Class Action Litigation Funding: Ethics, Disclosure, and Reform

Class action litigation funding is an arrangement in which an outside investor pays the costs of pursuing a class action lawsuit in exchange for a share of any settlement or judgment, typically between 20 and 40 percent of the recovery.¹ The funding is non-recourse: if the case loses, the funder gets nothing. The practice is legal across the United States, but it sits at the center of a fast-moving debate about disclosure, funder control, and the fairness of what class members ultimately receive, and both courts and state legislatures have been tightening the rules around it.

How the Arrangement Works

A class action is treated by funders as a commercial financing opportunity, not a consumer product. Commercial litigation funding targets law firms and businesses in high-value disputes, with investment thresholds often starting at $1 million and damages expectations of $10 million or more.² A damages class action resembles a single large commercial claim more than a bundle of small individual cases, which is why it falls in the commercial category rather than the consumer one.³

Before a funder commits, it puts the case through detailed due diligence covering the merits of the claim, likely damages, the defendant’s ability to pay, and the quality of counsel. Burford Capital, the largest publicly traded funder, reports a minimum financing threshold of roughly $5 million and a diligence process of about two months.⁴

Deals come in a few shapes. Single-case funding backs one lawsuit. Portfolio funding covers multiple cases within one law firm, which lets the funder spread risk and draw returns from whichever cases in the group succeed; portfolio deals accounted for roughly two-thirds of new commitments among dedicated funders in 2023.⁵ Percentage-of-recovery agreements remain dominant, at about 72 percent of the market, with hybrid structures blending fixed returns and percentage upside growing in use.⁶

Who the Funders Are

The players are institutional: specialized litigation finance firms, hedge funds, and private equity vehicles. The largest include Burford Capital, Omni Bridgeway, Parabellum Capital, Longford Capital, and Bench Walk Advisors.⁶⁷ U.S. commercial litigation funders held an estimated $15.2 billion in assets under management for case investments as of 2023.¹ The global litigation finance market was valued at roughly $26.8 billion in 2025 and is projected to reach $43.3 billion by 2031.

Class actions have historically been a smaller share of that pie. Major funders spent years avoiding them, in part because established plaintiff firms preferred conventional financing and in part because the ethical scrutiny was intense enough that funders found it “politic to give class actions a wide berth.”³ That reluctance has faded over the past decade, particularly in antitrust class actions.⁸

Why Class Actions Raise Distinct Ethical Problems

The core tension is simple. The funder wants to maximize its return. Class counsel owes fiduciary duties to absent class members. Those interests do not always align, and three specific problems recur.

Funder Control Over Case Decisions

Funding agreements sometimes require the plaintiff to obtain the funder’s consent before accepting a settlement, which functions as a veto in practice.¹ The New York City Bar Association’s Formal Opinion 2024-2 addressed this directly, reaffirming that under Rule 5.4(c) a lawyer may not allow a funder to “direct or regulate” the lawyer’s professional judgment, and that no funding agreement can override a client’s right to make settlement decisions.⁹

Adequacy of Class Representation

Under Rule 23 of the Federal Rules of Civil Procedure, a court must find that proposed class counsel can adequately represent the class before certification. Some commentators worry that reliance on outside funding signals financial weakness or subtly shifts strategic decisions toward the funder’s interests. A firm that discloses its need for third-party financing may “impair its chances of being selected as lead counsel” if the judge reads the arrangement as a sign of insufficient resources.³

Attorney-Client Privilege

Sharing confidential case information with a funder during diligence risks waiving attorney-client privilege and work-product protection. Courts have generally held that the “common interest” exception applies only when parties share identical legal interests, and a funder’s interest is commercial rather than legal.¹⁰ The NYC Bar’s 2024 opinion emphasized that a lawyer must obtain informed consent from the client, including a frank discussion of the privilege risks, before sharing any confidential material with a funder.⁹ Some funders now advise potential clients not to share privileged materials at all, since case merits can often be assessed without them.

