New Ohio law has attorney general reviewing litigation-funding contracts

With the new law, Ohio joins a growing number of states that mandate some type of TPLF disclosure (North Carolina recently banned the funding entirely), as groups aligned with corporate defendants push for more widespread disclosure of outside litigation funding. Those groups, including the U.S. Chamber of Commerce, argue outside funders operating in secret can exercise improper influence on litigation decisions and keep alive “zombie lawsuits” that otherwise would be settled or never filed in the first place.

Lawyers for Civil Justice, a group backed by major corporations, is advocating for a universal rule in federal courts requiring TPLF. The Ohio law represents only a tentative step in that direction, said Alex Dahl, LCJ’s general counsel. For more than half a century, defendants have been required to disclose their insurance contracts as soon as they are sued, for example. But even when courts require plaintiffs to reveal who is financing them, it is often done in secret, ex parte communications with the judge, Dahl said.

"Just like insurance, there is really no such thing as an ex parte disclosure,” he said. “Telling the judge isn’t the same thing as telling the court, the parties, the public about who has a financial stake in the litigation and on what terms they are participating. That’s what courts and the parties need; that’s the tradition of our legal system."

The Ohio law does address many of the practices that businesses and insurance companies have long criticized as abusive and adding to the cost of litigation. Consumer litigation finance firms, who mostly extend loans to personal-injury plaintiffs, must register with the AG, make detailed disclosures to borrowers, and cannot pay “referral fees” to attorneys or medical providers.

Legal Newsline has published multiple articles detailing how personal injury lawyers operate in tandem with doctors and outside financiers to generate excessive medical bills and drive up insurance premiums.

Ohio’s new law puts similar restrictions on commercial TPLF providers, who lend money directly to lawyers in exchange for a piece of their fees or to business plaintiffs in exchange for a percentage of any winnings in court. The law also requires them to register with the AG and they cannot exercise any control over litigation decisions. They also cannot accept any foreign money, with the law citing the “grave risk posed by foreign actors that seek to interfere” with Ohio courts.

Lawyers for Civil Justice and the Chamber’s Institute for Legal Reform argue all commercial TPLF agreements should be disclosed, in part to eliminate the risk foreign entities are financing litigation to further their own interests. They also have done studies showing TPLF agreements often include clauses requiring plaintiffs to comply with their decisions on whether to settle and for how much, despite professional rules in most states prohibiting such conduct.

In one of the most widely known cases, Burford Capital, a publicly traded litigation finance firm, was able to block Sysco Food Service from settling antitrust cases for less than Burford had invested in the litigation.

Defendants have been required to disclose insurance coverage in federal cases since 1970, under the theory insurers pay for legal defense and make critical decisions, including whether to settle a case. Groups like LCJ say the same rules should apply to plaintiffs who are being financed by outside entities.

The practice of TPLF can be highly lucrative, even for foreign companies that some lawmakers fear push litigation in order to benefit their home countries. Sen. Ted Cruz last month warned Chinese companies could be funding environmental litigation that will harm America's energy market.

Sen. Thom Tillis hoped to include a provision in President Donald Trump's Big Beautiful Bill that would increase the tax rate on TPLF winnings but was beaten back. His measure would've doubled the rate on profits to 41%, treating them as income tax rather than capital gains.