California’s A.B. 2305: Impact of Proposed Litigation Funding Bill
California’s proposed A.B. 2305, aimed at insulating litigation from third-party influence, addresses a fundamental principle of our legal system: litigation must be directed by clients and their counsel—not by external capital.
The judiciary is already highly attuned to this mandate. Decisions such as Charge Injection Technologies, Inc. v. E.I. DuPont de Nemours & Co. and Gbarabe v. Chevron Corp. demonstrate a consistent judicial willingness to scrutinize funding arrangements where even the perception of influence exists. The trajectory of the law is clear, and the standard is high.
The Structural Reality of Institutional Funding
What is often overlooked in the legislative debate is that, for sophisticated institutional funders, non-interference is not merely a preference—it is a structural necessity. Any attempt to exert control over litigation strategy introduces catastrophic risk to the investment itself:
Privilege and Disclosure: Excessive control jeopardizes the work-product doctrine and has the potential to lead to a waiver of attorney-client privilege.
Enforceability: Agreements that overreach risk being invalidated under common law doctrines of champerty or maintenance.
Professional Ethics: Interference creates an untenable conflict with an attorney’s ethical and fiduciary duties to their client.
In short, the more a funder seeks to control a case, the more they compromise the viability of their own asset. Robust funding models are therefore intentionally structured to ensure that strategic decisions remain exclusively with the client and their legal team.
A Move Toward Industry Consistency
When structured appropriately, measures like A.B. 2305 act less as a restriction and more as a catalyst for professional consistency. These regulations codify the high standards that reputable, institutional funders already observe, while effectively raising the bar for the broader market.
For the practitioner, this clarity is a welcome development. It provides a predictable framework that reduces the risk of protracted disclosure disputes and allows firms to select funding partners with greater confidence.
The Bottom Line: Partnership Over Permission
For litigators and clients aligned with experienced, institutional investors, A.B. 2305 will change very little. Sophisticated funders do not merely "tolerate" client autonomy; they rely upon it. Our own investment criteria are predicated on this very principle: we fund clients with strong cases who instruct the very best law firms and practitioners to represent them.
While our core competency lies in the financial underwriting of risk, we recognize that our success is fundamentally tethered to the counsel we back. We do not act as "shadow counsel" because our strategy is to invest in your judgment and your advice to your client. For those who choose their partners with care, this bill serves as a validation of existing best practices rather than a new hurdle. Bill or no bill, the most successful funding relationships have always been—and will continue to be—anchored in the expertise and independence of the legal team and a strong, honest relationship between clients, their legal teams and funders.
References
Charge Injection Technologies, Inc. v. E.I. DuPont de Nemours & Co.,
No. N15C-11-196 EMD CCLD, 2016 WL 937400 (Del. Super. Ct. Mar. 9, 2016).
(ordering disclosure of litigation funding arrangements; recognising potential relevance where third-party funding may bear on issues in dispute).Gbarabe v. Chevron Corp.,
No. 14-cv-00173-SI, 2016 WL 4154849 (N.D. Cal. Aug. 5, 2016).
(requiring disclosure of litigation funders in a class action context, including consideration of adequacy and potential influence).Boling v. Prospect Funding Holdings, LLC,
771 F. App’x 562 (6th Cir. 2019) (applying Tennessee law); see also underlying state court proceedings, 2015 WL 5008775 (Tenn. Ct. App. Aug. 24, 2015).
(criticising aspects of consumer litigation funding agreements and highlighting judicial concern around fairness and structure).
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