Montana Reins In Third-Party Lawsuit Financiers
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A new law on the books in Montana places restrictions on third-party groups that finance civil litigation, a development that was welcomed by motor carriers operating in the state.
“This law will help prevent predatory lawsuits that hinder our industry’s ability to serve our state and economy safely and efficiently,” said Duane Williams, executive director of Montana Trucking Association. “When third-party financiers profit from the justice system, it drives up the cost of litigation for everyone and reduces the efficiency of the process.”
Gov. Greg Gianforte on May 5 signed Senate Bill 269, which establishes consumer protections and requires certain disclosures in litigation financing. The legislation was sponsored by state Sen. Greg Hertz (R), a fifth-generation business owner in the state.
“Several years ago, many hedge fund investors, private equity and foreign investors decided to get into this [litigation] investment pool. They began loaning millions of dollars, if not tens of millions of dollars, to litigants in order to finance these [lawsuits],” Hertz told lawmakers in February.
While he noted that the bill does not stop litigation financing, he stressed that it adds transparency by mandating that third parties register with Montana’s secretary of state, prohibiting usury fees, and requiring contain disclosures about the terms of the agreement, such as litigation financing and right to cancellation. Also, opposing sides in litigation can access contracts without filing legal discovery motions for documents “so everyone in the courtroom knows who might be involved in funding these,” Hertz said.
The bill was approved by a 50-0 vote. “The only opposition were people who are providing litigation funding. They didn’t quite like this bill, but everyone else seemed to like it,” Hertz remarked.
It also won unanimous approval in the Montana House of Representatives. State Rep. Katie Zolnikov (R) said before that April 7 vote: “For anyone that doesn’t know, third-party litigation financing is the practice of investors buying a stake in a lawsuit by lending to plaintiffs — at excessive interest rates — or signing on for a stake in the lawsuit proceeds. This typically happens by foreign investors. This bill addresses these concerns by limiting the investors’ share of a plaintiff’s recovery and limiting interest charged to plaintiffs.”
American Trucking Associations President Chris Spear applauded the legislation.
“The civil justice system is not a stock market, but that is what it’s becoming with the rise of third-party litigation financing,” he said. “This common-sense measure will bring lawsuit lenders out from the shadows, and make the fact finders aware that a disinterested third party has a financial stake in any verdict. We expect other states will soon follow Montana’s lead in ensuring full transparency behind this perverse and shady practice.”
ATA believes third-party litigation disincentivizes reasonable civil litigation settlements, and pressures plaintiffs to seek outsized verdicts to provide investment returns for lenders. It described third-party funders usually as “private firms operating large investment portfolios who expect to get a payout if the suit is successful”.
The American Property Casualty Insurance Association also applauded the law.
“Today, plaintiff lawyers often use a host of abusive tactics that turn the civil justice system into a commodities market supporting third parties’ interests rather than the victims’,” said Lyn Elliott, assistant vice president for state government relations. “Everyone benefits from a balanced civil justice system — one that is fair to all participants, promptly resolves legitimate claims and increases the certainty and predictability for all litigants.”
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The group also backed two other insurance reform laws approved by the state Legislature; one establishes a duty to cooperate when dealing with claims and recovery of benefits under an insurance policy, while another requires time-limited settlement demand letters to reasonably describe a claim, include relevant records and allow 60 days for acceptance to facilitate settlements. APCIA said trial lawyers frequently abuse time-limited settlement demand letters and withhold information necessary for insurance carriers to settle claims fairly and quickly.
“These bills will bring important disclosures and standards to curb these tactics. Left unchecked these tactics strip away fairness in the legal system and drive up costs for every American family, individual and business,” Elliott said. “According to the U.S. Chamber of Commerce Institute for Legal Reform, the average American household pays more than a $3,600 ‘tort tax’ due to unnecessary and abusive litigation that raises the costs of products and services.”
Recently, Iowa and Florida have enacted new lawsuit abuse reform laws.
