Third-Party Litigation Funding: Opportunities and Challenges

Hayden Cole*

Third-Party Litigation Funding or Financing (TPLF) is an emerging tool in today’s legal landscape, offering financial support to litigants but raising ethical and practical issues as well. TPLF is an arrangement where a third party funds a litigant’s, usually a plaintiff’s, litigation costs in exchange for a share of any settlement or judgment.¹ At its most basic, TPLF is like a standard contingent fee arrangement between an attorney and their client. The financier receives payment only if the case succeeds, and the financier bears all the risk.² But, these arrangements become more complicated as the contracts that memorialize them become more sophisticated, attempting to avoid the risks of litigation, align the financial interests of the parties, and comply with varying legal, regulatory, and ethical standards.³

Internationally, billions of dollars are expended annually on TPLF.⁴ While domestically, the TPLF market has grown only recently, yet over the past decade, it is rapidly catching up.⁵ Industry reports estimate these billion-dollar evaluations are rising, driven higher by litigation costs rising themselves and increasing awareness of the practice amongst litigants and law firms alike.⁶ Financiers find TPLF appealing as an uncorrelated investment with market-independent returns, thus fueling its growth.⁷

The benefits of TPLF are most clearly seen in increasing access to justice. For an individual or small business that cannot afford legal fees, these arrangements can provide the capital needed to pursue their claims. This levels the playing field, enabling litigation that would otherwise be abandoned due to lack of funds. From intellectual property to international asset recovery, TPLF has already helped litigants cover the costs of pursuing their claims.⁸ Additionally, transferring the risk to financiers can lead to better outcomes, as litigants relieved of economic pressure are less likely to settle early and more likely to pursue their claims in full. Some argue further that case evaluations by financiers, which may be less biased than those of the litigants themselves, can enhance the quality of litigation since only the most meritorious claims typically get funded.⁹ This filtering process could also reduce frivolous lawsuits.

Yet valid criticisms of TPLF still exist. One concern is that TPLF might encourage frivolous lawsuits, as financiers lured by the possibility of high returns could back purely speculative claims.¹⁰ This fuels arguments mirroring typical judicial administrability concerns of increasing litigation volume, straining court resources, and undermining the integrity of the legal system.¹¹ Additionally, in the context of class actions, TPLF arrangements may hurt a class’s ability to get certified.¹² In the context of class certification, TPLF raises the most questions regarding fairness and adequacy of the class’s representation.¹³ Yet these concerns pale in comparison to those regarding third-party influence on a lawyer’s professional independence and encroachment on the lawyer-client relationship.¹⁴

Undoubtedly, these issues can and do complicate TPLF’s reputation. Many of these arrangements remain undisclosed, prompting further debate over whether courts and opposing parties should be informed.¹⁵ Proponents of disclosure argue that hidden arrangements could foster conflicts of interest, with funders prioritizing profit over the clients’ best interests, and exercising influence over strategy or settlements.¹⁶ While critics of disclosure contend that it ensures fairness, they warn against possible disadvantages to plaintiffs by exposing strategic litigation details.¹⁷

TPLF appears poised for growth, benefiting from technological trends and international acceptance. The use of artificial intelligence is improving the financiers’ ability to evaluate case data, enabling them to predict outcomes with greater accuracy, reducing risk, and refining their investments, culminating in a greater return on these investments overall.¹⁸ Globally, where TPLF is more established and has been normalized and regulated, it offers models for reform at home, such as mandatory disclosure or limits on funder returns.¹⁹ In the U.S., modeling off of such practices could have the effect of harmonizing the market and addressing ethical concerns.²⁰

TPLF is a double-edged sword. It democratizes access to justice by empowering otherwise forgotten litigants, yet risks furthering the inequalities of litigation if left unchecked.²¹ The ability to operate in the shadows amplifies these risks, as undisclosed funding may obscure conflicts or distort a litigant’s priorities.²² To reconcile this, greater transparency is imperative. And some courts have recognized this. However, these first steps are often too vague or broad to ensure responsible financial disclosures. One example is the Northern District of California and its Local Rule 3-15. In the relevant part, the rule states:

The Certification must also disclose any persons, associations of persons, firms, partnerships, corporations (including, but not limited to, parent corporations), or any other entities, other than the parties themselves, known by the party to have either: (i) a financial interest of any kind in the subject matter in controversy or in a party to the proceeding; or (ii) any other kind of interest that could be substantially affected by the outcome of the proceeding.²³

Here, disclosure of TPLF arrangements is lumped together with routine disclosures of corporate financial interests under “any person or entity with a financial interest,” without distinguishing the unique nature of TPLF arrangements. This lack of specificity does not accomplish its goal, as a financier who does not specialize in litigation funding or self-identify as a litigation financier would appear no different from other corporate interests. This lack of clarity undermines the effectiveness of the rules in targeting TPLF transparency. Conversely, if a financier does self-identify as a litigation financier, this rule does not protect the strategic integrity of the parties.

