceeds. Johnson is a senior fellow at the National Center for Public Policy Research and the 2026 Republican nominee for Nevada State Treasurer.

His central argument is that the bill's stated purpose, preventing foreign governments from bankrolling harassment suits, is already served by existing mechanisms including CFIUS review and judicial discretion, leaving the new disclosure requirements to do work their sponsors did not intend. Broad disclosure obligations, he contends, would deter funders from backing cases at all, and the resulting shortfall would fall hardest on plaintiffs without institutional balance sheets behind them.

Johnson illustrates the point with Jack Phillips, the Colorado baker who lost an estimated 40% of his income during years of litigation before prevailing at the Supreme Court with backing from Alliance Defending Freedom. Absent outside support, he writes, Phillips "could have easily been forced to surrender."

The column is notable less for its policy analysis than for its author. Litigation funding restrictions have advanced largely on Republican votes, and the industry's defenders have generally come from the plaintiffs' bar. Johnson's framing, that citizens facing wealthy opponents should not be forced to fight alone, is an attempt to contest that ground.

Five Years On, Arizona’s ABS Data Shows No Systemic Ethical Breakdown, Article Argues

An article published in the Arizona State University Corporate and Business Law Journal argues that five years of operating data under Arizona's Alternative Business Structure framework has not produced the ethical failures its opponents predicted, and that the debate is moving from theoretical objections to observable outcomes.

Writing in the ASU Corporate and Business Law Journal, Alex Chucri traces the framework to August 2020, when Arizona became the first state to eliminate ABA Model Rule 5.4 and permit non-lawyer ownership of law firms, with the ABS regime taking effect on January 1, 2021 under Arizona Supreme Court order R-20-0034. The central claim is structural: the state did not remove oversight so much as replace blanket prohibition with licensing, compliance obligations and regulatory accountability. Non-lawyers may hold equity, share profits and participate in management, but only under Supreme Court supervision, with approved compliance counsel, reporting procedures and audit requirements.

The article marshals the program's numbers. Licenses grew from two approvals in 2020 to 15 in 2021 and 25 in each of 2022 and 2023, reaching approximately 150 licensed entities by March 2026, with 114 ABSs actively operating during 2024. No ethics complaints were filed against ABS entities in the program's first three years; the first arrived in 2024, when the State Bar initiated disciplinary action involving two ABS-affiliated attorneys. A preliminary analysis of 2024 disciplinary actions, which the author acknowledges is limited by incomplete ABS staffing data, suggests ABS-affiliated lawyers faced discipline at a rate well below the broader Arizona attorney population.

Readers should weigh the source. Chucri is founder and CEO of Pravati Capital and in 2024 founded 1787 Legal Group, the Scottsdale ABS the article offers as its case in point. The argument nonetheless lands at a moment when several states, Illinois among them this week, are moving in the opposite direction, and Arizona remains the only jurisdiction with a five-year record to argue from.