Commercial litigation funding draws scrutiny over disclosure

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Litigation funding has become more prevalent in the United States, drawing attention from courts, lawmakers and the legal community. Once discussed primarily in the context of consumer advances to individual plaintiffs, the funding landscape now includes a growing commercial sector in which third parties finance lawsuits brought by law firms or business entities in exchange for a share of the proceeds.

As the practice has expanded so have questions about transparency, litigation control and the role of outside capital in the justice system. States have taken different approaches to regulation, and debates over disclosure and foreign involvement have placed third-party litigation funding at the center of broader policy discussions ranging from a lawyer’s ethical obligations to national security.

Litigation funding is often discussed as a single concept, but it encompasses two distinct models: consumer legal funding and commercial litigation funding, sometimes referred to as third-party litigation funding, or TPLF.

Consumer legal funding involves advances provided directly to individual plaintiffs while a claim is pending. The funds are typically used for personal living expenses such as rent, utilities, groceries or medical bills. Repayment is typically contingent on a successful recovery, and there is generally no repayment obligation if the plaintiff does not prevail.

Eric K. Schuller, president of the Alliance for Responsible Consumer Legal Funding, said a key distinction between the two models is how the money is used.

“The funds that we provide the consumer can only be used for immediate household needs — mortgage, rent, car payments, basically keeping a roof over your head and food on the table and the lights,” Schuller said. “Commercial litigation financing does just that. It finances the litigation.”

Schuller said the scale of the transactions also differs substantially.

“Our average funding to a consumer is about $3,000 to $5,000,” he said. “In litigation financing, they typically start around minimum about $3 million.”

By contrast, commercial litigation funding typically involves financing provided to law firms, corporate plaintiffs or special-purpose litigation entities to cover litigation-related costs such as attorney fees, expert witnesses and discovery expenses, with funders receiving a portion of the proceeds if a case is successful.

While consumer legal funding has been regulated in some states, commercial litigation funding remains largely governed by various state laws and court rules. There is no uniform federal disclosure requirement.

According to a 2025 Mealey’s Personal Injury Report survey of state laws regulating third-party litigation funding, some states have enacted statutes requiring disclosure of funding agreements in certain civil actions, while others have imposed restrictions on funder control over litigation decisions or prohibited funding from foreign adversaries.

Several states adopted new litigation funding laws in 2025, including Arizona, Colorado, Kansas, Georgia, Montana, Oklahoma and Tennessee. These laws include varying combinations of mandatory disclosure requirements, prohibitions on funder control and provisions imposing joint liability on funders for sanctions or costs in certain circumstances.

Disclosure has emerged as the central issue in debates over commercial litigation funding. Critics argue that undisclosed funding arrangements can obscure conflicts of interest, complicate settlement negotiations and undermine confidence in the judicial process.

Mark A. Behrens, co-chair of Shook, Hardy & Bacon’s Public Policy Practice Group and co-author of the Mealey survey, said the lack of transparency raises ethical concerns for attorneys representing funded clients.

“Lawyers have an ethical obligation to always put their clients’ interest first,” Behrens said. “That can sometimes be at odds with the funder’s interest.”

Behrens said a funder’s financial incentives may conflict with a client’s desire for certainty or timely resolution, particularly when settlement timing or litigation strategy is influenced by outside capital.

“They’re (funders) looking to make a quick hit, ‘I want to flip this to get the money and go out and get the next project.’ They don’t want to tie it up for two or three years … Their interest might be, ‘Let’s settle this.’ There’re different times when the consumer’s interest isn’t going to be aligned with the funder’s interest, and even though the lawyer has an ethical obligation to represent you … what do we say that the golden rule is, the person with the gold rules.”

Behrens said concerns about commercial litigation funding extend beyond disclosure and into how outside capital can influence which cases are brought and how they are pursued, particularly in mass tort litigation.

The growth of TPLF has coincided with an increase in advertising-driven litigation aimed at assembling large numbers of potential plaintiffs, sometimes without meaningful vetting of individual claims.

“They’re trying to accumulate inventories of clients, hoping that there’s a mass settlement and they’ll get paid,” Behrens said. “They’re not really taking their time to vet those claims.”

In some mass tort cases, Behrens said that approach has resulted in a number of plaintiffs whose claims ultimately lack factual or legal support.

“What we’re finding is that there are sometimes a large percentage of those plaintiffs that never used the product that they’re suing about, don’t have the injury that is the subject of the litigation, or the statute of limitations has already expired on their cases,” he said.

