Trump Allies Fight Big Business in Litigation Finance Tax Split

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at the strange bedfellows fighting against a new tax on litigation funders. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

The fight over a proposed litigation finance tax is dividing core segments of the Republican Party, with some of President Donald Trump’s prominent populist backers on one side and traditional Big Business on the other.

Stranger yet is that Big Law veterans are on the side of the populist types. Lawyers who’ve founded litigation funding shops find themselves aligned with nonprofit groups that commonly take on “woke capitalism” and rail against DEI initiatives.

Take a step back, and the alliance makes more sense.

Litigation finance, where investors pay lawsuit costs in return for a slice of any payouts that result from the action, has grown to $16.1 billion in assets under management. It’s attracted the attention of large hedge funds, like Fortress Investment Group, and been a boon for major law firms using the funding to grow active plaintiff-side litigation practices.

Litigation funders hold out the business as a way to level the playing field for smaller litigants who otherwise couldn’t afford to take on America’s biggest companies. Like the tens of thousands of people pursuing claims against Johnson & Johnson, alleging the conglomerate’s talc products cause cancer. That David versus Goliath message has caught on with populist-leaning conservative groups. Litigation funds have been popping up to back right-leaning social causes.

These odd bedfellows are united against the business-backed US Chamber of Commerce, which argues that litigation finance encourages frivolous lawsuits and encourages long court fights that increase their costs. The Chamber’s allies against litigation finance include a who’s who of classic big business, such as the National Association of Manufacturers, Exxon Mobil Corp., J&J, and Liberty Mutual.

This divide is on full display in the fight over a litigation finance tax provision included in the Senate version of Trump’s signature budget bill. It would apply a 41% levy on profits generated by litigation finance.

The tax is higher than the top individual income rate in the US—and it would apply to traditionally exempt entities such as pension funds. Litigation funders have said it would cripple the industry by making returns unattractive relative to other investment options.

Grover Norquist vs. America First

Here’s a head scratcher: A big, new tax on litigation funding is supported by a group that says it “opposes all tax increases as a matter of principle.”

Americans for Tax Reform, the conservative group founded by Grover Norquist, in a May article touted the idea of taxing litigation finance to offset other costs in the Trump reconciliation bill. Congress should make lawsuit investors pay the same individual income tax rate as plaintiffs who win awards, the group said (the actual proposal goes further, adding nearly 4% to the highest individual income tax rate).

Days later, Sen. Thom Tillis (R-NC) introduced a bill that would apply the roughly 41% tax rate to the industry, saying “predatory litigation financing allows outside funders, including foreign entities, to profit off our legal system.”

But the provision would also apply to domestic investors, and it would not offset much spending. It will raise $3.5 billion in revenue over 10 years, Tillis’ office said. The House-passed version of the tax and spending bill would add $2.8 trillion to US deficits over the next decade, according to the Congressional Budget Office.

Grover Norquist, president of Americans for Tax Reform Photo: Saul Loeb/AFP/Getty Images

Photographer: Saul Loeb/AFP/Getty Images

The conservative groups aligned with the more populist side of the Republican Party then began to speak up.

Will Hild, executive director of nonprofit Consumers’ Research, wrote that litigation funding is “one of the key tools in the fight against woke capitalism,” and said the Tillis bill would be “disastrous.” Consumers’ Research, which fights “woke corporations,” has been critical of companies such as BlackRock, Coca-Cola, Levi’s, and American Express.

“Where previously large corporations with deep pockets were confident they could crush the little guy and drown them in legal fees, litigation financing helps everyday American(s) fight back,” Hild wrote in a post on social media site X the day after the Tillis legislation was introduced.

Gene Hamilton, president of the Trump-aligned legal group America First Legal, posted on X that the bill is “classic swampy Washington,” saying it attacked a “phantom problem” and would only benefit “major corporate interests” while it “harms individual liberty.”

Co-founded by White House deputy chief of staff Stephen Miller, America First Legal has sued Target, CBS Broadcasting Corp., and Northwestern University’s law school over DEI issues.

“Litigation finance is not the enemy,” Hamilton said.

Fighting ‘Woke Companies’

The Alliance for Consumers, a nonprofit group critical of class action lawyers, this week took issue with a separate provision included in the reconciliation bill that the group said would require litigation funders and law firms to report specific cases they won to the Internal Revenue Service.

In a letter to House Speaker Mike Johnson (R-La.) and Senate Majority Leader John Thune (R-SD) posted on X, Alliance for Consumers Executive Director O.H. Skinner said the provision would harm small, conservative law firms pressing lawsuits against Planned Parenthood or companies’ DEI and ESG policies.

“Litigation finance has been a tool in the fight against woke companies on questions like DEI and ESG,” Skinner wrote.

That lobbying is being joined by efforts from a litigation funding trade group, the International Legal Finance Association, which is engaging lawmakers and hired GOP lobbyist Pete Kirkham, Bloomberg Law reported this week.

One line of communication will likely stress the impact the tax could have on American pension funds, which have invested in some of the largest litigation finance entities.

Bill Farrell, co-founder of litigation funder Longford Capital, said his investors include retirement funds for police and firefighters, who will see their tax rate on the investment jump “from 0 percent to 41 percent.”

“This is going to have a negative effect on American investors, including the pension funds of our first responders,” Farrell said. “I don’t want to tax firefighters’ retirement accounts.”

The odd bedfellows, peculiar alliances, and strange divides make clear what we already know—this is an unusual time in Washington.

Worth Your Time

On Litigation Funding Ads: Emily Siegel gets to the bottom of a mystery ad that appeared to support the Tillis litigation.

On Paul Weiss: More litigators departed Paul Weiss for the spin-off firm founded by Karen Dunn, Bill Isaacson and Jeannie Rhee, Tatyana Monnay reports.

On Sullivan & Cromwell: The firm made a big splash in London, and its local managing partner says more hires could be on the way.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.