On Monday, June 22nd, North Carolina Governor Josh Stein signed House Bill 315 (Session Law 2026-14) into law, making North Carolina the first state in the nation to prohibit most forms of third-party litigation funding. Third-party litigation funding has become a multibillion-dollar industry in recent years, which has raised concerns about corporate interests’ undue influence on both the litigation process and the court system as a whole.
Lawmakers passed this bill after raising concerns that outside funding can prolong litigation and increase costs. For parties involved in disputes, this is not just a legal development, but a shift in how litigation is financed, evaluated, and resolved.
What Is Changing
The law broadly bans arrangements where a third party, such as a private equity firm or hedge fund, provides funding for litigation in exchange for a return tied to the outcome of a case. The bill applies not just to litigation, but also to efforts to fund arbitration and administrative proceedings.
What methods of litigation funding are still permitted under the new law?
- Legal services performed on a contingency basis.
- An attorney or law firm’s advancement of a party’s costs and expenses in accordance with the North Carolina Rules of Professional Conduct.
- An insurer’s contractual obligation to indemnify or defend a party in a civil proceeding.
- Nonprofit organizations funding litigation involving the nonprofit or one of its employees.
- Nonprofit legal services organizations offering pro-bono, cost-free representation to parties in civil litigation.
- Direct loan to a party, law firm, or attorney, so long as repayment of said loan is not contingent on the outcome of litigation.
- Any money or financial support for personal/household expenses during civil litigation or fees, costs, and expenses of civil litigation offered without repayment or forgiveness tied to the outcome or resolution of said litigation.
- Any money or financial support given to a party for fees, costs, and expenses in a civil proceeding.
- Any money paid by an immediate family member to support a party’s fees, costs, and expenses.
Penalties for violating House Bill 315:
- Any contract made in violation of the Bill is void.
- The Attorney General may bring an action under the bill, where the Court can impose a civil penalty of up to $50,000 per violation.
- Any person injured by a violation of the bill is entitled to damages under common law decided by the trier of fact, or treble the amount of the full potential litigation investment, in addition to court costs and reasonable attorney fees.
Implications for Businesses
Litigation in North Carolina will ultimately become more resource-driven without access to third-party funding. Now, litigants must rely on internal budgets, insurance, or traditional fee structures to defray their legal expenses.
Plaintiffs and defendants alike will also face new questions and concerns related to litigation strategy. Restrictions on third-party litigation funding may lead to more predictable outcomes as costs become a greater strategic discussion point. Disputes may trend toward earlier settlement discussions and resolution as more parties bear responsibility for their own legal fees.
Key Takeaways
North Carolina’s ban on third-party litigation funding fundamentally changes the economics of litigation in the state.
The law preserves core traditional litigation funding methods, such as:
- Contingency fee arrangements
- Law firm advancement of costs
- Insurance defense and indemnity
- Non-contingent lending
Companies actively involved in North Carolina litigation should:
- Review any existing matters for funding-related issues, both internally and for adverse parties.
- Revisit both litigation budgets and criteria for pursuing litigation under the new funding restrictions.
- Discuss revised legal strategy and risk tolerance with your legal and business teams.
Moving forward, litigants should expect a more resource-driven, strategic approach to disputes, along with potential shifts in the timing and resolution of litigation matters. For any questions about House Bill 315 and how the ban on third-party litigation funding impacts your matters, please reach out to the Poyner Spruill litigation team.