For years, policymakers across the country have debated the growing role of third-party litigation funding (TPLF) in the American legal system. While many reform efforts have focused on disclosure requirements and transparency measures, North Carolina has now taken a historic step further.
This week, Governor Josh Stein signed House Bill 315 into law, making North Carolina the first state in the nation to prohibit third-party litigation funding outright. The legislation passed with overwhelming bipartisan support, earning unanimous approval in the North Carolina House and nearly unanimous support in the Senate.
Third-party litigation funding allows outside investors to finance lawsuits in exchange for a financial stake in the outcome. In recent years, the industry has grown rapidly, drawing increased scrutiny from policymakers, consumer advocates, businesses, and legal experts concerned about transparency, accountability, and the influence of outside financial interests on the civil justice system.
Supporters of North Carolina’s legislation argue that lawsuits should be resolved based on the facts of a case and the interests of the parties involved – not the financial objectives of investors seeking a return on their investment. They contend that the growing commercialization of litigation risks distorting the legal system and increasing costs that are ultimately borne by consumers.
The significance of North Carolina’s action extends well beyond its borders.
Until now, most legislative efforts addressing third-party litigation funding have focused on requiring disclosure of funding arrangements. North Carolina has established a new benchmark in the national conversation by demonstrating that policymakers are willing to consider more comprehensive approaches to addressing concerns surrounding litigation investment.
The political context is equally noteworthy. The legislation passed with broad bipartisan support and was signed by a Democratic governor in a politically competitive state. That outcome challenges the notion that concerns about litigation funding are confined to one political party or one region of the country.
As more states examine the impact of third-party litigation funding on consumers, businesses, and the legal system, North Carolina’s approach is likely to receive close attention. Lawmakers elsewhere now have a real-world example to study as they evaluate their own policies.
Whether other states ultimately choose to follow North Carolina’s lead remains to be seen. What is clear, however, is that the conversation has changed. The debate is no longer limited to whether litigation funding should be disclosed. Policymakers are now asking a broader question: what role, if any, should outside investors play in America’s civil justice system?
North Carolina has provided the first answer. The rest of the country will be watching.