American Journal of Trial Advocacy

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Authored by: Bailey L. Fisher

From class actions to multidistrict litigation (“MDL”), the world of complex litigation in the United States is constantly evolving.[1] The second decade of the 21st century brought many things to the United States– one being third-party lenders.[2] Third-party lenders are entities that finance litigation, often providing funds to law firms or directly to plaintiffs.[3] Naturally, third-party financing in complex cases comes with skepticism from individuals around the legal community.[4] What are the consequences of allowing third-party lenders to fund complex cases, and what can we expect in the future?

Third-party lenders had earlier success in other areas, like Australia and the United Kingdom.[5] With the rise of complex litigation in the United States came opportunities for third-party lenders.[6] The success of third-party litigation funding can largely be attributed to the rise in efforts to solve inequities commonly observed during litigation when companies are able to drown their civil opponents in a sea of costly discovery.[7]  In the words of Judge Jeffrey Cole of the United States District Court for the Northern District of Illinois, Eastern Division, “[c]reative businessmen, ever alert to new opportunities for profit, perceived in this economic inequality a chance to make money and devised what has come to be known as third-party litigation funding, where money is advanced to a plaintiff, and the funder takes an agreed upon cut of the winnings.”[8] While third-party financing may seem like a life vest for plaintiffs, it does not come without concerns, questions, and skepticism.[9]

In the murky waters of complex litigation, one thing is clear—third-party lenders are not bound by the Model Rules of Professional Conduct.[10] However, the attorneys who use them are.[11] Comment 14 to Rule 1.8 of the Model Rules of Professional Conduct states, “[b]ecause third-party payers frequently have interests that differ from those of the client, including interests in minimizing the amount spent on the representation and in learning how the representation is progressing, lawyers are prohibited from accepting or continuing such representations unless the lawyer determines that there will be no interference with the lawyer’s independent professional judgment and there is informed consent from the client.”[12] Attorneys must act in the best interests of their clients when using third-party financing in order to avoid violating their duties to the Bar, especially when it comes to fee sharing and control over the litigation.[13]

In In re Agent Orange Product Liability Litigation, the issue of “whether an undisclosed, consensual fee sharing agreement, which adjusts the distribution of court awarded fees in amounts which represent a multiple of the sums advanced by attorneys to a class for litigation expenses, satisfies the principles governing fee awards and is consistent with the interests of the class” was addressed.[14] In Agent Orange, the fee sharing agreement involved a return on investment.[15] The Second Circuit found that the fee-sharing agreement “places class counsel in a position potentially in conflict with the interests of the class,” as it could lead to an incentive to settle early when the promised return is met, making the settlement offer outweigh the risks of continuing litigation.[16] The court also found that fee sharing agreements must be presented to the court for approval at the time the agreement is formulated.[17] Because third-party litigation funding involves a return on investment, procedures to place clients’ interests first and prevent undue influence should be in place.[18]

In In re Pork Antitrust Litigation, Burford Capital provided financing for MDL.[19] Pursuant to its financing agreement, Burford Capital was granted veto power over settlements.[20] The United States District Court for the Middle District of Minnesota refused to approve conduct that allowed third-party financers to control litigation.[21] Quoting Maslowski v. Prospect Funding Partners LLC, the court stated that courts must “be careful to ensure that litigation financiers do not attempt to control the course of the underlying litigation.”[22]

Questions as to matters of discoverable materials when parties contract with third-party lenders have resulted from the rise in third-party litigation funding.[23] In Miller UK Ltd. v. Caterpillar, Inc., the United States District Court for the Northern District of Illinois, Eastern Division, addressed these issues.[24] Citing multiple articles and commentary on this topic,[25] the opinion in Miller noted the role of the legislature in resolving this societal question, and thus the court refused to comment on the merits or “societal value” of third-party litigation funding.[26] However, the court in Miller did hold that the work product doctrine protects work product in cases involving third-party funding, as long as precautions are taken to not substantially increase the likelihood of opponents receiving the information.[27]

Some state legislatures have enacted laws combatting or restricting the scope of third-party litigation funding.[28] For example, Indiana enacted House Bill 1160, which limits thirty party lender’s access to data, prevents third-party lenders from influencing decisions in lawsuits, and requires disclosure of the financing agreement.[29] States, such as Louisiana, West Virginia, Montana, and Wisconsin have enacted similar laws.[30] Many other states have discussed passing similar legislation.[31]

Attorneys must be able to adapt to the changing tides of complex litigation, especially in the age of third-party financing agreements. For plaintiffs, third-party litigation funding is an extremely attractive method for financing expensive cases and combatting wealthy entities. For defendants, third-party financing can be an obstacle to overcome. Both sides must be cognizant of the changing landscape of funding, especially considering rules, legislation, and comments to the Model Rules of Professional Conduct. Remaining up to date on these changes will allow plaintiffs to protect themselves from attacks by the defense. Defense attorneys should be prepared with relevant arguments, especially when seeking materials during discovery. To protect themselves from violating ethical rules or laws, plaintiff attorneys should disclose financing agreements to the court, shield the third-party from decision making and planning decisions, and create a method for paying third-party lenders that is in the best interests of their clients. The bottom line is this: do not be a puppet and let the third-party financer pull the strings in litigation.

