Attorney Paul Taylor stated during a June 12 hearing that the lack of transparency requirements surrounding third-party litigation funding (TPLF) poses a national security threat, as foreign adversaries such as China can use the practice to influence sensitive U.S. court cases.
"We know that foreign enemies such as China can use third party litigation financing to disrupt American industries important to our national defense," said Taylor. "We know that foreign enemies such as China have the will to exploit any and all means of disrupting American business and our economy generally. We just don't know the extent of it, because we don't have a uniform rule requiring the disclosure of third party litigation financing contracts when money damages are at issue. But we need to know the extent of it before it's too late."
The U.S. Chamber of Commerce Institute for Legal Reform (ILR) released a December 2022 report warning about the national security implications of foreign TPLF. According to the report, TPLF "is a multibillion-dollar global industry that allows hedge funds to secretly invest in lawsuits in exchange for a cut of any award or settlement." Without disclosure requirements around litigation financing, foreign governments can influence lawsuits against American businesses, including those in sensitive industries such as defense.
According to a report from the consulting firm Sedgwick, TPLF creates a loophole through which sanctioned entities can access intellectual property that would otherwise be sealed in court records. States including Indiana and Montana have enacted laws regulating and requiring transparency around TPLF, while Georgia is one of several states that has proposed legislation regarding TPLF.
Georgia Attorney General Chris Carr was one of fourteen state attorneys general who sent a letter in December 2022 urging U.S. Attorney General Merrick Garland and the Department of Justice (DOJ) to address the issue of TPLF, according to the Office of the Georgia Attorney General. "Ensuring that our justice system remains protected from foreign interference is of paramount importance, and we are calling on the DOJ to address this security concern immediately," Carr said. "By funding lawsuits that target specific sectors or businesses, foreign adversaries could weaponize our courts to effectively undermine our nation’s interests."
In addition to sparking national security concerns, TPLF contributes to social inflation, meaning the cost of insurance claims is outpacing general economic inflation, driving insurance costs up for policyholders, according to Sedgwick’s report. Excessive litigation creates a hidden "tort tax" that costs every American household $3,621 annually.
Taylor is an attorney and a fellow at George Mason University’s National Security Institute (NSI), according to NSI’s website. Previously, for more than 20 years he served as Counsel and Chief Counsel to the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice.