Americans live in a litigious society where class-action notices, settlement emails, and soaring verdicts keep appearing. Lawsuits help real victims seek justice, yet a growing industry now treats court cases as investment vehicles.
Jon Bergner, executive director of Americans for Tax Fairness, says third-party litigation funders are turning the courts into a “new asset class” that foreign investors can use to pull untaxed profits out of the United States.
Bergner worked in federal government relations for the National Association of Mutual Insurance Companies, a trade association for property-casualty insurers. He earned his undergraduate degree at the University of Virginia and later completed a master’s in national security studies at Georgetown University.
Bergner outlines the basic function of the justice system. “Our justice system is about adjudicating disputes between citizens and businesses,” he says. He points back to the Western legal tradition, where common-law principles insisted that “you do not use the justice system for profit.” Third-party litigation funding breaks that norm by allowing “an uninvolved third party” to bankroll lawsuits in exchange for “a very large chunk” of any settlement or verdict. He says funders “describe it as a new asset class,” even though they pick cases purely “to deliver an ROI on their investment.”
He says that funders stretch the tax code to claim capital-gains treatment on unadjudicated claims of harm. Plaintiffs pay ordinary income tax on taxable portions of awards, and attorneys do the same on their fees. Bergner says funders want something different. “The actual victim of the harm has to pay at a higher rate than an uninvolved third party.” He estimates the litigation-funding market at “closer to 25” billion dollars and calls the industry opaque because there is “no required disclosure.”
Foreign investors gain an even bigger advantage, according to Bergner. He says the capital-gains approach “allows foreign investors to pay no U.S. taxes” because the income is treated as “not effectively connected” to a U.S. business. He cites offshore firms backed by sovereign wealth funds and describes the model as “extractive,” in contrast to productive investment that builds factories and jobs. He says the CCP has been linked to funds “that have been funding litigation against makers and tech companies in the United States,” adding that discovery can provide “another way of stealing trade secrets.”
Bergner also raises national-security concerns involving Russia. He says that “sanctioned Russian oligarchs have been using the global litigation funding marketplace to get around sanctions, because it’s very hard to track all of this money” without disclosure requirements. “We have got to get a handle on it,” he says.
Consumers feel the fallout through higher prices and insurance premiums, according to Bergner. Insurance is “a lagging indicator” of rising legal costs, he says, and companies adjust rates based on litigation trends. He recalls a rideshare company telling him that in many major cities, “40% of your fare is going to insurance now because of being targeted by predatory lawsuits.” He cites estimates of a nationwide “tort tax” that costs Americans “north of $4,000 a year.”
Bergner backs several reforms. He calls basic disclosure “common sense,” saying defendants should know if another party at the plaintiff’s table has a financial stake in the outcome. His main focus is the TPLF Act in Congress, which would end the capital-gains loophole and require funders to pay tax at the same rate as plaintiffs. He says the change would force funders to “double down on trying to figure out meritorious cases versus not meritorious cases because your ROI calculation has changed.”
He says that traditional public-interest litigation would remain untouched. The legislation includes an exception for nonprofit recoverable-grant models, and he says nothing in the bill would “disrupt” 501(c)(3) or 501(c)(4) litigation against government agencies. His goal, according to him, is to stop turning lawsuits into tax-advantaged investment vehicles. “Right now we’re just saying there’s no risk on the tax side, especially if you’re overseas,” Bergner says. “Come on and play in our courts.”
