Lawmakers must continue to fight anonymous litigation funding

OPINION:

Trial lawyers have long claimed to be champions of justice for the common people, but the reality of their profession often tells a far different story. Rather than fighting for the interests of everyday Americans, many trial lawyers exploit routine civil disputes to line the pockets of their shadowy bankrollers, transforming the U.S. legal system into a profit-driven machine rigged against American businesses.

With control of the White House, Senate and House of Representatives, Republicans have an enormous opportunity to tackle the trial lawyer lobby. Reforming third-party litigation funding should be at the top of the list.

Through the use of third-party litigation funding, or TPLF, a moneyed class from Wall Street to Silicon Valley is working to undermine the equity of the judicial process, ensuring that the courtroom remains a high-performing investment for activist investors. Over the past 15 years, the TPLF industry has exploded to $15.2 billion in annual revenue, making prosecuting frivolous lawsuits immensely profitable.

TPLF investors often exercise sizable control over a case — including how and when to accept a settlement — essentially holding plaintiffs hostage in their own lawsuits. As a nonparty, however, TPLFs are permitted to remain anonymous, robbing defendants of the opportunity to face their accusers.

For noncontractual disputes, trial lawyers often bundle individuals into a single civil case called a mass tort litigation, or MTL, to generate higher returns for dubious lawsuits. Armed with a TPLF war chest, trial lawyers can leverage the influence of their backers to generate swift settlements with their legal opponents.

Take Fortress Investment Group, an entity that has committed $6.6 billion to legal assets and $2.9 billion to intellectual property to TPLF activity, as just one example of the eye-watering investment pool for profit-driven litigation. Many companies, staring down the barrel of a formidable legal battle, often settle rather than take their chances in court.

Through MTL bundling, predatory trial lawyers can streamline their shakedown process, settling quickly and moving on new cases faster. This extortionate model imposes a crippling “tort tax” on Americans, siphoning $443 million in economic output annually, equivalent to $3,621 per household.

Worse yet, rather than plaintiffs reaping the rewards of these settlements, trial lawyers and TPLF financiers absorb an estimated 47% of settlement proceeds. No wonder Wall Street funnels from $2.3 billion to $5 billion annually into profit-driven litigation campaigns. While American families suffer under a crippling “tort tax,” trial lawyers and anonymous litigation investors have been raking in staggering riches.

In response to the TPLF threat, Republican lawmakers are taking strong measures to banish profit-driven litigation from American courts. In late 2022, 14 state attorneys general lobbied President Biden’s attorney general, Merrick Garland, over the numerous national security threats posed by foreign TPLF activity. Since then, Montana, Indiana and West Virginia have established rigorous standards for TPLF transparency.

In 2023, a bipartisan coalition of lawmakers introduced the Protecting Our Courts From Foreign Manipulation Act, a bill that would ban foreign actors from using TPLF activity to loot valuable American trade secrets. And most recently, in early October, Rep. Darrell Issa ntroduced the Litigation Transparency Act, which requires identity disclosures for any TPLF investor who would stand to profit from the outcome of a civil proceeding.

By mandating TPLF disclosure, the California Republican insists that “when we achieve a lasting measure of awareness by all parties, it will advance fair and equal treatment by the justice system and deter bad actors from exploiting our courts.”

This rhetoric has been music to the ears of the American business community, with over 100 major companies calling for TPLF regulation, with both Google and the U.S. Chamber of Commerce already expressing support for Mr. Issa’s legislation. As the chamber has noted, “the Litigation Transparency Act would be an important step in bringing much-needed transparency to this opaque industry.”

For too long, shadowy TPLF activity has enabled the exploitation of American businesses and consumers while undermining the objectivity of the judicial process. By championing disclosure mandates for subversive TPLF activity, Republican lawmakers are laying the groundwork for a more transparent and equitable legal system.

The stakes are high, but the momentum for reform is building. Congress must prioritize TPLF regulation to prevent anonymous financial interests from permanently compromising the American courtroom.

• Lawson Faulkner is a technology and telecommunications fellow at Americans for Tax Reform.