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[1] See Joseph Ostoyich & Becca Brett, US Class Actions: Where We’ve Been and Where We Might Be Headed: Part 3: What Lies Ahead for Class Actions?, Clifford Chance (March 4, 2025), https://www.cliffordchance.com/insights/resources/blogs/group-litigation-and-class-actions/2025/03/us-class-actions-where-we-have-been-and-where-we-might-be-headed-part-3-what-lies-ahead-for-class-actions.html (“The landscape of class action litigation in the United States has undergone significant changes over the past few decades, from an infrequently used tool to an explosion of class actions so great it required the use of MDLs to manage the burdens on the judiciary to the backlash and tightening of class certification standards.”).

[2] Mark Behrens, Third-Party Litigation Funding: A Call for Disclosure and Other Reforms to Address the Stealthy Financial Product That Is Transforming the Civil Justice System, 34 Cornell J.L. & Pub. Pol’y 1, at 4 (2024) (“Large-scale TPLF began in Australia, made its way to the United Kingdom, and arrived in the United States about a decade ago.”).

[3] What You Need to Know About Third Party Litigation Funding, U.S. Chamber of Commerce Institute for Legal Reform (June 7, 2024), https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/ (“Litigation Funders: Entities that advance money to plaintiffs or law firms to cover litigation or other costs on a non-recourse basis contingent on the outcome of the case.”).

[4] See id.

[5] Mark Behrens, supra n. 2, at 4.

[6] See Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, 718 (N.D. Ill. 2014).

[7] Id. (“Where a defendant enjoys substantial economic superiority, it can, if it chooses, embark on a scorched earth policy and overwhelm its opponent.”).

[8] Id.

[9] See id. (“Third party litigation funding is a relatively new phenomenon in the United States. The business model has generated a good deal of commentary about and controversy over its intrinsic value to society (or lack thereof depending on one’s perspective) and the discoverability of the actual funding contract and information turned over to prospective funders by a party’s lawyer during negotiations to secure financing.”).

[10] See Model Rules of Pro. Conduct r. 1.8, cmt. 14 (Am. Bar Ass’n). 

[11] Id.

[12] Id.

[13] See id.; see In re Agent Orange Prod. Liab. Litig., 818 F.2d 216 (2d Cir. 1987); see In re Pork Antitrust Litig., No. CV 18-1776 (JRT/JFD), 2024 WL 2819438 (D. Minn. June 3, 2024).

[14] Agent Orange, 818 F.2d at 221-22.

[15] Id. at 223-24.

[16] Id. at 224.

[17] Id. at 226.

[18] See id.

[19] Pork Antitrust, at *1.

[20] Id.

[21] Id. at *4.

[22] Id.; see Maslowski v. Prospect Funding Partners LLC, 944 N.W.2d 235, 241 (Minn. 2020).

[23] See Miller,17 F. Supp. 3d at 711.

[24] Id.

[25] Id. at 718 n.1.

[26] Id. at 742.

[27] Id. at 735-37 (first citing Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1428 (3rd Cir. 1991); and then quoting Appleton Papers, Inc. v. E.P.A., 702 F.3d 1018, 1025 (7th Cir. 2012)).

[28] New Legislation in Indiana, Louisiana, and West Virginia Addresses Secretive Third Party Litigation Funding, U.S. Chamber of Commerce Institute for Legal Reform (July 25, 2024), https://instituteforlegalreform.com/blog/new-legislation-in-indiana-louisiana-and-west-virginia-addresses-secretive-third-party-litigation-funding/.

[29] Id.

[30] Id.

[31] More States Pushing Back on Third-Party Litigation Funding, Claims and Litigation Management Alliance (April 23, 2024), https://www.theclm.org/Magazine/articles/more-states-moving-to-regulate-third-party-litigation-funding-of-plaintiffs-lawsuits/2923#:~:text=Considering%20the%20mixed%20results%20in,but%20none%20of%20those%20passed.