Full story in Charlotte Business Journal.
By Cheryl Richards
Imagine running a small business — a family-owned HVAC company in Concord, a child-care center in Raleigh, or a manufacturing shop in Wilson. Your focus is on growing your business, paying your employees and keeping your customers happy.
One day, you get hit with a lawsuit. You believe you’ve done nothing wrong and maybe you haven’t. But defending yourself in court will cost tens of thousands of dollars, and its money you don’t have. What do you do? You settle—even if you’re innocent — because the alternative could cost you your business.
After the fact, you learn that the lawsuit was bankrolled by a private investor — someone with no connection to your business or the person suing you. They funded the case to make a profit off the payout. You were never the real target — just a means to someone else’s financial gain.
This disturbing practice is called third-party litigation funding (TPLF). And it’s spreading fast across North Carolina.
The Hidden Cost of “Lawsuit Investing”
TPLF allows hedge funds, private equity firms, and sometimes even foreign investors to finance lawsuits in exchange for a cut of any settlement or court award. These funders aren’t interested in justice and they’re not interested in your business — they’re looking for a quick ROI. Because they’re operating behind the scenes, you may never even know they’re involved. Furthermore, litigation funding can encourage more employment-related lawsuits and class actions — wage/hour, discrimination, ERISA, noncompete, etc.
This practice has serious consequences for North Carolina’s employers and can cripple or destroy small businesses. Even when companies are confident in their legal position, they often settle to avoid the skyrocketing costs of going to trial. For small businesses, that can mean hiring freezes, layoffs, delayed growth — or closing their doors for good.
And the costs don’t stop with business owners. When legal expenses rise, so do prices for customers. Insurance premiums go up. Wages stagnate. Innovation slows. A study by the U.S. Chamber of Commerce’s Institute for Legal Reform estimates that the average tort burden per household was $2,624 per household annually — a hidden ‘tort tax’ that businesses pass on to consumers.
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Business owners in North Carolina take risks every day — hiring workers, opening new locations, developing products. But they shouldn’t have to worry about being targeted by investors using the legal system as a profit engine.
If you’re a business owner in North Carolina, this affects you. The risk is real, and the costs are growing. The time to act is now. Reining in TPLF is about standing up for the entrepreneurs, shop owners, small businesses and community employers that make our state strong. Encourage your lawmakers to pass third party litigation funding transparency measures to take a stand for fairness, transparency and the long-term strength of our business community.
Dr. Cheryl Richards is the CEO of the Employers Coalition of North Carolina, and president and CEO of Catapult Employers Association, serving over 2,000 employers across the Southeast. Learn more at www.letscatapult.org.