Litigation Finance Limits Advance in Louisiana With New Governor

Two Louisiana bills that put the brakes on the burgeoning litigation finance industry have advanced through initial hurdles, as lawmakers hope to take advantage of a change in governors after last year’s effort fell short with a veto.

One bill requires parties to disclose litigation finance agreements within 60 days after filing a civil action. The state House approved that measure, and it is pending with the Senate Judiciary Committee.

The second bill requires parties to disclose the presence of litigation finance in lawsuits if a foreign entity is the source of funding. That legislation cleared the state Senate and the House Committee on Civil Law and Procedure and needs approval by the full House.

The bills are part of a push in several states to restrict the practice of investors paying for the cost of lawsuits in return for a piece of the proceeds in successful cases. The US Chamber of Commerce is pushing for legislation, saying the $15.2 billion litigation finance industry encourages frivolous lawsuits.

Democratic Governor John Bel Edwards last year vetoed legislation sent to him by the Republican-controlled House and Senate in Louisiana, saying the bill to require disclosure of litigation finance favored large corporations in civil suits. Republican lawmakers, who again hold majorities in both state bodies, hope for a different result this year with a member of their party, Jeff Landry, as the governor.

Republican Representative Emily Chenevert this year has modeled her disclosure bill (HB336) on the one Edwards vetoed. It allows parties to redact the dollar amount financed, makes the contracts subject to discovery and bars funders from directing or influencing litigation.

“The appetite was there already within the legislature and so now it’s like, let’s attempt this and let’s see with a new House and some new senators what could happen,” Chenevert said in an interview. “Let’s do this again, give it another shot.”

Chenevert’s bill was deferred in the Senate Judiciary Committee after the chairman announced that there were 56 proponents and 67 opponents in attendance in line to speak at a hearing. A new date has not yet been scheduled.

The second bill (SB355), introduced by the state Senate majority leader, Jeremy P. Stine, requires disclosure of litigation financed by governments in foreign countries of concern to the state Attorney General, such as China, Russia and Iran. It mirrors legislation brought forward at the federal level last year by Senator John Kennedy (R-La.) and House Speaker Mike Johnson (R-La.).

Other bills

Litigation finance bills have faced mixed results in state legislatures. Earlier this year, Indiana enacted legislation into law that blocks foreign entities from funding lawsuits.

West Virginia updated an existing law to include litigation finance. The statute requires investors to provide a copy of contracts to consumers and does not allow firms to assign or securitize a contract to another party, among other regulations.

In Florida, a bill requiring disclosure of litigation finance agreements and of foreign investments stalled in the House. A bill in Kansas is pending and would allow discovery of litigation funding agreements.

The US Chamber backs the state efforts and earlier this month warned of the risks of litigation finance.

With outside funding, “plaintiffs face minimal risk in bringing forward claims, legitimate or not,” Matt Webb, a senior vice president for the Chamber’s Institute for Legal Reform, wrote in a post. “This dynamic often pressures businesses to settle out of court to avoid the costs and uncertainties of protracted litigation, even when the claims against them lack merit.”

In Louisiana, the Chamber backs Chenevert’s bill though calls Stine’s proposal “under inclusive.” The Stine proposal “addresses foreign funding only, but there are plenty of ways frankly that foreign dollars could be put into US investment vehicles and influences litigation,” said Nathan Morris, a vice president at the Chamber’s legal reform institute.

Litigation finance has defenders in state houses.

“The Chamber’s intentionally approaching states where there is not litigation financing, such as Louisiana, in an attempt to pass a bill that can then be used as a domino in support of national regulation,” said Dai Wai Chin Feman, managing director at funder Parabellum Capital.

He spoke out against Chenevert’s bill as a representative of the industry’s trade group, the International Legal Finance Association, but described Stine’s bill as “acceptable to our industry.”