ATRA says third-party litigation financing has exploded

The American Tort Reform Association (ATRA) announced on X that it highlighted a Wall Street Journal opinion piece warning that third-party litigation financing has surged due to incentives in the U.S. tort system.

According to the Wall Street Journal, third-party litigation financing (TPLF) has become an increasingly prominent feature of the U.S. legal landscape, attracting foreign investors seeking to profit from the nation’s tort-friendly legal system. In an opinion article by Senator Thom Tillis and Representative Kevin Hern, they argue that TPLF enables investment funds to exploit the courts for financial returns, turning lawsuits into vehicles for high-risk, high-reward bets. The American Tort Reform Association, which shared the article, has long advocated for greater transparency in TPLF arrangements, warning of their potential to distort justice and fuel excessive litigation.

The Wall Street Journal article states that third-party litigation finance firms currently manage over $13 billion in U.S.-based assets, a significant portion of which is used to fund mass tort and class action lawsuits. This explosive growth reflects a broader trend of hedge funds and private equity firms viewing legal claims as investment opportunities with potentially outsized returns. According to Tillis and Hern, many of these firms are located overseas and benefit from U.S. tax deductions despite their foreign status, raising concerns about fairness and oversight in the American legal system.

The same Wall Street Journal piece explains that TPLF operations often lack transparency, with funders shielded from disclosure requirements that would reveal their influence on legal strategies and settlement decisions. Tillis and Hern warn that this secrecy allows funders to exert undue control over litigation, potentially compromising plaintiffs’ interests and judicial impartiality. The lawmakers propose requiring disclosures in court and revisiting tax policies that currently enable anonymous foreign funders to deduct litigation costs in the U.S.

According to the American Tort Reform Association, it is a national nonprofit advocacy organization founded in 1986 to promote fairness, balance, and predictability in the civil justice system. ATRA is best known for its annual Judicial Hellholes report, which highlights jurisdictions it deems plaintiff-friendly and prone to lawsuit abuse. The group works with lawmakers, business leaders, and legal experts to promote reforms that discourage frivolous litigation and protect economic growth.