Tax Bill Fights and a Mysterious Ad Buy: Litigation Finance

A couple of weeks ago, my colleague Justin Wise told me about a mysterious advertisement he heard on a soccer podcast that targeted the litigation finance industry. I asked him to send me a recording. What I heard led me down a rabbit hole into trying to figure out how a political advertisement without any disclaimer ended up on air.

“Shadowy overseas funders are paying to sue American companies in our courts,” the ad said, “and they don’t pay a dime in US taxes if there is an award or settlement.”

It appeared to support Sen. Thom Tillis’ (R-NC) bill to establish a litigation finance tax. The source of the ad is unknown: It didn’t include the “paid for by” disclosure required by federal law and the podcast’s vendor didn’t respond to questions about who placed the ad.

It highlights an emerging strategy of using advertisements to turn consumers against the plaintiff’s bar and litigation finance.

To hear more, listen to me on the Bloomberg Law podcast and the On the Merits podcast discussing the story.

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Big, Beautiful Bill

The ad blitz may have worked. Funders got some bad news this week when the tax on the industry was included in the Senate Republicans new version of the tax bill. Tillis had been working to include the plan in the “big, beautiful” bill (H.R. 1), saying it would raise $3.5 billion in revenue over 10 years, according to a handout from his office.

The language is in the bill for now but it can be changed before the Senate ultimately approves it and funders are mobilizing to get it removed. Reconciliation proposals must comply with the so-called Byrd Rule, which restricts items that are not primarily budgetary in nature. This opens up the possibility for senators who oppose the provision—Republicans or Democrats—to try to strip if out through a parliamentary maneuver.

The International Legal Finance Association, the industry trade group, is actively engaging with members of the Senate to ensure they fully understand the consequences of the provision.

The bill would add a 41% tax on the industry but also includes a provision that bars funders from offsetting their gains with losses and removes shields from tax-exempt organizations.

If passed, it could “knock out our industry,” said Bill Farrell, co-founder of litigation funder Longford Capital Management.

What I’m Reading

My colleague Roy Strom has a column about the odd bedfellows joining the litigation finance debate. The measure is exposing rifts within the Republican Party, dividing pro-Trump populists from traditional corporate conservatives. Read More

Investment manager Fortress Investment Group responded to a Wall Street Journal editorial, “Ending a Tax Break for Lawsuits.” Fortress president Jack Neumark wrote that the litigation finance tax would increase taxes on US corporate or state pension funds.

Commentary & Opinion

Senate’s Tax Bill Picks Winners and Losers in Litigation Finance

Vanderbilt Law’s Brian Fitzpatrick writes that the Senate approving a 41% tax on litigation finance investors is discrimination that helps big businesses.