Paul Taylor, an attorney and fellow at the National Security Institute, stated that third-party litigation funding (TPLF) turns lawsuits into a means to make money for attorneys and their funders, rather than a means for clients to pursue justice. Taylor shared his statement during testimony at a June 12 Congressional hearing.
"Because third party litigation funders operate solely for profit, it is their fiduciary duty to turn the justice system into a purely profit-making enterprise for themselves," said Taylor. "That's not what lawyers are supposed to do. Again, when a lawyer leverages government power in the way I've described, she does so with one eye on her own compensation, and the other eye on justice as understood by her client. But the third party litigation financer has both eyes fixed solely on the money, and it leverages government power solely to that end."
According to the U.S. Chamber of Commerce Institute for Legal Reform (ILR), TPLF involves third parties such as hedge funds or investment firms providing the upfront capital for lawsuits. In exchange, they receive a percentage of any settlement or award from the case. Without transparency and disclosure requirements, TPLF can influence the course of litigation and incentivize "unmeritorious" lawsuits. The practice is leading to higher costs for consumers because when companies face higher litigation costs due to the presence of TPLF, those companies are forced to raise prices for their goods and services.
Florida lawmakers introduced legislation addressing TPLF last session, but the measure stalled, Insurance Business reported. HB 1179 and SB 1276 would have required disclosure surrounding TPLF and prohibited third-party financiers from making decisions such as selecting witnesses and appointing counsel. State Rep. Toby Overdorf, who authored HB 1179, said he would introduce the measure again next session.
According to Insurance Business, TPLF is a popular practice in Florida commercial litigation, as well as property and personal injury claims. Mark Friedlander of the Insurance Information Institute said he wasn’t surprised that Florida’s legislation targeting the practice died out. "Members of the trial bar who sit in the Florida House succeeded in derailing this piece of legislation, which would have been very beneficial to Florida consumers and businesses," Friedlander said.
Last year, Gov. Ron DeSantis called on the state legislature to prioritize tort reforms that would address abuses of the legal system, according to a press release from the National Federation of Independent Business (NFIB). NFIB State Executive Director Bill Herrle said TPLF is one "predatory practice" that is harming Florida’s small businesses. "Small businesses aren’t sitting on piles of cash and don’t have teams of attorneys on standby," Herrle said. "One frivolous claim brought by a trial attorney can be enough to put a small business out of business, even if the case is eventually thrown out of court. Our small business members are urging their legislators to stop predatory practices such as third-party litigation financing and jury awards that are based on inflated and even fictional medical costs."
Prior to joining the National Security Institute, Taylor served as Senior Counsel at the House Committee on Oversight and as Chief Counsel to the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice, according to the National Security Institute’s website. He is an elected member of the American Law Institute and also previously worked as an associate at Kirkland & Ellis.