Conflicting ideas on how, or whether, to regulate the practice of third-parties paying legal bills has left two warring pieces of legislation on litigation finance up for debate in the Legislature. Litigation finance is a practice in which a third party investor steps in to fund a lawsuit, typically with an agreement granting a cut of any monetary benefit or relief reaped as a result. Business associations, chambers of commerce and insurance companies want third-party financiers to announce litigation investments up front and refrain from influencing cases, with an underlying goal to create more transparency and deter any alleged foreign interference. Litigation financiers, alternative business structure law firms and a Republican lawmaker see disclosure of third party funds as unnecessary, and potentially harmful to parties relying on outside funds. The two bills are making their way through the process, with diametric ideas on the need for disclosure, and some splinters on the best approach to address the specter of foreign bad actors. The industry around third-party litigation funding is fairly new, but growing, with the most recent market value estimated to be about $16.1 billion, according to the 2024 Litigation Finance Report by Westfleet Insider, a litigation finance advisory firm. Regulation has not necessarily kept pace, though. A handful of states have passed legislation to enact disclosure requirements and deter undue influence on litigation, with certain concern on “foreign adversaries” footing legal bills and in turn gaining access to sensitive information or evading sanctions. Arizona lawmakers started tooling with the idea of oversight last session, though the attempt ultimately died on the House floor. This session started with one bill catered to crack open third-party litigation funding. Senate Bill 1215, sponsored by Sen. Vince Leach, R-Tucson, would bring litigation benefactors to light, prohibit undue influence and bar any financiers with connection to “foreign entities of concern” in a civil case. Under the provisions of the bill, parties would have to disclose agreements and the name of the litigation financier, with a built-in right to request additional information if a party believes the agreement could bear some burden on rights, interests or proprietary information. Litigation financiers would be barred from making any decisions in litigation, including strategy, counsel selection or settlement, and paying any referral fees, rendering any overstep a violation of the Arizona Consumer Fraud Act. “This is really, at heart, a consumer protection bill,” Leach told the House Judiciary Committee on March 26. Those in support of the bill, including chambers of commerce and insurance companies, say baseline disclosure is key to fair litigation in the first place. “It's fundamental that they know who is actually behind those lawsuits. Sometimes lawsuits can be funded by a competitor, or, an individual that just has a vendetta,” Chad Heinrich, Arizona state director of the National Federation of Independent Businesses, said. “External investors can actually be engaged in lawsuits just trying to make a profit. We feel like the bare minimum should be upfront disclosure on who is funding the lawsuits, if there is a third party involved.” Rep. Alexander Kolodin, R-Scottsdale, does not agree with mandated disclosure for funders and stressed the importance of attorney-client privilege. He also noted the existing court mechanisms allowing for discovery or protection orders. “There's definitely a lot of potential retaliation that comes into play in major litigation matters, and you shouldn't be able to deprive somebody of the ability to pursue a case by threatening their source of funding,” Kolodin said. His Senate Bill 1542, proposed via a strike everything amendment in the House Judiciary on March 26, would cut disclosure to only include foreign funders, with the exception of civil cases involving the state, and require disclosure to the attorney general, not the court. “With my bill, we're essentially calling the bluff,” Kolodin said. “Foreign bad actors? Okay, sure. We're going to say that in those situations, there's some limited disclosure, and that disclosure is going to be to the AG, because if it's a matter of protecting the state, then, really it should go to the AG.” He continued, “If it's relevant to the litigation, then go pursue it in discovery. But otherwise, if it's just about protecting the state, send it to the AG,” Kolodin said. “If we have to have something, then let's make it really narrowly tailored towards the ostensible purposes of doing all of this.” Kolodin voted to get Leach’s bill out of committee but said he would be a no on the floor. “I put my compromise on the table,” Kolodin said. Heinrich said he did not see both bills moving forward, especially given the missing disclosure piece. And as for foreign actors, he noted a provision in Kolodin’s bill that rendered a reported list of foreign influencers sent to the attorney general confidential, aside from transmittance to the Legislature. “It seems like a report route without consequence,” Heinrich said. All in all, Heinrich harkened back to strong stakeholder support and drew a comparison to the Sixth Amendment’s providing for the right to know their accusers. “If I get sued, I should know first the party that's suing me,” Heinrich said. “I should really know if there's another hand within that lawsuit.” Leach’s bill, Senate Bill 1215, passed the House Judiciary unanimously. Kolodin said he would not likely vote in favor of the bill on the floor, and Rep. David Marshall similarly voted yes but with reservations on his floor vote. Kolodin’s bill, Senate Bill 1542, passed 7-2, with Rep. Selina Bliss, R-Prescott, and Rep. Lupe Contreras, D-Avondale, voting no.