Louisiana bill regulating litigation financing awaits Landry’s decision

(By Jacob Mathews/The Center Square) — A bill regulating the practice of third-party litigation funding from foreign entities and wealth funds was sent to the governor’s desk last week.

Third-party litigation funding is a practice where hedge funds or other financiers invest in lawsuits for a percentage of any settlement or judgment. This means claimants with limited spending power can receive help with cases they would otherwise need more means to pursue.

External funding in lawsuits is a $15.2 billion industry in the U.S., according to Bloomberg. Lawmakers in Louisiana worry that this practice allows foreign agents to influence their justice system and encourage frivolous claims.

Thus, Senate Bill 355 passed the House and Senate floor and was sent to Gov. Landry’s desk.

SB 355 requires any foreign litigation funds to be disclosed to the attorney general and adverse outside investments to be banned.

“It’s a concern because it’s a transparency issue. We believe that if you are being sued by someone, you have the right to know who that entity is,” Louisiana Lawsuit Abuse Watch Executive Director Lana Venable said. “We argued for automatic disclosure, but the compromise was reached that the funders aren’t automatically disclosed, but they are discoverable.”

A spokesperson for the International Legal Finance Association argued in a house civil law and procedure committee on April 29 that this type of litigation is virtually not present in Louisiana because of civil code article 2652, which prohibits the sale or assignment of litigious rights.

“It would actually have the opposite effect of what their looking for, it would appear to legitimize litigation financing here and create a storm of confusion as to the legislative intent,” the spokesperson said of another similar bill that would’ve regulated litigation financing to a greater extent.

Rep. Josh Carlson, R-Lafayette, argued against that claim during debate, supporting litigation reform.

“Talk to any plaintiffs’ attorney, it would be hard pressed to find an attorney that is not taking out loans on behalf of their clients,” Rep. Carlson said. “We’re actually one of the only states that allow for living expense loans as financed by or provided for by the lawyer.”

Because of heated arguments on both sides of the proposed bills, Sen. Jeremy Stine, R-Lake Charles, wanted to make sure his SB 355 remained what it was,  a compromise.

Similar bills made their way through the Louisiana Legislature in the past few years, but were vetoed by previous Gov. John Bel Edwards, who was heavily supported by the trial bar, Venable said.

Although this issue primarily effects high leverage/money companies and people, Venable says we should be concerned about the trickle down reaction of this practice.

“Right now it’s bigger entities. But this is a new trend, so we want to nip it in the bud before it becomes widespread or problematic,” Venable said.