Third-Party Litigation Funding

February 17, 2023
Jody Messick

What is third-party litigation funding?

Third-party litigation funding (TPLF) occurs when entities outside of the parties to a lawsuit pay for a portion of its costs in order to have claims to assets rewarded in court1. The two main types of third-party litigation funding are consumer and commercial litigation funding, where the former typically encompass smaller claims concerning personal injury, and the latter typically involves more sophisticated entities with larger claims1. At face value, this exchange seems mutually beneficial. Financers have an additional tool that allows them to diversify their portfolios and parties to litigation can reduce the high costs associated with legal services2. However, this marriage of interests across the financial and legal industries has led to both excitement and concern in the legal community.  

In fact, a 2019 study found that the TPLF market is worth around $10 million in the U.S3

Why is TPLF significant?  

The TPLF market is not regulated at the federal level. While some states have regulations, such as fee and interest rate limits and required disclosure of third-party funders3 , the general unknown surrounding third-party litigation funding has made it an area of concern for those in the legal community. For example, Utah Attorney General Sean D. Reyes signed a letter with 13 attorney generals from other states asking the Department of Justice and U.S. Attorney General Merrick Garland to address TPLF. They cited national security concerns, claiming that foreign countries may utilize TPLF and the American justice system to advance their own interests4.

Other concerns are raised related to an attorney’s ethical obligations to a client when third-party funders are involved. For example, a conflict of interest between the client and the funders may arise, putting the lawyer in a fragile position where they feel pressured to satisfy both parties. Or, attorney client privilege may be waived in order to share information on a case with a funder, thus weakening the client's position in litigation5. These ethical concerns are being heavily debated in the legal community.

Fear surrounding the TPLF market and its impact on the judicial system is not new. Though a relatively new financial tool in the United States, TPLF originated in the Austrailain legal system in 1995 and was adopted in the United Kingdom in 20026. Many arguments against its implementation later turned out to be unfounded. For example, concerns over a massive, exponential increase in class action lawsuits were instead met with steady growth7. The history of TPLF and its modest impact on judicial systems in foreign countries should help mitigate concerns surrounding its growth in the United States.


TPLF is here, in the United States, to stay. Though there are relatively few regulations for the practice on the national or federal level, its ethical considerations and the impact of TPLF on the legal world remains highly controversial in the legal community. Such debate will likely continue and change as court rulings concerning TPLF provide additional insight to the future of the practice.

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