Those dynamics raise ethical concerns for attorneys representing funded clients when litigation decisions are shaped by a third party with its own financial interests.

Funders often argue that their interests are aligned with plaintiffs’ because repayment is contingent on success, but that alignment can break down depending on a client’s individual circumstances.

“The funder doesn’t care about the injured person,” Behrens said. “The funder is in this to make money and to get a large return on their investment.”

An October 2025 report from the U.S. Chamber of Commerce Institute for Legal Reform similarly found that third-party litigation funding “operates largely in secret,” allowing funders to invest in high-dollar litigation without appearing on court dockets or being subject to meaningful oversight. The institute argued that the lack of transparency creates an uneven playing field and called for standardized disclosure requirements.

Concerns about foreign involvement in U.S. litigation have added another element to the discussion. Behrens said foreign-sourced litigation funding poses risks to national security, particularly when cases involve sensitive industries or proprietary information obtained through discovery.

“The concern is that, as part of the due diligence, they may get access to information exchanged in a lawsuit that is proprietary,” Behrens said. “They could gain access to very sensitive information that could be used against the interests of U.S. businesses.”

A 2024 Bloomberg Law investigation found a subsidiary of Russia’s Alfa Group backed lawsuits in New York and London before and after sanctions were imposed following Russia’s invasion of Ukraine. According to Bloomberg, the lack of disclosure requirements allowed foreign-backed entities to finance litigation without public scrutiny.

Behrens said the absence of disclosure makes it difficult to assess the scope of the issue.

“If there’s a few that we know about, how many are there that we don’t know about, because there’s no disclosure whatsoever,” he said.

The debate over commercial litigation funding is not limited to the U.S. In November 2025, European Commissioner for Justice Michael McGrath stated that the European Commission does not plan to pursue new EU-level legislation regulating third-party litigation funding, according to an announcement from the International Legal Finance Association.

Whether commercial litigation funding ultimately faces broader regulation remains an open question. While most legislative activity has occurred at the state level, Behrens said the issue has begun to draw attention in federal courts and Congress.

“There has been some activity at the federal level, both in the judiciary and in Congress,” Behrens said, “(but) it’s very difficult for laws to pass through Congress … it (is) very difficult to get bills passed in the Senate unless they are truly bipartisan and priorities for both parties … We’ll continue to see activity at the federal level, but in terms of progress … Most of that has been … done at the state level, and I think will continue to be a focus.”

The actions at the federal level that suggest it will be looked at more closely include the formation of a judicial subcommittee in 2024 to study whether disclosure of third-party litigation funding should be required, as well as the introduction of federal legislation addressing disclosure and foreign funding.

At the same time, Behrens said economic forces have helped drive the rapid growth of commercial litigation funding and are likely to continue doing so. He described the industry as attractive to investors because of the potential for outsized returns and its insulation from broader economic cycles.

“It is so lucrative, the return on investment can be so substantial, far outpacing what one would earn in the stock market or the bond market, and it’s not tied to underlying economic conditions,” he said.

As traditional investment options fluctuate with interest rates, inflation and market volatility, Behrens said litigation funding has drawn capital because lawsuits are typically filed regardless of economic conditions.

“Litigation starts looking really attractive because if the economy does enter a downward cycle all those other investments are going to lose value. Litigation doesn’t and you could earn double-digit returns on your money,” he said. “You could earn 30, 40 percent, so that’s why this business is growing, because people that are looking to deploy billions of dollars of capital see it as a very attractive investment that’s insulated to some extent from what’s going on in the rest of the economy.”

Technology has also made it easier to support the growth of TPLF through the use of social media and advertising campaigns to recruit plaintiffs.

“Technology has also allowed plaintiffs’ lawyers to coordinate much better and allow these lead generation firms to reach out to really enormous groups of people to cheaply recruit a large number,” said Behrens. “Putting something up on social media that’s going to draw clicks is a quick way to generate thousands of lawsuits … You’ve got technological changes that allow for very quick stockpiling of large numbers of lawsuits, coupled with the fact that litigation funding is a very lucrative investment opportunity.”

Taken together, Behrens said the combination of strong investor demand, lower barriers to recruiting plaintiffs and uneven disclosure rules have allowed commercial litigation funding to grow, even as lawmakers and courts continue to debate how it should be regulated. For now, he said, most regulatory movement is likely to continue at the state level.