Friends,
Last week’s newsletter gave a stark warning about third-party litigation finance: outside investors are quietly bankrolling lawsuits for a cut of the payout. A new article shows where that trend is headed next, and it starts right here in Texas.
Bloomberg Law reported that Mikal Watts, the Texas mass tort attorney, is building a proprietary AI tool with a foreign investor, one he plans to “plug in” across personal injury firms, which third-party investors are purchasing and operating as new investment products. In his own words, those investors “are out there buying five, six, seven, eight, 10 different traffic firms” at a time. That’s an important warning signal. Investors, some backed or controlled by foreign capital, are buying ambulance chasers because it’s a good investment.
Texas, like most states, bars non-lawyers from owning law firms outright, but these outside investors aren’t technically buying the firms. They’re creating “Management Services Organizations” (MSOs) that absorb everything around the legal work — intake, marketing, legal assistants, IT, HR, and now AI — while the practice of law stays nominally separate. It’s the same workaround outside investors have used for years to get into physician practices despite bans on the corporate practice of medicine. On paper, it’s a firewall to prevent profit-seeking entities from making legal decisions in lawsuits. Whether it holds up as more than a paperwork exercise is a real question, and one Texas regulators haven’t fully answered.
Follow the incentives, though, and this looks like TPLF’s more ambitious cousin. Instead of funding one lawsuit at a time, outside capital is now buying the assembly line itself. One Arizona firm just took $125 million in outside investment through an MSO. Another investor announced its fourth personal injury firm acquisition last month. The pitch to firms is efficiency. The pitch to investors is volume and predictable returns: more cases, filed faster, at scale, all gunning for huge payouts.
Read on for what other states are doing about Third-Party Lawsuit Funding — and why Lone Star State legislators should be paying attention.
For the future of Texas,
Ryan Patrick
CEO | TLR
A new Washington Examiner op-ed lays out the national security case against secret litigation funding: foreign adversaries increasingly understand that slowing American energy production and manufacturing through endless lawsuits can be just as effective as economic warfare. Because funders aren’t required to disclose themselves, courts, defendants, and the public have no way of knowing whether a hedge fund, an ideological billionaire, or a foreign government is bankrolling a lawsuit against a Texas pipeline, plant, or employer.
One December 2025 report cited in the piece estimates hidden litigation funding could cost the U.S. economy as much as $54 billion in lost output and more than 450,000 lost jobs. Two bills now pending in Congress — the Protecting Our Courts from Foreign Manipulation Act (H.R. 2675) and the Litigation Transparency Act (H.R. 1109) — would require disclosure of these funding arrangements.
Transparency won’t decide who wins a case. But it will tell judges and the public who actually has a financial stake in the outcome.
On July 7, Ohio Governor Mike DeWine signed House Bill 105 into law, a major win for Ohio’s small business community. The new law requires third-party litigation funders to disclose their funding agreements once a case concludes, adds consumer protections so plaintiffs aren’t taken advantage of by their own funders, requires all litigation-funding companies to register with the Ohio Attorney General, and bans funding companies based outside the United States from operating in the state altogether. NFIB Ohio State Director Jared Weiser put it plainly:
“Small businesses need protection from lawsuit abuse, and this bill takes a crucial step forward in bringing transparency and accountability to this growing industry.”
Ohio’s small businesses just got real protection from an industry that profits when lawsuits drag on. Texas small businesses are exposed to the same risk today.
Last month, TLR was invited to join a panel in San Antonio to discuss lawsuit reform and the challenges facing businesses and consumers. TLR CEO Ryan Patrick joined Texas State Sen. Brent Hagenbuch, John Greene with the Texas Trucking Association, and Prasad Sharma with Scopelitis, Garvin, Light, Hanson, & Feary PC for the panel discussion, which ranged from nuclear verdicts and third-party litigation funding to medical damages fraud and staged accident rings. Thank you to Friends of Trucking for inviting TLR to take part in the discussion.
While most states have debated disclosure rules, North Carolina asked a bigger question: why should outside investors be in the courtroom at all? With Democrat Governor Josh Stein’s signature on House Bill 315, North Carolina became the first state in the nation to prohibit third-party litigation funding outright — and it passed with near-unanimous bipartisan support in both chambers.
The case for banning it, not just disclosing it, is backed by real examples. In one high-profile dispute, Sysco’s own litigation funder, Burford Capital, objected to settlements Sysco had already reached with meat suppliers and sought a restraining order to block the deals — leaving the company, in its words, a “litigation hostage” in a case it was trying to resolve. In another, the Florida family at the center of a Netflix documentary is now fighting over the proceeds of a $42 million litigation-funding loan, years after they already won their case.
Outside investors don’t share a plaintiff’s or a business’s interest in resolution — they share an interest in maximizing their own return, even if that means holding a case, and the people trapped in it, hostage longer.