What Can Go Wrong: Two Cases That Shaped the Debate

Burford and Sysco

Sysco, the food distribution company, retained Burford Capital to finance antitrust claims against beef and pork suppliers. Burford committed approximately $140 million, and the funding agreement required Sysco to obtain Burford’s written consent before accepting any settlement.¹¹ When Sysco negotiated settlements with several defendants in 2022, Burford refused to approve them as too low. Sysco fired its law firm, and in mid-2023 the parties resolved their internal dispute by having Sysco assign its claims to Carina Ventures LLC, a special purpose vehicle created by a Burford affiliate.¹²

Burford then moved to substitute Carina as plaintiff in the antitrust cases in the District of Minnesota. The court denied the motion under Federal Rule of Civil Procedure 25(c), finding that allowing a litigation financier whose primary interest was maximizing profit to replace the actual litigant would contravene public policy and interfere with the court’s preference for settlement.¹¹ Sysco itself described its position as that of a “litigation hostage forced by a greedy funder to keep litigating cases that it wants to resolve.”¹²

Chevron and the Lago Agrio Case

Burford also invested $4 million in lead plaintiffs’ lawyer Steven Donziger to prosecute the Lago Agrio lawsuit against Chevron, which sought billions of dollars for environmental contamination in Ecuador’s Amazon region. An Ecuadorian trial court initially awarded $18 billion (later reduced to $9 billion). In March 2014, federal Judge Lewis Kaplan ruled that the Ecuadorian judgment was the product of “fraud and racketeering activity” and held Donziger liable for civil RICO violations. Kaplan also criticized litigation funding’s role in the case, finding that the financiers had driven a strategy focused on harassing Chevron through multi-jurisdictional proceedings.¹³ Burford withdrew its support in 2011 after learning of Donziger’s misconduct. Other funders followed, including Woodsford Litigation Funding in 2015 and Russell DeLeon, who had invested roughly $23 million.¹⁴

What Courts Currently Require Be Disclosed

There is no uniform federal rule requiring disclosure of litigation funding, which has left courts and litigants working through what one rulemaking proposal called a “patchwork” of local rules, standing orders, and case-by-case decisions.¹⁵ Several federal district courts have adopted their own requirements:

The Northern District of California has required, under a standing order effective since 2018, that parties in class, collective, or representative actions disclose the identity of anyone funding their claims in the case management statement.¹⁶
The District of New Jersey adopted Local Rule 7.1.1 in 2021, requiring disclosure of any entity providing non-recourse funding in exchange for a contingent financial interest.¹⁶
The District of Delaware issued a 2022 standing order requiring parties receiving funding to file a statement within 30 days of the initial pleading disclosing the funder’s identity, whether it can approve litigation or settlement decisions, and its financial interest.¹⁶

In the national prescription opioid multidistrict litigation in the Northern District of Ohio, counsel were required to submit funding details for in-camera review along with sworn affidavits that the financing created no conflicts and gave the funder no control over strategy or settlement.¹⁶

Case law on defendant discovery of funding agreements has split. In Gbarabe v. Chevron Corp. (N.D. Cal. 2016), Judge Susan Illston ordered the plaintiff to produce an unredacted copy of the funding agreement to Chevron, holding that it was relevant to the Rule 23 adequacy analysis and rejecting a request for in-camera review.¹⁷ By contrast, in Kaplan v. S.A.C. Capital Advisors LP (S.D.N.Y. 2015), the court denied discovery of a funding agreement, finding it irrelevant absent a specific reason to doubt counsel’s resources.¹⁸

Where the Rules Are Heading

Federal Bills and Rule 26

Several bills addressing litigation funding are pending in the 119th Congress. The Litigation Funding Transparency Act of 2026 (S. 3826), introduced by Senators Grassley, Tillis, Kennedy, and Cornyn, would mandate disclosure and production of funding agreements in federal class actions and multidistrict litigation and prohibit funders from controlling litigation decisions in those proceedings.¹⁹ The Litigation Transparency Act (H.R. 1109) would require disclosure of funding arrangements in all federal civil litigation.²⁰ The Protecting Our Courts from Foreign Manipulation Act (H.R. 2675) targets foreign-sourced funding specifically, requiring disclosure and barring foreign governments from investing in U.S. litigation.

