Commercial litigation funding is a growing industry in the United States and around the world. It involves a financier – typically an investment firm – raising money from investors to provide financial backing to an unrelated entity in support of a civil court claim in exchange for a share of any financial reward that results from the litigation.

A financier invests in litigation in the hopes of a significant return on their investment, similar to what is seen in venture capital or other forms of investing. However, instead of an economic market the financier is using the legal system as an investment vehicle.

While there may be a place for people or entities to receive financial support in order to seek redress through the civil justice system, this practice is currently largely unregulated and often happens in the shadows. And when the goals of those directly involved in the lawsuit conflict with the investors, it can cause significant problems for our legal system, unfairly tilt the field against small businesses, and harm consumers who bear the brunt of excessive financial awards and settlements.

New Hampshire’s HB 733, which passed the state House of Representatives earlier this year, would require disclosure of commercial litigation funding agreements to all parties involved in the lawsuit. Rep. Brian Cole (Manchester) said the legislation’s goal is to shine a light on a little known but lucrative practice.

NFIB New Hampshire testified in support of HB 733 before the New Hampshire Senate Judiciary Committee on Thursday, April 24. We highlighted the need for transparency in our civil justice system, which plays an important role in ensuring fairness and a level playing field for small businesses.

HB 733 lets small business owners know who is involved if a claim is filed against them. And, importantly, transparency lets courts and public policymakers see if third party funding is unfairly distorting civil litigation to the detriment of Granite Staters.

The legislation was opposed by trial lawyers and large investment firms, including Parabellum Capital based in New York City.

HB 733 is currently awaiting further action in the state Senate.