The Evolving Legal Landscape of U.S. Litigation Finance
Last year, in the midst of discussions in the United States Senate over the 2025 funding bill (i.e., the “One Big Beautiful Bill”), Senator Thom Tillis introduced the Tackling Predatory Litigation Funding Act, which sought to impose significant taxes—approximately 40.8% under the current tax code—on returns from litigation funding. Much to the relief of the litigation finance industry, the rate was first reduced to 32%, before, eventually, being removed from the proposed legislation altogether. [1]
In February, a group of U.S. Senators (headed by Senate Judiciary Committee Chair Chuck Grassley) introduced a bill, the Litigation Funding Transparency Act, which would require mandatory disclosure of third-party litigation financing, subject to certain exceptions (including for non-profit legal aid organizations). A similar bill was introduced in the House but, notably, failed to advance out of committee in January.
Much attention has, understandably, been paid to these proposed acts as, if enacted, they would become the first nation-wide regulation of the litigation finance industry. However, this focus on federal legislation risks overlooking the substantial regulation to which the industry is already subject through patchwork of state legislation, common-law, and court rules. Accordingly, to assess the practical legal framework governing litigation funding arrangements, it is worth understanding the state-level landscape.
History of Litigation Finance Regulation
The origins of many state rules around litigation finance, whether legislatively or judicially created, derive from the English common law doctrines of champerty and maintenance. Maintenance refers to the provision of financing or other support for a litigation by a non-party, while champerty is a form of maintenance in which such support is provided in exchange for a share of the proceeds of the litigation.
Although English law has, in more recent history, largely abandoned prohibitions on champerty and maintenance, these doctrines were in force in the late-18th Century. Following American independence, each state adopted some version of English common law, with many (but not all) incorporating the prohibitions on champerty and maintenance. Over time, however, these prohibitions have been significantly narrowed across many jurisdictions, resulting in the varied—and still evolving—landscape that governs litigation funding today.
Current Regulatory Framework
The legal regime governing litigation finance in the United States remains highly fragmented and rapidly evolving. As such, it is worth noting that this article is not intended to be a comprehensive survey of state litigation (and, importantly, should not be relied upon as legal advice!).
With that disclaimer aside, state law treatment of litigation financing arrangements largely falls within one of three categories:
(1) Permissive Jurisdictions
These are jurisdictions that either never adopted champerty restrictions (e.g., New Jersey) or have abolished champerty by court mandate (e.g., Massachusetts [2]). Courts in these states have generally upheld litigation funding arrangements, provided standard contractual and ethical boundaries are met.
Notwithstanding the historical permissiveness of these jurisdictions, recent shifts towards greater regulation on the industry has prompting some of these states to consider more restrictive measures (for example, New York, discussed further below). Accordingly, participants in the litigation finance industry would do well to closely monitor legal and regulatory developments, even in jurisdictions that have historically taken a favourable view of litigation funding
(2) Hostile Jurisdictions
These are the states where litigation funders should be the most careful. In these four states—Alabama, Kentucky, Missouri,and Mississippi—the common law concepts of champerty and maintenance are still applicable and courts have demonstrated a willing to invalidate litigation finance agreements on this basis.
Mississippi and Kentucky have laws expressly prohibiting litigation funding. Mississippi, for example, makes it unlawful by statute for any person or entity to give or receive any money or other thing of value as an “inducement” or “for the purpose of assisting” a person to commence or continue “any proceeding.” [4]
Although there is no legislative ban, state courts in Alabama and Missouri have held that the litigation finance agreements are void as against public policy.For example, in Wilson v. Harris the appellate court in Alabama found that the litigation funding agreement in the matter to be void as an “illegal gambling contract.” [5] Accordingly, litigation funders should be cognisant of any nexus their matters may have to these more restrictive jurisdictions in assessing enforceability risk.
(3) Permissive Jurisdictions with Regulatory or Structural Constraints
The majority of states no longer have (or never adopted) strict prohibitions on litigation funding but, nevertheless, may regulate such funding or refuse to enforce litigation funding arrangements under certain circumstances.
Many states, such as Maryland and North Carolina, do not have specific laws regarding litigation funding but consider such arrangements to be loans and, therefore, unenforceable to the extent these ‘loans’ are usurious. Maryland, for example, provides specific limitations on interest rates and at least one state investigation has determined that a litigation funding agreement was usurious where the rate of return exceeded the rate permitted by statute.
