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Buffalo Law Review

First Page

165

Document Type

Article

Abstract

For the past decade and a half, third-party litigation finance (TPLF) has become an important part of the U.S. civil litigation system, helping litigants (especially plaintiffs) relieve litigation-related financial stresses and prosecute claims to enforce their legal rights. In response to the industry’s appearance, a first generation of TPLF regulation unfolded from roughly 2010 until 2022. This first-generation reform program was a state law phenomenon, with a dozen or so states enacting a series of tentative and piecemeal reforms. Over the past three years, and in response to intense policy demands of business groups like the Institute for Legal Reform (ILR), TPLF regulation has experienced a qualitative intensification. Unlike the first-generation TPLF reform, second-generation reform is happening at the state and federal levels. It also exhibits a more adversarial regulatory posture that at times appears to have eliminationist ambitions, particularly with respect to (1) new civil and criminal penalties and (2) new threats from Congress to tax the industry’s income at punitive rates.

And yet, notwithstanding the clamor from TPLF critics, the available empirical data belie the critics’ complaint that TPLF is responsible for an avalanche of frivolous lawsuits and instead suggest that TPLF providers are carefully selecting for high-quality legal claims. The Article contends that the acceleration of second-generation TPLF reform, fueled by well-organized policy demanders like ILR and others, is outpacing the ability of policymakers to carefully calibrate the social benefits and costs of various proposals to reform the industry. Most troublingly, lawmakers are currently failing to consider the industry’s manifold benefits: how it both solves practical first-order problems of litigants relating to liquidity and risk and also produces several second-order economic and socio-political benefits for society.

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