Dual Efforts in Arizona Crack Down on Lawsuit Financing
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A two-pronged effort in Arizona promises to bring greater accountability and transparency to third-party litigation financing in civil lawsuits.
A new law restricts litigation financiers from paying or offering to pay commissions, referral fees or other consideration to individual attorneys, law firms or health care providers for referring a person to that financier.
It also prohibits a financier from providing funding to or in connection with a litigation financing agreement that is — directly or indirectly — financed by a foreign entity of concern.
The law also prohibits a litigation financier from directing or making decisions regarding courses of legal action in a case subject to a financing agreement. It further restricts financiers from appointing or changing counsel, selecting expert witnesses and litigation strategy. Additionally, the law requires the named party and counsel of record to retain all rights to control and decision-making regarding the legal action.
The legislation is particularly significant for Arizona's trucking industry, which faces an increasing number of lawsuits often backed by third-party funding. These cases can result in inflated damage awards and prolonged legal battles that drive up insurance costs for carriers and affect freight rates throughout the supply chain.
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Gov. Katie Hobbs signed the legislation — — in late June. It takes effect Dec. 31. A similar legislative effort failed last year.
Third-party litigation financing occurs when lenders or investors pay for a person or entity to engage in a lawsuit under a stipulation that they receive money in return from a settlement or awards for damages.
The bill was sponsored by Sen. Vince Leach (R) and had support from the Arizona Trucking Association, Arizona Farm Bureau, Arizona Food Marketing Alliance, Southern Arizona Leadership Council, Arizona Lodging and Tourism Association, Arizona Manufacturers Council and Greater Phoenix Chamber.
“The law bars litigation funding directly or indirectly financed by foreign entities of concern, including governments identified by federal authorities as national security threats. Funders are prohibited from influencing case decisions, legal strategy, attorney selection or settlements. Control must remain solely with the litigants and their counsel,” , president and CEO of the Arizona Trucking Association.
Arizona Chamber of Commerce & Industry executive vice president “a smart, targeted reform that preserves access to justice while preventing abuses that can encourage expensive, unnecessary litigation and undermine fairness.”
Separately, the Arizona Supreme Court on Aug. 26 seeking increased transparency in third-party litigation funding agreements. The procedural change, which takes effect Jan. 1, requires litigants in third-party financed civil lawsuits to disclose the names, addresses and locations where the investor businesses were formed.
The ruling also requires investors in these lawsuits to identify their financial interests in the litigation, and whether the funding is applicable to a portfolio of cases or specific to a lawsuit.
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While this ruling wasn’t as comprehensive as the new law, supporters said both actions strengthen the state’s lawsuit abuse reform efforts.
“This is a major win for Arizona’s trucking industry and the broader business community,” Bradley noted. “By increasing transparency and eliminating abusive practices, we are reducing the risk of frivolous lawsuits, stabilizing costs for trucking companies and protecting the integrity of our courts.”
He said these outside funders fuel runaway lawsuits, extend litigation timelines and add upward pressure on the cost of insurance for every carrier on the road. “By requiring disclosure, Arizona has taken a critical step to protect our industry, ensure fairness in the courts and keep our state’s economy moving forward,” Bradley added.
“These loans have a distorting effect on lawsuits,” Arizona Chamber of Commerce & Industry CEO . “They drive up costs and they extend the length of litigation, as plaintiffs attempt not only to settle their case but also to pay off their loan.”
Bradley stressed that his group has since 2023 been pursuing a “two-track” approach on the issue through the courts and legislature.
“For our members, this means a fairer, more predictable legal environment and, ultimately, a stronger foundation for doing business in Arizona,” he said.
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