Other states have adopted legislation specifically aimed at regulating litigation funding. For example, Ohio has adopted a statutory framework that expressly authorizes litigation funding while imposing a series of consumer protection requirements, including mandatory disclosures and provisions governing the disbursement of funds. In particular, the legislation requires disclosure to the consumer of the total amount advanced, all fees charged, and the annualized rate of return. [6] In 2023, Montana adopted the Litigation Financing Transparency and Consumer Protection Act, which prohibits, inter alia, recovering greater than 25% of the proceeds of the claim or, if structured as a loan, charging an interest rate greater than the statutory maximum (typically 15%). [7]
More recently, New York enacted the Consumer Litigation Funding Act, effective 17 June 2026, which, as with Montana, imposes a cap on recoveries (limiting returns to 25% of the gross recovery of the litigation), as well as prohibits funders from exercising influence over settlement decisions, and requires consumer litigation funders to register with the state. [8]
Disclosure Requirements
Beyond the question of enforceability, a number of jurisdictions have also moved towards requiring mandatory disclosure of litigation financing arrangements. Legislation adopted in Wisconsin in 2017, for example, requires a party “without awaiting a discovery request” to provide to the opposing party “any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action.” [9]
Recent legislative efforts have focussed on expanding these disclosure regimes, reflecting a broader trend towards transparency. For example, Georgia passed a set of statutes in 2025, codified as the Georgia Courts Access and Consumer Protection Act, which subjects the existence, terms, and conditions of any litigation financing agreement involving $25,000 or more to discovery in civil actions. [10] Kansas similarly passed a law, in April 2025, that would require the disclosure of certain high-level information regarding any litigation funding agreement as well as delivery to the court, for in camera review, of the litigation funding agreement itself. [11]
Even where states do not have mandatory disclosure requirements, plaintiffs are still free to seek disclosure of any litigation financing arrangement under standard discovery procedures. Some courts have been willing to protect the litigation financing agreement, itself, from discovery under the work product doctrine [12], but this protection typically will not extend to the existence of the agreement or the identity of the funder.
How does this Apply to Federal Claims?
The legality and enforceability of litigation funding arrangements are typically issues governed by state law (e.g., contract law, champerty restrictions, attorney ethics/state bar rules). Therefore, even in federal cases, parties contemplating litigation finance should be mindful of the potential jurisdictions that may be implicated in the dispute that could govern the financing arrangement itself, such as the governing law of the litigation funding agreement, the location of the parties to the agreement, the venue in which the claim is brought and the jurisdiction in which a judgment may eventually be enforced.
Likewise, although there is no general obligation to disclose litigation funding in the federal rules, some district courts have adopted local rules that mandate such disclosure. For example, the Northern District of California requires, pursuant to its Standing Orders, that a party to any class, collective, or representative action disclose “any person or entity that is funding the prosecution of any claim or counterclaim.” [13] (Yet another reason for lawyers to remember to always check the local rules!)
Whether justified or not, recent legislative activity at both the state and federal level signals a broader trend in increased scrutiny towards litigation financing arrangements. Against this backdrop, industry participants will need to remain attentive to new legislation and precedent, even from jurisdictions that have historically taken a more permissive approach. Careful structuring and ongoing monitoring of legal developments will remain essential to navigating this complex and evolving landscape.
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Alexandra Plutshack
Senior Underwriter
Toremis Specialty
[1] You can read more about the Tillis Bill, along with other updates in the litigation funding market from last year, in my colleague Sam Tacey’s post here.
[2] Saladini v. Righellis, 687 N.E.2d 1224 (Mass. 1997)
[3] N.Y. Jud. Law § 489
[4] Miss. Code § 97-9-11 (2024)
[5] Wilson v. Harris, 698 So. 2d 265 (Ala. Civ. App. 1996)
[6] Ohio Rev. Code § 1349.55
[7] Mont. Code § 31-4-104 (2025)
[8] N.Y. State Senate Bill 2025-S1104A
[9] 2017 Wisconsin Act 235
[10] 2025-2026 Ga. Senate Bill 69
[11] 2025 Kan. Senate Bill 54
[12] See, e.g., Cont’l Circuits LLC v Intel Corp., 435 F. Supp. 3d 1014, 1021 (D. Ariz. 2020)
[13] N.D. Cal. Standing Order ¶ 17, Nov. 30, 2023