Litigation Finance Boom: Regulatory Relief and Court Wins Propel Industry into Spotlight

Adrija Dey

College: Heritage Law College

Editor: Malla Greeshma

The U.S. litigation funding sector is enjoying a series of positive developments this week, including significant legislative relief in Washington and legal victories for its leading entity, Burford Capital. On Capitol Hill, the U.S. Senate’s parliamentarian eliminated a substantial proposed tax on litigation financials from the extensive budget bill under consideration, which Senate Republicans approved on Tuesday.[1] This bill, which nonpartisan analysts estimate will increase the nation’s death toll by 3.4 trillion over the next decade, received approval from the House with a vote of 218 to 214 on Thursday.

What is Litigation Finance?

 Litigation financing refers to the practice of third-party investors funding legal claims in exchange for a share of the eventual award or settlement. While once considered controversial, this model has grown exponentially in the last decade, especially in jurisdictions like the US, UK and Australia.

Supporters argue that it promotes access to justice by allowing financially weaker parties to pursue valid claims that they otherwise could not afford. Critics, however, warn of potential ethical concerns, including funders influencing litigation strategies, prolonging litigation for financial gain and compromising client-lawyer confidentiality.[2]

Tax blow averted; a win for the industry:

At the heart of the recent momentum is the Senate parliamentarian’s decision to strike down a controversial tax provision proposed by republican senator Thom Tillis. The provision sought to impose a 40.8% tax on proceeds earned by litigation financiers, a move that was widely criticised by industry stakeholders as regressive and harmful to access to justice.

 The International Legal Finance Association( ILFA),  the main lobbying body of the sector, had earlier argued that such attacks would “chill investment and undermine the ability of under-resourced parties to access justice”. According to ILFA CEO Gary Burnett, the Senate’s decision was “a validation of the industry’s growing role in democratising legal access.”[3]

The provision was removed after Senate parliamentarian Elizabeth MacDonough ruled it did not comply with reconciliation rules. This outcome was a critical reprieve for the $16 billion legal finance sector and is seen as a sign that lawmakers are beginning to better understand the financial and legal implications of regulating an industry still in its growth phase.

Burford Capital’s Legal Triumph:

Adding to the industry’s celebration is Burford Capital’s high-profile legal victory in its long–running litigation against Argentina concerning the state-controlled oil company, YPF.

Burford is progressing closer to securing its substantial portion of a $16.1 billion court judgement against Argentina, which seized a majority interest in the oil and gas firm YPF in 2012. “ The only effect this provision would have had would be to deter investment in justice by imposing burdens on funders, Paul Kong reiterated.” [4]

U.S. District Judge Loretta Preska instructed Argentina on Monday to relinquish its 51% stake in YPF to partially fulfill a $14.39 billion award 2 Peterson Energia Inversora and a $1.71 billion award to Eton Park Capital Management, both of which held minority stakes in YPF.[5]

Lawmakers in the US Congress, including Rep. Darrell Issa, have proposed legislation requiring mandatory disclosure of third-party funding arrangements in federal lawsuits. At the state level, jurisdictions like Indiana, West Virginia and Louisiana have enacted similar regulations aimed at transparency.[6]

Supporters of these disclosure rules argued that they are necessary to uncover hidden interests and protect the integrity of the justice system. Founders, however, are cautious that excessive disclosure could risk revealing privileged information and exposing plaintiffs to retaliation. “The challenge now is to strike the right balance between transparency and protecting the strategic advantages litigation finance can provide”, said legal analyst Rachel Eastman.[7]

Conclusion:

With more than 42 active funders, managing over $16 billion in assets, litigation finance is fast becoming a major alternative.. The Industry’s upward trajectory is also mirrored in recent mergers and acquisitions, such as Clio’s $1 billion acquisition of legal tech platform vLex, which enables streamlined litigation analytics and funding decisions.

Private equity firms and institutional investors are also showing increased interest, particularly in funding mass torts, international arbitration and class action claims. 

According to Dana Masters, financial analyst at Thomson Legal Insights, “Litigation funding is no longer a niche sector, it’s now an essential tool in modern legal practice and a powerful financial instrument”.[8]

References:

1.     David Thomas,Litigation funders get a boost in budget bill drama, court wins, Reauters,(July 7,2025,8:30PM) https://www.reuters.com/legal/government/litigation-funders-get-boost-budget-bill-drama-court-wins-2025-07-03/#:~:text=The%20U.S.%20litigation%20funding%20industry,most%20prominent%20player%2C%20Burford%20Capital.

2.     The International Legal Finance Association, 2020, https://www.ilfa.com/

3.     The Litigation Finance Snare; The case of Burford Capital vs. its corporate client, WSJ opinion,( July 8, 2025,6:30 PM).

[1] David Thomas,Litigation funders get a boost in budget bill drama, court wins, Reauters,(July 7,2025,8:30PM) https://www.reuters.com/legal/government/litigation-funders-get-boost-budget-bill-drama-court-wins-2025-07-03/#:~:text=The%20U.S.%20litigation%20funding%20industry,most%20prominent%20player%2C%20Burford%20Capital.

[2] Ibid.

[3] The International Legal Finance Association, 2020.

[4] Supra note 1

[5] The Litigation Finance Snare; The case of Burford Capital vs. its corporate client, WSJ opinion,( July 8, 2025,6:30 PM).

[6] Ibid.

[7] Ibid.

[8] Supra note 1.