Provides relative to disclosure of financing agreements

HOUSE BILL 240 — LEGAL ANALYSIS Third-Party Litigation Financing: Recovery Limitations and Disclosure Requirements Author: Representative Emily Chenevert | 2026 Regular Session

Statutory Context:

House Bill 240 amends and reenacts R.S. 9:3580.13(B) and (C) and enacts new R.S. 9:3580.13(D) and (E). These provisions are located in Title 9 of the Louisiana Revised Statutes, which governs Civil Code Ancillaries, specifically within the Chapter addressing third-party litigation financing. R.S. 9:3580.13 is captioned "Disclosure of financing agreements; discovery," and prior to this bill's changes, it contained three subsections. Subsection A, which is not modified by this bill and therefore remains in its current form, presumably sets out foundational definitions or general applicability provisions for the Chapter. Subsection B in its pre-amendment form provided that the existence of a litigation financing contract or agreement is subject to discovery in accordance with the Code of Civil Procedure and the Code of Evidence in all civil actions. Subsection C in its pre-amendment form contained an exemption stating that the Chapter does not apply to nonprofit legal organizations funded by private donors that represent clients on a pro bono basis. The bill substantially reorganizes and expands these provisions while introducing new substantive law governing how much a litigation financier may recover and imposing attorney disclosure obligations.

Scope and Nature of the Change:

The bill makes several categories of legal changes, each warranting separate examination.

Regarding the amendments to Subsection B: The existing Subsection B, which addressed discoverability of litigation financing agreements, is deleted in its entirety and replaced with a substantive cap on the financial recovery available to litigation financiers. The deleted language — providing that the existence of a litigation financing contract is subject to discovery under the Code of Civil Procedure and Code of Evidence — is not eliminated from Louisiana law but rather relocated. The discoverability rule migrates to the new Subsection C, as discussed below. The replacement Subsection B introduces a hard cap on litigation financier recovery, prohibiting any litigation financer from receiving or recovering, whether directly or indirectly, any amount greater than an amount equal to the share of the proceeds collectively recovered by the plaintiffs or claimants in the underlying legal proceeding after the payment of attorney fees and costs owed in connection with that proceeding. This is a substantive change to the legal rights and remedies available to litigation financing companies. The phrase "whether directly or indirectly" signals a legislative intent to foreclose evasive structuring through intermediaries, subsidiaries, or contractual workarounds. The cap applies broadly across civil actions, administrative proceedings, legal claims, and other legal proceedings seeking monetary damages, making the scope of coverage intentionally wide.

Regarding the amendments to Subsection C: The existing Subsection C, which contained the nonprofit pro bono exemption, is deleted and replaced with the discoverability rule previously housed in Subsection B. The newly enacted Subsection C thus preserves the substance of old Subsection B verbatim — confirming that litigation financing contracts remain subject to discovery under the Code of Civil Procedure and the Code of Evidence in all civil actions. This is a structural reorganization with no substantive change to the discoverability rule itself.

Regarding new Subsection D: This provision is entirely new law and imposes a disclosure obligation on attorneys who enter into litigation financing contracts or agreements. The attorney must both disclose the existence of the agreement and deliver an actual copy of the contract to the client the attorney represents in the financed proceeding. The disclosure and delivery must occur within thirty days after the attorney is retained as counsel, or within thirty days after the litigation financing agreement is executed, whichever date is earlier. The whichever-is-earlier trigger is significant: if the financing agreement is entered into after representation commences, the clock runs from the date the agreement is signed, potentially requiring rapid disclosure. The obligation runs to the attorney personally, not to the financier, placing the disclosure burden squarely within the attorney-client relationship and raising direct implications for professional responsibility.

Regarding new Subsection E: This provision re-enacts and expands the nonprofit pro bono exemption previously found in old Subsection C. The prior exemption stated simply that the Chapter does not apply to nonprofit legal organizations funded by private donors representing clients pro bono. The new Subsection E retains this core exemption and adds two affirmative clarifications that were not present in existing law. First, it specifies that awards of costs or attorney fees to nonprofit legal organizations are not affected by the Chapter, ensuring that the recovery cap in new Subsection B cannot be used to reduce fee awards to qualifying nonprofits. Second, it provides expressly that the Chapter shall not be interpreted to require a nonprofit legal organization to disclose its donors or sources of funding, preempting any argument that the attorney disclosure requirement in new Subsection D could compel nonprofit funding transparency.

