Litigation investing banned in North Carolina

Prohibit Litigation Invest/Amend WC Benefits, known also as House Bill 315, bars outside investors from funding civil litigation in the state in exchange for a financial stake tied to the outcome of a case.

The measure passed the House of Representatives 112-0 on concurrence after the Senate passed it 45-1.  

The bill makes it unlawful for anyone to engage in litigation investment in North Carolina or to furnish litigation investment to a party or attorney of record in a civil proceeding in the state. 

Supporters say the measure is aimed at stopping hedge funds, private investors, foreign-backed entities, or other outside financiers from turning lawsuits into investment vehicles. The North Carolina Chamber backed the bill, urging House members to support it.

“The North Carolina General Assembly made clear that our civil justice system should serve the pursuit of justice, not function as a marketplace for outside investors,” chamber President and CEO Gary J. Salamido said in a statement. “By advancing House Bill 315 to ban Third-Party Litigation Investment in the state, lawmakers have taken a landmark step to protect the integrity of our legal system, reduce opportunities for legal system abuse, strengthen North Carolina’s legal and business climate, and continue to retain and grow jobs.”

The chamber describes third-party litigation investment as a growing multi-billion-dollar industry in which outside investors fund lawsuits in exchange for a stake in the result.

“It’s interesting to see North Carolina take the lead on this campaign against outside investment into lawsuits filed in this state,” said Mitch Kokai, John Locke Foundation senior political analyst. “Most of us probably have heard little about this issue, but it’s a major priority for the North Carolina Chamber and its members. Supporting the measure appears to fall in line with Republican legislative leaders’ continuing efforts to make this state as business-friendly as possible.”

The bill does not ban traditional contingency-fee arrangements between attorneys and clients. It also includes exceptions for attorney advancement of litigation costs, insurance-related defense or indemnity obligations, certain nonprofit legal assistance, direct loans not tied to the outcome of litigation, family support, and personal or household support not used to pay litigation costs.

The law renders any contracts that violate the new article unenforceable. The attorney general would be authorized to bring civil actions to stop further violations, and courts may impose civil penalties up to $50,000 per violation. Individuals harmed by these violations may file lawsuits and seek damages.