NJBIA is supporting a bill today that will bring transparency, accountability and fairness to the growing practice of third-party litigation funding in New Jersey.

Bill S-2357 (McKeon, D-27; Lagana, D-38) requires disclosure of third-party litigation funding agreements and establishes certain responsibilities for litigation funders.

It is up for a vote today in the Senate Commerce Committee.

In testimony to the committee, NJBIA Chief Government Affairs Officer Christopher Emigholz said New Jersey’s challenged legal climate has become a significant factor in state economic competitiveness and corporate site-selection decisions.

“The rapid growth of third-party litigation funding has transformed litigation into a multi-billion-dollar investment industry instead of protecting those that have been wronged,” Emigholz said.

“Hedge funds, private equity firms, institutional investors, and even foreign interests are investing in lawsuits in exchange for a share of future settlements or judgments. While these arrangements often remain hidden from courts and opposing parties, they can influence which cases are filed, how aggressively they are pursued, and whether settlements are accepted.

“A litigation system influenced by undisclosed outside investors creates uncertainty and increases costs that ultimately affect workers, consumers, and economic growth,” Emigholz said.

S-2357 requires disclosure of litigation funding agreements so that courts and litigants know when outside investors have a financial stake in a case.

Emigholz said that such disclosure is neither radical nor unprecedented. New Jersey's federal courts already require disclosure of litigation funding arrangements, and several states have enacted similar transparency requirements.

“Disclosure is essential because undisclosed funding can create conflicts of interest, complicate judicial administration, and potentially allow funders to exert influence over litigation decisions,” he said.

“Judges cannot properly assess conflicts of interest, manage settlement discussions, or evaluate the resources available to parties when they are unaware that outside investors are involved.”

The legislation also establishes important guardrails that protect plaintiffs over their outside funders by requiring litigation funders to act in the best interests of funded parties, prohibiting interference with litigation decisions, and ensuring that plaintiffs retain control over their own cases.

The bill also limits the percentage of litigation proceeds that funders can receive, helping ensure that successful plaintiffs—not investors—receive the majority of any recovery.

“S-2357 strikes an appropriate balance,” Emigholz said. “It does not eliminate litigation funding. It does not prevent legitimate lawsuits from moving forward.

“It simply requires transparency, protects litigants, safeguards judicial integrity, and ensures that New Jersey's courts are used to resolve disputes rather than serve as investment platforms for outside financiers.”