Separately, the Federal Rules Advisory Committee formed a subcommittee on third-party litigation funding in late 2024, chaired by Judge R. David Proctor. As of March 2026, the subcommittee had received a joint proposal from Lawyers for Civil Justice and the Institute for Legal Reform to amend Rule 26(a)(1)(A) to require automatic disclosure of funder identity and funding agreements at the outset of all federal cases.²¹ No formal rule change has been adopted.²²

State Laws

States have moved faster than Congress. By 2025, Arizona, Colorado, Georgia, Kansas, Montana, Oklahoma, and Tennessee had enacted litigation funding transparency laws.²³ Among the most significant:

Montana’s SB 269, effective January 2024, requires funders to register with the Secretary of State, mandates disclosure of funding contracts to all parties and the court, caps funder recovery at 25 percent of any settlement or judgment, prohibits funders from controlling litigation decisions, and makes funders jointly and severally liable for costs or sanctions assessed against the funded party.²⁴
Indiana’s HB 1160, signed March 2024, requires disclosure of funding during litigation, bars funders from controlling lawsuits or accessing proprietary data, and prevents foreign adversaries from influencing the litigation.²⁵
West Virginia’s SB 850, signed March 2024, expanded the state’s existing consumer litigation finance law to cover large-scale commercial funding models, with automatic disclosure requirements.²⁵
Colorado’s HB25-1329, effective August 2025, focuses on foreign third-party funders, requiring them to disclose information to the state Attorney General, prohibiting them from influencing the conduct of litigation, and making non-compliance a deceptive trade practice.²⁶

The Case For and Against

Arguments in Favor

Proponents argue that funding improves access to justice by allowing meritorious claims to proceed that would otherwise never be filed. Defendants in class actions are typically large corporations with deep pockets. Plaintiffs and their attorneys bear the risk of complex, yearslong litigation. Non-recourse funding lets plaintiffs take a more “risk-neutral approach,” reducing the pressure to accept lowball settlements simply because they cannot afford to keep fighting.²⁷ The New York City Bar Association’s working group on litigation funding concluded that lawyers and clients “would benefit if lawyers have less restricted access to funding” and that funding “could have a salutary effect in vindicating unpursued civil rights violations.”²⁸

Academic commentators have added that the traditional system, where class counsel self-finances and judges set fees after the fact, discourages the riskiest and most socially valuable cases. Attorneys rationally gravitate toward “piggyback” suits that follow government enforcement actions, and third-party funding could correct this by pricing risk up front.²⁹

Arguments Against

Critics, led most vocally by the U.S. Chamber of Commerce’s Institute for Legal Reform, argue that funding distorts the civil justice system. Their main points:

Inflated claim volumes. Funding combined with aggressive digital marketing allows attorneys to accumulate massive numbers of claims. In the 3M Combat Arms litigation, an early sample showed that nearly 75 percent of claimants had no record of using the product at issue.³⁰
Settlement obstruction, as in the Sysco-Burford dispute.³⁰
Reduced plaintiff recoveries. In documented instances, funders and lawyers have taken more than 80 percent of a settlement. In one Australian class action, funders collected nearly AUS $100 million while individual class members received only AUS $10,000 to AUS $14,000.²³
National security concerns. Foreign sovereign wealth funds and entities from hostile nations may use funding to gain access to confidential discovery or advance strategic interests.³⁰

A Note on Foreign Regimes

Readers comparing U.S. class action funding to other markets should not assume the rules match. Australia’s funded class action market is one of the most mature in the world, rooted in the 2006 High Court decision Campbells Cash and Carry v. Fostif, which established that third-party funding is not an abuse of process. Australian courts exercise broad power to review and cap funder returns at settlement and may order costs against non-party funders.³¹ The United Kingdom has relied on self-regulation through the Association of Litigation Funders, though that framework was disrupted by the UK Supreme Court’s 2023 PACCAR decision, which rendered most percentage-based funding deals unenforceable; a June 2025 Civil Justice Council report has recommended legislation to reverse PACCAR and adopt a “light-touch statutory regime.”³² Every opt-out collective action filed in the UK’s Competition Appeal Tribunal as of mid-2025 was backed by a third-party funder, a level of market penetration well beyond anything yet seen in U.S. class actions.³³

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