Congress: Procedural problems led to removal of provisions
Litigation funders are breathing a big sigh of relief after a proposed 32% tax on proceeds of successful cases was removed from President Trump’s One Big Beautiful Bill Act.
Senate Republicans had sought to incorporate into the Act the provisions of the Tackling Predatory Litigation Funding Act, which was introduced in May by Senator Thom Tillis.
However, they were struck down this week for procedural reasons, due to their late inclusion, and the president’s budget legislation yesterday passed the Senate without them.
Senator Tillis, a Republican, had said the goal of his Act was to prevent foreign influence in the US court system, as well as frivolous lawsuits. A companion bill was introduced in the House of Representatives by Republican representative Kevin Hern.
The tax was originally set at 41% but as reduced to 32% over the weekend, and there was no offset for losses and no exemption for non-US investors. It was expected to raise around $1.4bn over the next decade.
The legislation also did not distinguish between US and foreign litigation.
It drew support from some huge US companies, such as Chubb, Comcast, Exxon Mobile, Johnson & Johnson and Uber, as well as the US Chamber of Commerce, which has been campaigning to control litigation funding in both the US and UK.
The International Legal Finance Association described the decision to disqualify the provisions from the Act as “a clear victory for Americans”.
“The now disqualified provision would have imposed a burdensome and misguided tax on litigation funding, a vital mechanism that enables individuals and small businesses to seek justice against well-funded defendants,” said executive director Paul Kong.
“Rather than curbing ‘predatory’ behaviour, this bill would shift power away from consumers and small businesses and into the hands of the very industries – Big Tech, Big Pharma, and Big Insurance – that most often seek to avoid liability for their misconduct.”
An analysis of the bill by Schulte Roth & Zabel – a US law firm that specialises in private capital – said the real tax rate for funders (based on the original 41% figure) could have reached 65% when accounting for taxes paid when distributing earnings.
It said the bill went “far beyond simply imposing a special rate on qualified litigation proceeds and essentially creates an entirely new income tax system” dedicated to a specific industry, a move for which there was “little precedent”.
