ATRA says investors fund law firms filing meritless lawsuits

The American Tort Reform Association (ATRA) has highlighted a Wall Street Journal opinion article on the social media platform X, which warns investors about funding law firms that file meritless lawsuits against companies and share settlements.

According to the Wall Street Journal, the expansion of third-party litigation financing (TPLF) is reshaping the legal landscape by giving private investors a financial stake in civil lawsuits. In a June 4, 2024, opinion piece by Senator Thom Tillis and Representative Kevin Hern, they explain how investors—many of them foreign—inject capital into law firms in return for a portion of legal settlements. The American Tort Reform Association warned that this practice has incentivized a flood of often meritless lawsuits, straining the judicial system and harming legitimate business interests.

The opinion article published by the Wall Street Journal reports that TPLF firms now manage over $13 billion in assets across the United States. These funds are used to cover legal fees, recruit plaintiffs, and finance high-risk, high-return mass tort cases. According to Tillis and Hern, litigation funders operate with minimal transparency and are not required to disclose their roles in court proceedings, raising significant ethical and legal concerns.

Tillis and Hern further highlight in the Wall Street Journal that many of the investors behind litigation finance are foreign-based entities who benefit from U.S. tax deductions while concealing their involvement in cases. They argue this arrangement allows funders to manipulate settlements and delay resolutions, prioritizing profit over justice. The American Tort Reform Association supports reforms that would require public disclosure of litigation funding contracts to ensure fairness and integrity in civil courtrooms.

According to ATRA, the organization was founded in 1986 to promote civil justice reform and reduce lawsuit abuse across the United States. ATRA advocates for legal transparency, balance, and fairness, and is best known for publishing its annual Judicial Hellholes report, which evaluates jurisdictions based on perceived lawsuit abuse. The group works alongside business coalitions, policymakers, and legal experts to advance reforms aimed at improving the efficiency and predictability of the legal system.