Imagining How U.S. Federalism Would Affect Third-Party Funding Regulation

Document Type

Article

Publication Date

7-21-2025

ISSN

1565-3404

Publisher

De Gruyter

Language

en-US

Abstract

Third-party funding is a global phenomenon, although regulatory enforcement is local. Regulatory approaches vary widely from country to country and within countries, especially in federal legal systems, such as Canada, Australia, and the United States. In Canada, the federal government has not regulated funding at all. In Australia, after a period of state- and province-based experimentation, the highest court took the lead on legalization and instructed the Australian Securities and Investments Commission (ASIC) to license funders at the federal level and promulgate guidelines regarding avoiding conflicts of interest.

The U.S. federal government is learning about third-party funding with an eye toward potential future regulation. Congress has been investigating funding, as evidenced by testimony in congressional hearings, proposed federal legislation, and a nonpartisan study on third-party funding by the Government Accountability Office. In addition, the U.S. Federal Civil Rules Advisory Committee has considered changing the Federal Rules to address third-party funding and recently formed a committee to consider the question further. The U.S. federal government is taking these steps against a patchwork quilt of regulations in various U.S. states regarding third-party funding along a broad spectrum with many conflicting regulations.

This Article explores how federalism affects third-party funding in the U.S. Specifically, it explores the likely effects of third-party funding regulation at the federal level, state level, or both, including examining significant benefits and concerns. Moreover, it predicts whether the U.S. federal government will regulate third-party funding and, if so, how. Finally, this Article does not present a normative argument but rather is a thought experiment that presents various benefits and drawbacks that the U.S. federal government should consider when deciding whether to regulate TPF directly.

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