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Senate approves measure to regulate third‑party litigation financing and make agreements discoverable
Summary
The South Dakota Senate unanimously passed Senate Bill 175, which requires disclosure of third‑party litigation financing agreements, imposes licensing and consumer-protection rules, and limits funder compensation. Sponsors said the measure protects the attorney–client relationship and reduces outside influence on litigation strategy.
Senate Bill 175, to regulate third‑party litigation financing, passed the South Dakota Senate unanimously (35-0) on Feb. 20, 2025.
Sponsor Senator Wheeler described third‑party litigation financing as a growing concern where outside investors fund lawsuits in exchange for a share of any recovery. Wheeler said such arrangements can incentivize funders to push for trial outcomes that maximize investor return rather than the client’s best interest. The bill requires financiers to hold a license with the Division of Banking, makes financing agreements discoverable to opposing parties (without filing them with the court), imposes consumer‑protection disclosures, limits the portion of a judgment claimable by a funder, and aligns tax and licensing obligations for those financiers.
During floor debate Wheeler summarized the bill’s goals: to make financing agreements “discoverable so that everyone involved in the litigation knows who has a financial interest in it,” to ensure financers are licensed, and to protect consumers with disclosures and limits similar to other loan statutes. The Senate adopted an amendment (175C) clarifying that the discoverability requirement applies once actions are commenced in court and that disclosed documents need not be filed with the court docket.
Supporters said the measure preserves attorneys’ ability to adjust litigation strategy free from outside funder influence and brings financiers under existing state financial supervision. The bill passed on a roll-call vote of 35 yeas and 0 nays.
Next steps: The bill will go to the House for consideration. Sponsors said they expect the Division of Banking and courts to implement licensing and disclosure procedures once the law takes effect.
Implementation notes: The amendment clarifies that the requirement to disclose financing agreements is to opposing parties, not for filing on the public court record, and that the rule applies when a civil action is commenced.
