As an organization that represents more than 1,700 small businesses in New Hampshire, the National Federation of Independent Business (NFIB) believes in free enterprise and fair competition.
NFIB’s core mission is to promote and protect the right of our members to own, operate, and grow their businesses. We believe reducing the tax burden on Main Street has helped New Hampshire lead our region in GDP growth, that state lawmakers are wise to eschew Massachusetts-style business regulations that undercut investment and expansion, and that our state wants a level playing field for small businesses.
Part of ensuring a level playing field is preserving the integrity of our civil justice system. Fairness, transparency, and neutrality in dispute resolution are key to helping small businesses compete in our state and beyond.
Unfortunately, over the past decade, a new trend has crept into our courts that threatens those principles. It’s called commercial litigation financing and typically involves an investment firm funding all or part of the cost of a lawsuit in exchange for a share of any financial settlement or amount won at trial. It’s already a multi-billion-dollar industry for international hedge funds that bet that any return in the form of a court settlement or judgment will far exceed the initial investment in attorneys’ fees and other litigation expenses.
Commercial litigation financing can distort justice by allowing one side to pour investor funds into a civil complaint in the hopes of bullying the other side into financial submission with dubious claims or through endless legal maneuvering. It often happens in secret because state laws and court rules have not caught up to the practice.
Currently, there is no obligation in our state to disclose the existence and amount of commercial financial backing for a civil lawsuit. Imagine trying to defend yourself, prepare for trial, or negotiate a settlement when you don’t know who or what you’re defending against.
Defenders of commercial litigation financing say it’s a legitimate form of investment and that financiers do not control or direct the litigation. However, a recent prominent example of commercial funding gone awry undercuts this claim.
In that case, an international investment firm attempted to commandeer settlement negotiations when the amount offered wasn’t to its liking, even though the party it was funding approved of the settlement. We only know this because the side dispute between funder and litigant spilled over into courts on both sides of the Atlantic.
When the motives of a party who filed a lawsuit diverge from an investment firm whose only stake is in the financial outcome, it creates an obvious problem for our justice system and for everyone in New Hampshire.
A proposal passed by the New Hampshire House of Representatives (HB 733) would take a first step toward ensuring transparency and fairness in our state’s civil justice system. HB 733 establishes two no-brainer requirements.
First, when a person or entity files a complaint and receives commercial financial backing to support the lawsuit, the agreement would be disclosed to all parties. This ensures that someone facing a lawsuit at least knows what they’re up against, and that courts and policymakers have the necessary information to take any additional steps to ensure a level playing field.
Second, a commercial litigation funding agreement cannot be tied to a person or entity from a “foreign country of concern,” a federal designation given to countries that threaten our national security interests. This means that places like China, Russia, and Iran cannot use litigation financing to weaponize American courts against us.
Small businesses care about this issue for much the same reason that everyone should care. Lawsuits are a sometimes necessary but often expensive and time-consuming means of dispute resolution that impact the goods and services we rely on every day. Litigation affects the cost of property insurance and business liability insurance, and large financial awards can raise the cost of just about everything from groceries to your auto coverage.
As the commercial litigation financing industry grows, it’s imperative for state lawmakers to stay ahead of the curve to preserve fairness and transparency. We urge the New Hampshire Senate to send HB 733 to Gov. Ayotte and hope it meets her approval.
