North Carolina has become the first U.S . state to completely prohibit third-party litigation funding through the passage of HB 315. This legislative move aims to prevent outside investors from treating the civil court system as a profit-driven investment vehicle.
How HB 315 makes North Carolina the first state to ban TPLF
The North Carolina legislature passed HB 315 nearly unanimously, establishing a total ban on third-party litigation funding (TPLF). According to the report, this measure is designed to stop the civil justice system from being used as an investment vehicle free of accountability. tPLF is a model that allows external funders to bankroll lawsuits in exchange for a predetermined portion of the final payout.
Critics of the practice argue that TPLF detaches the legal process from the actual merits of a case. Instead of focusing on justice, funders are seen as prioritizing a return on investment, which can lead to pressure on attorneys to pursue speculative claims rather than evidence-based data.
The Taxpayers Protection Alliance's fight against TPLF tax loopholes
The Taxpayers Protection Alliance (TPA) has been a vocal critic of the TPLF model, arguing that it incentivizes the filing of flawed lawsuits. As the report says, the TPA has specifically highlighted tax loopholes that provide preferential treatment for TPLF earnings, which they claim makes the practice more prolific than it should be.
Beyond tax reform, the TPA has urged the International Trade Commission to mandate full disclosures of TPLF arrangements. the goal is to ensure that the financial interests driving a lawsuit are transparent to the court and the opposing parties, preventing hidden investors from manipulating the legal process.
Why FRE 702 is the primary defense against manufactured science
A central concern regarding TPLF is the potential for "manufactured science," where well-funded plaintiffs shop for expert witnesses willing to support speculative claims. To combat this, the Federal Rule of Evidence (FRE) 702 requires judges to act as gatekeepers, ensuring that expert testimony is based on sound methodology and sufficient data.
When state courts fail to align their standards with FRE 702, the risk of distorted verdicts increases. Rigorous enforcement of these gatekeeping directives is seen as the only way to collapse the economic model for meritless litigation, as it prevents unreliable science from ever reaching a jury.
The Arai Helmet litigation and the 2011 shift to Daubert standards
The danger of loose evidentiary standards was illustrated by the case of Dr. W. Bruce Howerton, who sued Arai Helmet, Ltd. following a 1996 motorcycle collision. While a trial court initially excluded Howerton's four expert witnesses, the North Carolina Supreme Court reversed that decision, noting that the state had not yet adopted strict Daubert standards for screening witnesses.
This legal volatility eventually led to a 2011 amendment that aligned North Carolina's laws with FRE 702, officially making North Carolina a "Daubert state." This landmark reform ensures that expert evidence must be based on reliable principles and sufficient data before it can be used to influence a verdict.
Will the ban on TPLF limit access for underfunded plaintiffs?
While the report emphasizes the risks of TPLF, it does not include perspectives from the trial lawyers or plaintiffs who argue that third-party funding provides essential access to justice for those who cannot afford expensive litigation. It remains an open question whether HB 315 will inadvertently protect large corporations by stripping low-income litigants of the means to challenge them.
Additionally, the report does not specify how the state of North Carolina intends to monitor and enforce the ban on existing funding agreements that may have been signed before HB 315 took effect.
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