Who’s funding your lawsuit? Florida bills would require disclosure

As legal fees grow larger, more and more plaintiffs are forced to borrow money to fund lawsuits against parties they contend caused their injuries.

But there’s no requirement to inform defendants — including large corporations and insurance companies — when a plaintiff’s lawsuit is funded by a third party.

Nor is there a way for the state to know whether those financiers include foreign interests with anti-American goals.

Bills in the state House and Senate would correct those problems, supporters say.

But opponents say that plaintiffs would be disadvantaged if forced to provide copies of their finance agreements to defendants and their attorneys.

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If enacted, Florida would join at least 10 other states that have regulated third-party litigation financing. Bills in Florida that would have required litigation financiers to register with the Department of State and file surety bonds died in 2023.

As of early 2023, 44 active litigation funders in the U.S. invested a combined $13.5 billion in litigation financing, according to an analysis of the Senate bill by legislative staff members.

Money provided by litigation financiers is not based on plaintiffs’ abilities to repay it, like traditional loans, but on their likelihood of obtaining payment for their claims. Plaintiffs are not required to repay loans if they don’t win their case.

Yet, pitfalls await low-income plaintiffs who enter litigation finance agreements, opponents say. Interest rates aren’t always disclosed. If a trial drags on, plaintiffs can rack up interest and finance costs that exceed what they receive from defendants.

In 2005, a Florida appeals court ruled that it had no authority to overturn a ruling ordering a woman to repay more than $102,000 that had accrued on a $30,000 loan because no Florida law regulated litigation financing.

And there have been cases in which lenders, seeking larger payouts, rejected settlement deals made by plaintiffs and attorneys.

Food distributor Sysco sued litigation funder Burford Capital last year, alleging it prevented Sysco from accepting reasonable settlements in its antitrust lawsuits against chicken, beef and pork suppliers, according to an analysis of the Senate bill by Senate staff members.

The news service Bloomberg reported that the case was a rare instance of a funder taking control of a case after Sysco violated terms of the finance deal. The case was settled but Burford now has complete control over the litigation, the Senate analysis said.

Industries in Florida and other states are becoming alarmed at the growth of litigation financing as a way for large-scale investors to make money while remaining in the shadows.

Some companies, the analysis said, invest in numerous lawsuits belonging to a single attorney or law firm in exchange for a portion of any proceeds.

Supporters told the Senate Judiciary Committee on Monday that the bills, sponsored by Republicans Jay Collins in the Senate and Toby Overdorf in the House, offer necessary fixes.

Alan Mirelman, spokesman for the Florida Justice Reform Institute, a nonprofit dedicated to eliminating “wasteful civil litigation through legislation,” said he became a lawyer because cases were “personal.” Third-party financing removes the “personal” aspect, he said.

“Do we want our lawsuits and claims to be an investment piece? Or do we want them to remain personal?” he said

The Senate version of the bill was unanimously approved, 10-0, by the Judiciary Committee and faces two more committees before going before the full Senate. The House version has not yet been debated in committee.

If enacted, the bills would:

  • Require attorneys to disclose litigation finance agreements to defendants and the court within 30 days of entering the agreement.

  • Prohibit contracts requiring plaintiffs to pay litigation financiers more than they recover in their lawsuit.

  • Require litigation financiers to indemnify plaintiffs against any “adverse costs” unless they result from plaintiffs’ intentional misconduct.

  • Prevent litigation financiers from making decisions in cases they fund, including regarding attorneys, expert witnesses or settlements.

  • Bar payments of referral fees, commissions or other considerations for referring a person to a litigation financier.

  • Prohibit assignment of rights in any lawsuit to litigation financiers other than the right to obtain a share of proceeds.

Another part of the bill concerns foreign people and entities that underwrite litigation financing.

“Available information suggests that sovereign wealth funds — investment funds owned or controlled by a foreign principal or a foreign principal’s agent — and some non-U.S. citizens are participating in litigation funding,” the analysis states.

Foreigners’ involvement in financing litigation, the analysis states, can create competitive advantages for foreign companies doing business in the United States.

They can tie up U.S. companies in lengthy and expensive court cases, gain access to proprietary and sensitive commercial information through litigation discovery, or fund litigation on divisive social issues, the analysis stated.

To address those possibilities, the bill would also require plaintiffs to alert the state Attorney General and Department of Financial Services if the lender includes a foreign person, a foreign principal or sovereign wealth fund.

The bill is supported by a wide range of state-level business organizations, including the Florida Chamber, Personal Insurance Federation of Florida, Florida Insurance Council, and Florida Trucking Association.

Plaintiffs attorneys, however, say proposals in the bills would put plaintiffs at a disadvantage over deep-pocketed corporations in injury lawsuits.

Becca Timmons, a member of the Florida Justice Association, a trade group representing plaintiffs’ attorneys, told the committee that the FJA supports disclosure of foreign entities only to authorities that can “vet, track and regulate” money provided.

The association, she said, does not support provisions in the bill requiring disclosure of litigation loans to defendants, insurers or other parties in lawsuits.

The bill does not require deep-pocketed corporations to disclose where they get their money to fight plaintiffs’ claims, and that puts plaintiffs at a disadvantage, Timmons said.

A disclosure requirement, she said, would harm plaintiffs because corporate defendants would “find out how well-capitalized a plaintiff is, and then outspend, delay and distract.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.