Without litigation funding justice falters

When the Senate Parliamentarian removed the litigation finance tax provision from the 'One Big Beautiful Bill,' it might have seemed like a technicality, but it was anything but minor. The move reflects a deeper shift in how lawmakers are starting to engage with the growing intersection of litigation funding and civil justice.

The removal was not a rejection on merit; it was a temporary procedural setback and a warning shot that Congress is warming up to the idea of regulating third-party litigation finance. That should concern everyone who believes in a level playing field for individuals against institutional power.

For years, litigation finance has served as a lifeline for plaintiffs, particularly in personal injury and complex tort cases. Contingency-fee firms routinely shoulder the full burden of risk, and litigation funding helps bridge the gap between financial solvency and access to justice. It equalizes firepower. It gives victims of corporate negligence the ability to fight back and obtain meaningful legal representation.

In 2023, I wrote in a publication about the mechanics of litigation funding and its misunderstood role in the justice system. Since then, bipartisan scrutiny has intensified. Critics warn of inflated settlements, interference with attorney independence and even national security implications. But many of these concerns function as a smokescreen and an attempt to choke off capital to plaintiffs, while institutional defendants continue to benefit from virtually unlimited financial and legal resources.

What's particularly troubling about the now-stricken provision is not just its substance, but the direction it signals. Once Congress begins to tax plaintiff-side funding, it is only a matter of time before disclosure mandates and broader regulation follow. And from there, it's a short step to restricting who can fund litigation, how they do it and under what terms.

Calls for transparency and ethical guardrails in litigation finance are valid, but they must apply equally. Regulating one side of the courtroom while leaving the other untouched will not create fairness; it will harden the existing imbalance.

If lawmakers are serious about transparency, they must apply it to both plaintiffs and defendants. If the IRS intends to tax litigation finance proceeds, it should not ignore the vast sums insurers and corporations spend defending those same cases. Anything less is asymmetric regulation, and asymmetric regulation leads to asymmetric justice.

We've seen what happens when reform is skewed. Consider California's ongoing push to limit contingency fees and attorney advertising. These measures are often framed as "consumer protection," but in practice and reality, they restrict a client's choices, stifle competition and raise the barrier for injured individuals trying to find a lawyer. It's reform that sounds noble but yields consequences that are anything but.

Restricting the financial ecosystem that sustains plaintiff-side litigation has a chilling effect on the pursuit of systemic accountability. Think of cases involving environmental damage, pharmaceutical harm or corporate negligence. These cases are complex and resource-intensive, requiring years of discovery, expert testimony and trial preparation. Without funding, many of these cases would never make it past the filing stage. That's not hypothetical; it's a reality for firms and clients across the country.

That same risk now looms over litigation funding. If Congress proceeds without fully understanding the downstream effects, it could cripple access to justice for everyday Americans, while further empowering insurers, corporations and institutional defendants.

There is a better path forward -- one that protects consumers without gutting their rights:

 Standardized disclosures, narrowly limited to judicial oversight (not public weaponization)

 Uniform tax treatment for all litigation finance, whether plaintiff or defense-side

 Licensing and certification of funders, subject to fiduciary and ethical standards akin to other financial services sectors

 Preservation of attorney independence, with certified safeguards ensuring non-interference in litigation strategy

We should not conflate ethical reform with punitive deterrents. The answer isn't to tax litigation finance into oblivion, but to bring it into the daylight under rules that preserve access, protect consumers and preserve attorney-client autonomy. As lawyers, we must remain vigilant.

The fight for access to justice is ever evolving. It moves through legislation, through bar rules, and increasingly, through economic policy. What's at stake, however, is more than tax treatment. It's the ability of injured people to hold powerful interests accountable. If we lose sight of that, then no amount of "beautiful" bills can restore the damage.