North Carolina Enacts First-in-the-Nation Ban on Third-Party Litigation Financing

June 27, 2026 - 03:28

North Carolina has officially become the first state in the country to pass a sweeping ban on third-party litigation financing in civil lawsuits. Governor Josh Stein signed the measure into law, marking a significant shift in how legal battles can be funded within the state. The new law prohibits outside investors from providing money to plaintiffs in exchange for a cut of any potential settlement or court award.

Supporters of the ban argue that third-party funding drives up legal costs and encourages frivolous lawsuits. They claim that when hedge funds or other investors bankroll litigation, they prioritize profit over justice, often pressuring plaintiffs to reject reasonable settlement offers in hopes of a larger payout. Business groups and insurance companies have long pushed for such restrictions, saying the practice inflates premiums and creates an uneven playing field in court.

Opponents, however, warn that the ban will hurt everyday people who cannot afford to hire a lawyer without financial backing. Consumer advocates and trial lawyers argue that litigation funding levels the odds against wealthy corporations and well-funded defendants. Without access to outside capital, they say, many individuals with legitimate claims may be forced to drop their cases or accept unfair settlements.

The law applies to all civil cases, including personal injury, contract disputes, and class actions. Violations could result in sanctions against attorneys or firms that accept outside funding. While a few other states have considered similar restrictions, North Carolina is the first to enact a full ban, setting a potential precedent for the rest of the country. Legal experts expect the law to face court challenges over constitutional concerns, including free speech and access to the courts.