The business community is used to thinking of mass tort litigation as an expensive, but expected, drag on the free enterprise system. This “tort tax” already costs the average American family over $3,600 per year, but now an emerging legal trend may make things drastically worse.

The advent of third-party litigation funding (TPLF), which refers to the practice of entities like hedge funds and commercial financiers injecting upfront money to finance the expensive early stages of class-action lawsuits has rapidly grown to a huge business that is estimated to total billions of dollars. Such partnerships with contingent fee attorneys allow these investors to share in any court award or settlement and have supercharged the growth of mass tort litigation in the American legal system over the last decade.

No one knows exactly how much money entities are sinking into TPLF because there are virtually no government rules that regulate the practice or require transparency. This anonymity allows investors to remain silent partners in litigation, who may or may not voice their opinions when closed-door decisions are made about how to proceed with the cases to their own benefit as opposed to the class of plaintiffs.

It could also make TPLF an attractive avenue for actors outside of the United States with motives more insidious than simply making a profit. This threatens to undermine American security and competitiveness.

Foreign adversaries are constantly looking for ways to gain an asymmetric advantage against the United States, exploiting cybersecurity vulnerabilities, engaging in disinformation campaigns on social media and undermining our economic systems. They also employ other strategies to challenge U.S. power in more subtle ways and may have already learned about the powerful possibilities of quietly manipulating civil litigation to achieve their ends.

A recent Bloomberg Law report details investments made in US court cases by Russian oligarchs with close ties to Vladimir Putin as a way to dodge sanctions imposed by Western governments after Russia’s invasion of Ukraine.

Beyond the glaring issues of allowing for such a legal loophole, there are further concerns that foreign governments could fund litigation against US firms engaged in defense or other strategic industries. This would offer funders the opportunity to both handicap these firms’ operations and gain access to potentially sensitive information revealed in court discovery, effectively using the American legal system to engage in industrial espionage.

This shadowy new funding could further supercharge litigation to prevent the permitting of facilities important to American success.

As the former Secretary of the Interior, I understand how important critical infrastructure such as pipelines, bridges, liquified natural gas terminals, critical mineral mines, and electric transmission lines – as well as technological necessities such as new data centers and advanced nuclear generators – are to American economic success and competitiveness.

The unfortunate reality is that most of these major projects now face courtroom challenges before those facilities can be completed. And while this legal action has historically been driven by domestic litigants with environmental concerns, other entities with nefarious motivations could just as easily use such lawfare to inflict harm against the United States.

Such economic and national security threats are one of the reasons why a group of state Attorneys General recently raised concerns about negative effects that TPLF could have on their own state’s judicial system and why they called for action to be taken to solve the issue. But as it stands, a patchwork of TPLF regulation exists across the country and therefore much work remains to be done.

While rules that require the disclosure of third-party litigation funders if they have the power to influence settlements or decisions have already been implemented in a few states, such safeguards should be adopted across the country.

Congress must also take steps to rein in the abuses of the federal court system caused by TPLF, especially disclosing the identity of foreign investors, and thankfully, Representative Darrell Issa has introduced a bill to institute such reforms. Such steps would allow defendants, plaintiffs, and the courts to determine if outside financial parties are influencing decisions regarding settlements.

Allowing deep-pocketed investors and potentially foreign adversaries to infiltrate legal proceedings that have nothing to do with them for their own financial or political or strategic benefits is more than simply wrong; it is potentially dangerous. It is time for Congress to step in and fix this broken system.
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Gale Norton was Secretary of the Interior 2001-2006 and Colorado Attorney General from 1991-1999.