Read more at The Carolina Journal
By: Lauren Zelt

For years, lawmakers debated whether investors financing lawsuits should be required to disclose their involvement. North Carolina asked a more fundamental question: Why are investors in the courtroom at all? With Gov. Josh Stein’s signature on House Bill 315, North Carolina became the first state in the nation to prohibit third-party litigation funding (TPLF). This move will help restore justice to a broken legal system that too often prioritizes investors and profits over victims.

The legislation passed with overwhelming bipartisan support, receiving unanimous approval in the House and nearly unanimous support in the Senate, an unusual occurrence that underscores the bipartisan appeal of this bill. North Carolina has shown that this issue transcends individual political agendas and will help victims who need it. 

For years, TPLF has operated largely outside public view. The practice allows outside investors — often hedge funds, private equity firms, or foreign-backed financial entities — to finance lawsuits in exchange for a share of any settlement or judgment. 

TPLF supporters argue that it helps ordinary people afford long, expensive legal battles against powerful interests. That sounds like a good thing. But in practice, many of these arrangements put plaintiffs at a disadvantage and prioritize the lawyers, because the funder’s incentives aren’t aligned with the victim’s needs. 

The consequences of TPLF fall hardest on those that these arrangements are intended to help. When outside investors control case strategy, victims are trapped in litigation for far longer than they intend, with little control or information on when they will receive their settlement. A claimant may want to move on, pay medical bills, return to work or simply close a painful chapter. But this becomes impossible if the funder’s model depends on holding out for the largest possible settlement, leaving plaintiffs in limbo.

One of the clearest real-world illustrations of how third-party litigation funding can skew incentives is the high-profile dispute between Sysco and Burford Capital. According to a Reuters report, Sysco alleged that after it reached proposed settlements in its antitrust cases against meat suppliers, its litigation funder objected, sought arbitration, and obtained a temporary restraining order aimed at blocking Sysco from finalizing the deals — effectively leaving the company, in its words, a “litigation hostage” forced to keep fighting cases it wanted to resolve. 

Another particularly egregious example of how litigation funding can cause real harm after a “win” centers on an ongoing dispute from a family at the center of a Netflix documentary. The Kowalski family went to court over the treatment of their child with a rare chronic illness from a Florida hospital and now are battling over proceeds from a $42 million litigation funding loan. The family’s counsel accuse the lawyers “committed flagrant, serious, and repeated violations of their professional, ethical, and fiduciary duties during their representation of the Kowalskis.” Instead of focusing on their daughter, the family is now forced to fight for the settlement they already fought for and won. 

Our legal system exists to resolve conflicts and deliver justice. It’s not supposed to generate returns for anonymous backers who never set foot in the community, never meet the plaintiff, and never bear the emotional weight of a case they’re betting on. 

The rapid growth of litigation funding has sparked concerns nationwide about transparency, accountability, and the potential influence of financial interests on legal strategy. Until now, most reform efforts have focused on disclosure requirements. The prevailing assumption was that litigation funding was here to stay and that the best policymakers could do was require greater transparency.

North Carolina changed that assumption. The new law shifts the national conversation to whether third-party investors should play any role at all in America’s civil justice system.

Our civil justice system should function the way it was intended: to bring dignity and justice to those harmed in a fair and equitable manner. Third-party funders skew the scales of justice to benefit investors and outside-parties whose only motivation is profit, not justice. North Carolina’s new law restores balance to these scales and ensures outside leverage does not impact legal decisions.  

Other states should follow North Carolina’s lead. Because when justice is for sale, it’s rarely the victimized who can afford it.