Context: As the third-party litigation funding (TPLF) industry has seen a recent boom, so too has the scrutiny it faces. In the U.S., Senators Thom Tillis and Kevin Hern targeted litigation funders with proposed legislation that would impose taxes on litigation finance returns of 31.8% (initially, it was meant to be 40.8%). The bill, named the āTackling Predatory Litigation Funding Actā, would bring āmuch-needed transparency and accountability by taxing these profits and deterring abusive practices that undermine the integrity of our courtsā, Mr. Tillis had previously claimed (May 22, 2025 Thom Tillis press release). But many litigation funders were concerned this bill could upend their business model and wipe out the sector. The provision split the Republican party, with some members emphasizing that large corporations would be able to dodge lawsuits if smaller companies were unable to afford them. Law firm Schulte Roth & Zabel found that the real tax rate for funders could reach as high as 64.95% when accounting for taxes paid when distributing earnings (June 18, 2025 analysis). Meanwhile, large corporations from the technology industry, as well as some other sectors supported it.
Whatās new: The Parliamentarian of the United States Senate, Elizabeth MacDonough, a nonpartisan adviser on Senate rules, yesterday ruled that the proposed tax was not compliant with the expedited procedure Republicans are using to pass the legislation, meaning it will need to be removed from the Republican tax and spending bill.
Direct impact: The news came a day after Mr. Tillis confirmed he would be voting against President Trumpās ābig beautiful billā and not be running for re-election in 2026 (June 30, 2025 CNN article). Unless the Senate can get 60 votes to waive the Byrd Rule, which allows lawmakers to argue that certain provisions have a negligible impact on the budget and must be removed, the bill has been tabled. There is still a small chance that the provision can be resurrected, however, as lawmakers can rewrite bills that are struck down.
Wider ramifications: This is no doubt a huge relief for litigation funders, who may have already started looking outside of the U.S. to invest capital. It comes after litigation funders were also told at the 2nd Annual LF Dealmakers Europe in London last week that āthe role of funders [is] central in the whole collective proceedings regimeā by the UKās Competition Appeal Tribunal (CAT) chairman, Hodge Malek KC (June 25, 2025 ip fray article). The court, he added, is ānot hostile at all [and] wants the best for everyone, including the fundersā.
The Tillis bill’s proposed tax rate would have been substantially higher than the standard U.S. corporate tax rate of 21% (February 28, 2025 PWC tax rates).
Yet several large corporations such as Exxon Mobil Corp. and Uber Technologies Inc., as well as lobbying groups like the American Tort Reform Association, supported the bill, claiming it would increase balance and transparency in the industry (March 2025 Cornell paper (PDF)):
āTPLF can create litigation, not just fund it. Investments by outside funders have enabled the growth of mass tort litigation by covering upfront costs for maximizing the number of claims to flood the courts and overwhelm defendants, and by spreading the risk of filing speculative lawsuits.ā
While the nixing of this bill is a win for the litigation funding industry for now, the market still faces some regulatory initiatives in the U.S., as well as in the EU and the UK.
A few U.S. states are requiring litigants to disclose outside investors, for example. In the EU, the European Parliament called on the European Commission (EC) to propose a regulation for litigation funding (September 13, 2022 European Parliament recommendation). However, it should be noted that there is not much momentum behind that push, and the EC has not yet decided whether to regulate the sector.
Meanwhile, in the UK, the Supreme Court ruled in July 2023 that certain types of litigation funding agreements (LFAs) were a form of damages-based agreement (DBA), calling the validity of a significant number of such agreements into question (including those for collective proceedings in the CAT. This caused two major things to happen:
- Legislation was brought forward, the LFAs (Enforceability) Bill 2024, to clarify that such funding agreements were not DBAs. That bill fell with the call of the UKās general election in July 2024.Ā
- Three appeals were filed in the CAT challenging the enforceability of the new form multiples-based LFAs, arguing that these should also be classified as DBAs.
Speaking on a panel entitled āis regulation going to kill us all?ā at the 2nd Annual LF Dealmakers Europe last week, Susan Dunn, Chair, Association of Litigation Funders, warned that it could be āthe end of fundingā if the LFA (Enforceability) Bill 2024 bill does not get in place soon, and the CAT decides to side with the Supreme Courtās findings (June 27, 2025 ip fray article).