The Fight Over Litigation Capital Has Reached the States
What North Carolina’s ban, Ohio’s new rules, and the push for federal disclosure mean for plaintiff firms planning before 2027.
In a recent episode of The Heart of Law, Adam Rosen of Rocade Capital described the growing effort to restrict litigation funding in terms most trial lawyers will recognize: “It’s the exact same fight, which is tort reform.”
The past several months support his point. North Carolina became the first state to ban certain litigation investments outright. Ohio adopted a new regulatory framework that takes effect October 6. More than 200 companies have asked the federal judiciary to require funding disclosure in civil cases.
For plaintiff firms that use outside capital, or expect to, these developments belong on the fourth quarter agenda.
What Changed This Summer
North Carolina. On June 22, Governor Josh Stein signed House Bill 315, the Prohibit Litigation Investments Act. The law prohibits investments in which money is provided for the fees, costs, and expenses of a civil proceeding in exchange for repayment or another return that depends on the outcome.
The law took effect immediately and applies to civil proceedings commenced on or after June 22, as well as funding contracts entered into, renewed, or amended on or after that date. Contracts that violate the law are void, and a person injured by a violation may recover damages, including statutory damages equal to three times the full potential litigation investment contemplated by the investor.
The exclusions are especially relevant for law firms. The law does not cover contingency fee legal services, an attorney’s advancement of costs permitted under the Rules of Professional Conduct, non-contingent direct loans to a party, law firm, or attorney, or certain arrangements in which the funding source receives no share of the recovery or other return based on the outcome.
Ohio. Ohio took a regulatory approach. On July 7, Governor Mike DeWine signed House Bill 105, which takes effect October 6 and establishes separate rules for consumer legal funding and commercial litigation financing.
The law requires funders to register with the Ohio Attorney General and restricts their ability to influence how litigation is handled or settled. After a covered case resolves, funders must disclose the funding agreement to the Attorney General. The law also prohibits certain funding agreements involving parties domiciled outside the United States.
Elsewhere. Other states have adopted narrower requirements. Kansas requires a party with a covered litigation funding agreement to provide the agreement to the court for in camera review within 30 days of commencing the action or executing the agreement, whichever is later. Unless otherwise stipulated or ordered by the court, the party must also provide other parties with a sworn statement containing specified information about the funding arrangement.
Because the rules differ by jurisdiction and type of arrangement, the structure of a financing facility is central to the analysis.
Why Structure Matters
North Carolina’s exclusions point to a practical reality for plaintiff firms: the way capital is structured may determine whether a particular law applies.
Practitioners are still interpreting the new statutes, and their application to a specific financing facility will depend on the agreement and jurisdiction involved. Firms with matters in states adopting new restrictions should have their arrangements reviewed by qualified counsel.
Where The Debate Is Heading
In April, we wrote that the coalition behind last year’s proposed federal tax on litigation finance had regrouped. The policy debate continued into September. In a September 9 commentary published in Law360, two authors argued that states concerned about liability costs should look to North Carolina’s ban as a model.
Five days later, more than 200 companies submitted a letter to the federal judiciary urging the Advisory Committee on Civil Rules to amend Rule 26 to require disclosure of nonparty litigation funding in civil cases. The Advisory Committee meets October 21 in Washington, D.C., and third-party litigation funding is on its agenda.
Congress is also considering the issue. The Litigation Funding Transparency Act of 2026, introduced in February by Senators Chuck Grassley, Thom Tillis, John Kennedy, and John Cornyn, would require disclosure of third-party funding in class actions, multidistrict litigation, and other large coordinated federal proceedings. A separate House proposal has focused on litigation funding involving foreign parties. As of late September, none of these federal proposals had become law.
What To Review Before Year End
A few questions deserve time on the managing partner’s calendar this quarter.
Where are your cases?
Map where your matters are pending and where you expect to file over the next two years. The jurisdictions involved may determine which funding rules apply.
What kind of capital do you use?
Know exactly which structures your firm uses today and which you are considering, including newer models such as MSOs. These arrangements may be treated differently under state law.
When do your agreements renew?
North Carolina’s law applies to covered contracts renewed or amended on or after June 22. A routine extension or amendment to an existing facility could create new legal considerations. Calendar renewal dates and review proposed changes before signing.
What could you be required to disclose?
Disclosure requirements are developing at the state level and remain under consideration federally. Firms should understand what information about their financing may need to be disclosed, to whom, and when. Keeping documentation and records organized can make those requirements easier to manage.
Who is advising you?
Rosen’s advice to firms considering a capital transaction was direct: “Find transactional counsel that can help you.” As more states adopt their own approaches to litigation funding, that kind of counsel review becomes an important part of evaluating a transaction.
The Longer View
For many plaintiff firms, outside capital can help support the costs and duration of complex litigation. State legislatures, federal rules committees, and Congress are now debating the rules governing that capital.
Firms that understand their financing structure, renewal dates, jurisdictions, and potential disclosure obligations will be better positioned to plan as the regulatory landscape develops. As we have written before, capital planning works best when it starts before you need it.
If your firm is evaluating how a capital decision fits into its broader growth, case inventory, or financial strategy, Mirena and Company can help you think through the business considerations.
This article is provided for informational purposes and does not constitute legal advice.