Purpose and Legislative Intent:

The bill addresses two perceived problems in Louisiana's current regulation of third-party litigation financing. The first is the structural concern that litigation financiers — entities that provide capital to fund litigation in exchange for a portion of any recovery — may extract returns that exceed a proportionate share of the net proceeds actually recovered by plaintiffs, creating incentives that are misaligned with the interests of litigants and potentially distorting settlement and litigation decisions. The recovery cap in new Subsection B is designed to prevent financiers from profiting at levels disproportionate to what plaintiffs themselves receive after fees and costs. The second concern is informational asymmetry between attorneys and clients. When an attorney secures third-party financing for litigation, the client may not know that such an arrangement exists, may not understand how it affects the proceeds available to them, and may not be positioned to evaluate whether the arrangement serves their interests. New Subsection D addresses this by mandating timely disclosure and contract delivery, ensuring the client has actual knowledge of the financing arrangement and access to its terms. The expanded nonprofit exemption in Subsection E reflects a legislative judgment that the concerns animating both the recovery cap and the disclosure requirement — namely, profit extraction and client information asymmetry — do not arise in the context of pro bono representation by donor-funded nonprofits, and that restricting such organizations would harm access to justice without a corresponding regulatory benefit.

Practical Impact and Affected Parties:

Litigation financing companies operating in Louisiana will experience the most direct impact from new Subsection B. Commercial litigation financiers that currently structure contracts to capture returns tied to gross recoveries, pre-fee amounts, multipliers on invested capital, or other metrics yielding sums in excess of the net plaintiff share will find their recovery rights capped by statute. This represents a significant constraint on commercial structuring and may render certain existing or contemplated financing arrangements either unenforceable or economically unattractive for financiers. The bill does not define what constitutes a litigation financer or a litigation financing contract, so the applicability of the cap will depend on the definitions already present elsewhere in Chapter 3580 of Title 9. Practitioners advising litigation financing companies will need to examine those definitions carefully to determine which financing structures fall within the statute's reach.

Louisiana attorneys who enter into litigation financing agreements face new professional obligations under Subsection D. The disclosure and delivery requirement has implications beyond mere statutory compliance — failure to comply could constitute a breach of fiduciary duty to the client under Louisiana's civil law conception of the attorney-client relationship, and could also implicate the Louisiana Rules of Professional Conduct, particularly those governing communication with clients and conflicts of interest. The thirty-day window is firm, and the whichever-is-earlier rule means attorneys cannot delay disclosure pending future events. Attorneys entering into pre-litigation financing arrangements before a client is formally retained face particular timing complexity, as the disclosure window would run from the date of retention.

Plaintiffs and claimants in financed litigation stand to benefit from both provisions. The recovery cap preserves a larger share of net proceeds for the actual litigants, and the disclosure requirement ensures clients are aware of financing arrangements that affect the distribution of any recovery. Defense parties and their insurers may also have an interest in the discoverability rule preserved in new Subsection C, as access to litigation financing agreements during discovery can reveal the structure and incentives of the opposing party's litigation position.

Nonprofit legal organizations operating in Louisiana that represent clients on a pro bono basis are expressly insulated from the Chapter's requirements by Subsection E. The donor confidentiality protection added by Subsection E provides additional assurance to such organizations that compliance with other provisions of the Chapter cannot be leveraged to compel financial disclosure, which is particularly significant for organizations that depend on confidential donor relationships.

From a constitutional perspective, the recovery cap in Subsection B warrants scrutiny under principles of freedom of contract, which in Louisiana's civil law framework is rooted in the Civil Code's general law of obligations, particularly Civil Code Articles 1971 and 1983, which recognize the parties' freedom to contract and the binding force of conventional obligations. A legislative