TPLF represents both innovation and challenge for the justice system. Policymakers, financiers, and attorneys must act to balance its promise with its perils. Concerns about the strategic integrity of parties accepting funding are not unfounded. The same applies to the current system, where opposing parties and the judiciary operate in the dark. Proposed legislation like the Litigation Transparency Act seeks to address this by mandating the disclosure of TPLF arrangements, aiming to illuminate the role of third-party funders in litigation.²⁴ As a base, standards for the conduct of financiers must be established to limit influence over case decisions and to safeguard the interests of litigants further.

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* Hayden Cole, J.D. Candidate, University of St. Thomas School of Law Class of 2026 (Associate Editor).

1. U.S. Gov’t Accountability Off., GAO-23-105210, Third-Party Litigation Financing: Market Characteristics, Data, and Trends 1 (2022). ↩︎
2. Jarrett Lewis, Note, Third-Party Litigation Funding: A Boon or Bane to the Progress of Civil Justice?, 33 Geo. J. Legal Ethics 687 (2020). ↩︎
3. Maya Steinitz, The Litigation Finance Contract, 54 Wm. & Mary L. Rev. 455, 483–87 (2012). ↩︎
4. Wash. Health Innovation Council, A Look Beneath the Surface: The Dark Money and Misleading Tactics Harming American Patients 7 (2025). ↩︎
5. U.S. Gov’t Accountability Off., supra note 1, at 4. ↩︎
6. Joel Colman, 5 Trends in Litigation Funding for 2025: Key Insights for Investors, Hays Mews Capital (Dec. 5, 2024), https://www.haysmewscapital.com/news/litigation-funding-trends [https://perma.cc/YUD3-B2Q6]. ↩︎
7. Jerry Theodoru, Time to Shine Light on Dark Third-Party Litigation Funding, R St. Inst. (Mar. 19, 2024), https://www.rstreet.org/commentary/time-to-shine-light-on-dark-third-party-litigation-funding/ [https://perma.cc/2NAR-CVDB]. ↩︎
8. Financing A Company’s Patent Claim, Posted under Case Studies found within What We Do, Burford Capital, https://www.burfordcapital.com/what-we-do/case-studies/case-study-financing-corporate-patent-claim/ [https://perma.cc/46BC-9D6V] (last visited Apr. 30, 2025); How Cessna Finance Turned Arbitration Awards Into Cash, Posted under Case Studies found within What We Do, Burford Capital, https://www.burfordcapital.com/what-we-do/case-studies/how-cessna-finance-turned-arbitration-awards-into-cash/ [https://perma.cc/9AT7-5LM4] (last visited Apr. 30, 2025). ↩︎
9. Robert B. Fuqua, How Litigation Funders Have Improved the Quality of Settlements in America, Harvard Negotiation Law Review, https://journals.law.harvard.edu/hnlr/2020/08/how-litigation-funders-have-improved-the-quality-of-settlements-in-america [https://perma.cc/82NC-GXYF] (last visited Apr. 30, 2025). ↩︎
10. Maya Steinitz, Whose Claim Is This Anyway? Third-Party Litigation Funding, 95 Minn. L. Rev. 1268, 1288 (2011). ↩︎
11. What You Need to Know About Third-Party Litigation Funding, U.S. Chamber of Com. Inst. for Legal Reform (June 7, 2024), https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/ [https://perma.cc/9UFD-45RG]. ↩︎
12. Id. ↩︎
13. Fed. R. Civ. P. 23(a)(4). ↩︎
14. See, e.g., In re Pork Antitrust Litig., Civil No. 18-1776 (JRT/JFD), MDL No. 22-3031 (JRT/JFD), 2024 WL 2819438, at *1 (D. Minn. June 3, 2024) (memorandum opinion and order denying appeal and affirming magistrate judge’s order). ↩︎
15. U.S. Gov’t Accountability Off., supra note 1, at 26–27. ↩︎
16. Lewis, supra note 2, at 693. ↩︎
17. Lewis, supra note 2, at 694. ↩︎
18. Using AI to Help Litigation Finance Pick the Winning Cases, Artificial Law. (May 29, 2019), https://www.artificiallawyer.com/2019/05/29/is-ai-the-future-of-litigation-finance-apex-courtquant-hope-so/
    [https://perma.cc/ZBK7-GACF]. ↩︎
19. Victoria Sahani, Recent Developments in Third-Party Funding, 30 J. Int’l Arb. 443, 447–48 (2013). ↩︎
20. See id. ↩︎
21. U.S. Gov’t Accountability Off., supra note 1, at 18–21. ↩︎
22. Jeffrey James Grosholz, Note, In the Shadows: Third-Party Litigation Funding Agreements and the Effect Their Nondisclosure Has on Civil Trials, 47 Fla. St. U. L. Rev. 481, 497 (2020). ↩︎
23. N.D. Cal. Civ. Loc. R. 3-15(b)(2). ↩︎
24. H.R. 1109, 119th Cong. (2025). ↩︎