On March 31, the Ohio Senate Judiciary Committee heard sponsor testimony on a bill supported by the Ohio Chamber that would curb a growing industry known as third party litigation financing. The legislation – Senate Bill 94 – sponsored by Sen. Steve Wilson aims to improve the Buckeye State’s legal climate by requiring companies engaged in this industry to disclose their interest in a lawsuit while also protecting consumers from high interest rates and unnecessary surgeries.

Third party litigation financing companies are often times hedge funds that seek to “invest” in pending litigation. These funders will provide everyday Ohioans or their attorneys with funds at the outset of a lawsuit in return for a portion of any settlement or award that may result from the lawsuit. This practice has grown over the last ten years, and more hedge funds are engaging in this financing because the returns on their investment are more lucrative than returns from the stock market. In fact, the largest financing company saw their assets grow more than 400 percent in a four year period and now has a market cap on the London Stock Exchange of nearly $2 billion.

Despite the often high dollar amounts that these companies provide to plaintiffs or their attorneys, Ohio law does not require them to disclose their interest in a lawsuit. This non-disclosure of the financing agreement creates a secretive party in the lawsuit and leads to litigation based upon speculation rather than actual knowledge of all the parties with an interest in the pending case. The secretive party is problematic because it makes it more difficult for the party without knowledge of the third party funder to properly evaluate the value of a case. It also creates incentives for plaintiffs and attorneys to reject reasonable settlement offers since they know a portion of their award will be sent to the hedge fund along with any interest that is owed.

The Ohio Chamber supports SB 94 because it removes the secretive party from the litigation by requiring the disclosure of these agreements to the court and other parties in the lawsuit. This disclosure requirement is not new because insurance agreements have been shared with opposing parties since 1970. Creating parity between insurance policies and financing agreements is a common sense reform that will enable all sides involved in a lawsuit to properly evaluate a claim.

At the Ohio Chamber, we are prepared to testify in support of the legislation so that we can continue educating lawmakers about this practice that uses Ohio’s courts as investment opportunities.