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Subcommittee advances bill to block private‑equity influence over litigation decisions
Summary
Assemblymember Calra’s AB 2305 would bar private equity, hedge funds and other corporate lenders from directing litigation strategy or settlement decisions and treats such interference as the unauthorized practice of law; the committee advanced the bill unanimously (12‑0).
Assemblymember Calra presented AB 2305 to the Senate Judiciary subcommittee, describing a bill that would prohibit corporate lenders — including private equity firms and hedge funds — from controlling or directing litigation decisions. Calra said the measure fills gaps created by modern arrangements such as management service organizations and loans structured to mask investor control. He said the principle is simple: when a person hires a lawyer, litigation decisions should be made by the lawyer and client, not a profit‑seeking nonlawyer investor.
Paul Matiasik, first vice president and legislative chair of the Consumer Attorneys of California, testified that investors are increasingly using arrangements to exert indirect influence and that AB 2305 would make such lender‑driven decisionmaking an unauthorized practice of law, void contracts that violate the statute, and create a private right of action against both the attorney and the corporate lender.
Supporters included the Civil Justice Association of California; a representative of the International Legal Finance Association said recent amendments addressed his group’s concerns and that the organization remained neutral. Committee members thanked the author for the work and noted widespread stakeholder negotiation. A motion to pass AB 2305 was taken and the roll call recorded a 12‑0 vote to advance the bill out of the subcommittee.
Why it matters: The bill targets an emerging area of legal‑industry finance and seeks to preserve attorney professional judgment by barring arrangements that would allow lenders to steer litigation strategy. Proponents say it protects clients and preserves ethical obligations. Opponents or neutral parties raised definitional and enforcement questions that sponsors say were addressed in amendments.
Next steps: The subcommittee reported AB 2305 out of committee with a unanimous roll‑call vote; the bill will proceed to the next committee per Senate rules.
