Originally from Handbook on Third-Party Funding in International Arbitration

There is no overarching federal law in the United States regulating third-party litigation funding. As a result, the legal norms governing this practice comprise a patchwork of state statutory and common law. Because each state has its own distinct laws, any discussion of the legal norms and standards applicable to Third-Party Funding in the United States must be accompanied with the general caveat that the law can differ—at times significantly —from one state to another. And while it may be said that Third-Party litigation funding has become commonplace in the United States, there remain individual states where it may have certain limitations, though in most states it has gained virtually full acceptance. Added to this mix is the fact that this is a fast-evolving area of law, and therefore one that requires careful analysis by all parties to an action funded by a third party.

Because a comprehensive analysis of the approach in each U.S. state is beyond the scope of this exercise, these guidelines will attempt to guide the user through the basic principles governing third-party litigation funding in the United States, with the goal of identifying risks and providing useful guidance for parties entering into such transactions. It is not, however intended to be substitute for careful scrutiny of the specific state law applicable to TPF agreements. 

1.1.   The TPF Regime in the United States

1.1.1. Is TPF commonly used in your Jurisdiction? If yes, since when (is it a new trend or a well-established practice)? 

Large-scale Third-Party Funding of commercial cases is still relatively new in the United States, at least by comparison to many European jurisdictions.  Nevertheless, certain types of consumer-oriented litigation funding have been available in the U.S. since the 1980s. The cash advance industry has been involved in funding relatively small amounts of money to consumers, most commonly for personal injury claims, but also sometimes including other individual causes of action, such as securities fraud and employment discrimination claims.  This funding is typically in the form of non-recourse loans. It should be noted that although consumer litigation finance is often discussed in media alongside commercial litigation finance, the two industries are largely separate.

More recently, within the past decade, the United States has witnessed a “new breed” of TPF in large commercial cases.  Today modern commercial litigation funding is a multi-billion dollar industry and is continuing to grow.