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New Jersey moves closer to regulating litigation funding providers

11/21/24

By: David M. Hawkins

Third-party litigation funding is a largely unregulated multi-billion-dollar industry that finances lawsuits, usually personal injury lawsuits, in exchange for a pre-determined portion of any recovery or settlement. Critics argue that such funding often leads to hidden control over litigation decisions, causing increased costs for all parties to a litigation, and unnecessary strain on the judicial system by preventing the quick settlement of matters in order to recover a higher amount.  

A small but growing number of states have addressed the issues caused by third-party litigation funding, and other states are beginning to seriously consider addressing these issues as well. A handful of states have enacted legislation that encourages transparency and accountability in civil litigation for all sides. In recent days, New Jersey has taken steps to join Indiana, Louisiana, and West Virginia in regulating the third-party litigation funding industry.  

On October 10, 2024, the Senate Commerce Committee reported favorably Senate Bill No. 1475, setting the Bill up for debate and consideration in the New Jersey Senate. The Bill seeks to regulate consumer legal funding providers, which “are largely unregulated in New Jersey.” The Committee amended the Bill to require several important measures, including one likely to garner the most opposition: allowing disclosure of the existence of a consumer legal funding contract in a civil lawsuit. Under the Bill as proposed, the existence of a consumer legal funding contract would be presumed discoverable in a civil action, and the consumer would have 30 days to disclose the existence of such a contract upon written request.  

Opponents of the Bill argue that disclosure of a legal funding contract would hinder plaintiffs’ recovery efforts by subjecting them to unreasonable settlement offers and potentially causing the disclosure of sensitive information. Supporters of the Bill argue that regulation is necessary, as the provisions therein will protect consumers from egregious rates and provide transparency. Namely, the Bill will require that contracts be plainly written and clearly inform consumers of their obligations, including the amount they will be required to pay if executed.  

The Bill has not been scheduled for debate or vote by the New Jersey Senate. However, we will continue to monitor the outcome of this Bill and evaluate the implications of the passage of the proposed bill.

To learn more, please contact David M. Hawkins at david.hawkins@fmglaw.com or your local FMG relationship partner.