Month-In-Brief: Legal Opinions & Ethics

CURRENT MONTH (May 2025)

Professional Responsibility

Georgia Tort Reform Legislation Regulates Third-Party Litigation Finance

By Keith R. Fisher

Alternative litigation financing (“ALF”), also commonly known as third-party litigation financing (“TPLF”), refers to a huge business that, in the United States at least, fills a market niche created by legal ethics restrictions on lawyers financing their clients’ litigation. (That prohibition is currently found in Model Rule 1.8(e), which forbids, subject to certain exceptions, a lawyer from “provid[ing] financial assistance to a client in connection with pending or contemplated litigation.”) ALF/TPLF is also a significant phenomenon in other common law jurisdictions, such as the United Kingdom and Australia.

TPLF constitutes a market solution to lawyers pricing themselves out of the market. Many meritorious claims would otherwise go unvindicated due to the inability of a large percentage of individuals to afford the increasingly exorbitant costs of litigation, particularly against well-heeled defendants.

The business model is relatively simple and is most often encountered on the plaintiff’s side. Various investors, many of them nontraditional lenders, advance funding to plaintiffs in exchange for either an above-market interest rate or a share of the proceeds of the judgment or settlement. The business model requires that the investors’ compensation be high, because the financing is nonrecourse and therefore high risk: if the plaintiff is ultimately unsuccessful, the investors not only receive no return but even lose their principal.

Despite TPLF’s undoubted benefits for many impecunious litigants, there are also a number of problems with it, including (A) the potential for conflicts of interest; (B) erosion of attorney-client privilege; and (C) the potential for inappropriate influence by TPLF providers over litigation strategy, decisions on settlements, and other important aspects involving the exercise of independent legal judgment and zealous advocacy on behalf of the client.

In some states, TPLF constitutes a loan, but in 2018 the Georgia Supreme Court held that TPLF is not a loan but an investment, and therefore the high rates of return to the TPLF provider could not give rise to a claim for usury. Specifically, the court affirmed a lower court’s determination that TPLF did not violate state payday lending or industrial loan statutes. The state high court’s decision, according to some, made consumers more vulnerable to litigation funding predation. Any consumer protection relief would have to come from the legislature.

Fast-forward seven years. Georgia’s highly publicized tort reform legislation, signed into law by Governor Kemp on April 21, 2025, has added significant new requirements affecting TPLF. This was deemed necessary because TPLF has been commonly encountered in mass tort litigation in Georgia. Titled the “Georgia Courts Access and Consumer Protection Act,” Senate Bill 69 (“SB 69”) contains several high-profile features designed to increase TPLF transparency and to deter certain practices (including a prohibition on foreign ownership of litigation finance entities). Similar provisions have been debated in other states.

The most noteworthy provisions of SB 69 are the following:

1. Anyone (natural or juridical person) engaging in litigation funding in Georgia must register with the State’s Department of Banking and Finance (the “Banking Department”). Such filings are public records (for purposes of Georgia law) and include a variety of information prescribed by the Department, including:
   1. the TPLF provider’s legal name and principal business address, including preferred mailing address, telephone number, email address, and address of the provider’s registered agent authorized to accept service of process;
   2. a comprehensive description of ownership structure, including detailed information (including addresses, occupation, citizenship, and criminal record information (if any)) about each person that directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting shares of the TPLF provider;
   3. employment backgrounds and any criminal histories of key personnel, going back for a ten-year period; and
   4. detailed information about any foreign ownership or foreign investment connections.
2. Any person providing litigation funding is forbidden from making decisions with respect to legal representation, litigation strategy, expert witnesses, and settlement. Similarly, no TPLF provider may provide legal advice to a consumer or attempt to secure a remedy or obtain a waiver of any remedy—including, but not limited to, compensatory, statutory, or punitive damages—that the consumer may or may not otherwise be entitled to pursue or recover.
3. Strictly prohibited are (A) payment by a TPLF provider of commissions or referral fees in exchange for referral of a consumer, (B) receipt of any payment for providing goods or services to a consumer, and (C) referring or requiring any consumer to hire or engage any person providing goods or services to consumers.
4. The existence, terms, and conditions of any TPLF agreement for more than $25,000 are discoverable under the rules of procedure. This discoverability may help the defense in ascertaining whether litigation or settlement decisions are being driven by a TPLF provider (which, as noted above, is prohibited) rather than by the plaintiff or counsel.
5. Any TPLF agreement must contain certain disclosures about the consumer’s rights (including specifically the right to cancel the contract) and the TPLF provider’s obligations. Failure to abide by these requirements renders the agreement unenforceable and can, in certain circumstances, constitute a felony.
6. TPLF of more than $25,000 renders the provider “jointly and severally liable for any award or order imposing or assessing costs or monetary sanctions for frivolous litigation against a consumer, entity, or a legal representative of such consumer or entity arising from or relating to” an action or proceeding funded by the provider.
7. Return on the TPLF provider’s investment may not exceed the plaintiff’s share of proceeds after payment of attorney’s fees and costs.
8. Advertising of false or misleading information about TPLF is prohibited.
9. A TPLF provider may not assign or securitize a litigation financing agreement in whole or in part.
10. A TPLF provider may not report a consumer to a credit reporting agency if insufficient funds remain to repay the TPLF provider in full from the proceeds from any judgment, award, settlement, verdict, or other form of monetary relief obtained in a civil action, administrative proceeding, legal claim, or other legal proceeding that is the subject of the TPLF agreement.

Several of these requirements (including, for example, items 2 and 5) must, by statutory mandate, be expressly disclosed in the language of any TPLF agreement, along with the fact that the consumer has a five-day right of cancellation.

The majority of SB 69’s provisions, including the requirement that litigation financiers be registered with the Banking Department, are effective on January 1, 2026. The Banking Department anticipates providing TPLF providers directions on the registration process by October 1 at the latest, which should provide ample time for compliance with registration and other statutory mandates.

It is conceivable, of course, that SB 69 may lead to some unexpected and unfavorable consequences. For example, some of its provisions—including the ongoing obligation to comply with the registration requirements (and make sure the information on file with the Banking Department continues to be accurate) and the joint and several liability for awards or sanctions against the consumer—will likely make TPLF insufficiently profitable for many providers, particularly smaller ones, and lead to decreased availability of litigation financing and undue market concentration in Georgia.