Kansas businesses are seeking transparency in a rapidly growing industry that could impact both their liability and legal cases in the state.
Third party litigation funding (TPLF) has already caught on in the UK and some European countries and in recent years found its way to the U.S. with few rules and little oversight.
Though not yet prevalent in Kansas, hedge funds made up of attorneys have begun pursuing litigation funding opportunities with Kansas businesses, according to Kansas Chamber Vice President of Government Affairs Eric Stafford.
“Law firms in Kansas have received phone calls from third party litigation investment groups expressing interest in funding the firms’ cases,” Stafford explained. “One firm I spoke to about it said they were approached but declined to work with the investors. An argument made in the 2022 Legislative Session questioned whether this will really become an issue in Kansas. The answer is yes it will.”
The Chamber’s recently released 2023 Legislative and Policy Agenda includes TPLF as an item that should be addressed by the Kansas Legislature this session.
The Kansas Supreme Court eliminated caps on non-economic damages, which means pain and suffering awards could start significantly increasing, according to Stafford. Hedge funds can potentially seek out litigation they deem profitable and offer upfront case funding in exchange for a significant return on their investments. Their share could come from settlements, damages, awards and jury verdicts received through trial or through settlement agreements among parties.
Stafford in 2022 gave testimony in support of Senate Bill 152, which would require third-party litigation financing disclosure in Kansas. The testimony pointed out ethical questions surrounding TPLF, explained how the practice encourages fee sharing between lawyers and non-lawyers, and warned about how it undermines a party’s control over its lawsuit. Though SB 152 died in committee, the Kansas Chamber will continue to support legislation which requires disclosure of TPLF in the 2023 Legislative Session.
“We’re not trying to ban the practice,” Stafford clarified. “You’re free to go make money in America however you want, so long as it’s legal but — just as the defense side must disclose their insurance limits and coverage limits — we’re asking for disclosure that there’s a third party with a financial interest in the case. This would allow the defense to decide on whether to defend themselves in trial or reach a settlement. You can’t come to those decisions when you don’t have a full picture.”
A recent episode of 60 Minutes discussed both commercial litigation financing and consumer lawsuit lending, saying the industry is “exploding with nearly no rules or oversight.” The program interviewed Christopher Bogart, CEO of Burford Capital, one the largest commercial litigation funders in the world.
The conversation revealed that players in this industry make relatively low-risk investments in exchange for huge returns, often doubling their investments.
“We’re right about 90% of the time and we’re wrong about 10% of the time,” Bogart said. He also admitted that occasionally funders make more profit from cases than the plaintiff.
While the Kansas Chamber has no desire to stand in the way of any legally run Kansas industry, it continues to support transparency in legal proceedings across the state.
