On Tuesday, June 22, 2026, North Carolina became the first state in the country to ban third-party litigation investment through House Bill 315. This decision has significant implications for litigation and liability, including  pre-suit investigation, timing, discovery and potential settlements.

The legislation makes it unlawful for a person to engage in litigation investment in North Carolina or to furnish litigation investment to a party or attorney in a civil proceeding in North Carolina. Litigation investment is defined as the provision of money for the fees, costs and expenses of or related to a pending or potential civil case in exchange for the right to receive repayment that is contingent on the case outcome. The law specifically excludes an attorney working on a contingency basis as allowed by the North Carolina Rules of Professional Conduct. Litigation funding is a multi-billion dollar industry, and North Carolina’s trailblazing limitation of this business model has long-lasting and significant impacts on civil litigation within the state and beyond.

Notably, the law extends beyond pending cases and applies to potential claims. The pre-suit phase of a civil action often requires substantial upfront investment, particularly in medical malpractice cases.  Rule 9(j) of the North Carolina Rules of Civil Procedure requires a person reasonably expected to qualify as an expert witness to review the plaintiff’s records pertaining to the alleged negligence. Further, that person must be willing to testify that the medical care did not comply with the applicable standard of care. N.C. Gen. Stat. § 1-1A, Rule 9. Depending upon the defendant healthcare provider’s specialty, satisfying this requirement frequently necessitates retaining a specialist – further increasing the cost of pre-suit investigation. Under the new statute, litigation investment may no longer be used to fund pre-suit investigation, including expert review and retention.

From a timing and discovery perspective, litigation investment often drives litigious and protracted discovery. Litigation investment fuels unnecessary costs when funding companies shape litigation strategy, including expert retention, document review and e-discovery. Broader and more aggressive discovery nearly always increases motion practice. North Carolina courts place emphasis on the efficient resolution of cases, but it is not uncommon for civil cases to take years to resolve depending on complexity, the number of parties involved and scheduling constraints. Costs are often a driving factor in the amount and type of discovery parties conduct. Removing third-party investment funding may decrease the overall lifecycle of a case by reducing the scope of discovery.

Finally, litigation investment frequently impacts settlement dynamics and a party’s risk tolerance. When multiple stakeholders, including funders, lienholders, and counsel, have an interest in a plaintiff’s recovery, settlement negotiations may become more complicated. Reducing the number of outstretched hands expecting a share of a plaintiff’s recovery may allow for a greater likelihood of successful resolution. The prohibition on litigation investment may discourage delayed resolution and limit unnecessarily protracted litigation.

The law applies to civil proceedings commenced on or after June 22, 2026 and applies to contracts entered into, renewed or amended after that date. The consequences of violating this law are substantial. Any contract made in violation of the law is void. The Attorney General may bring an action to enjoin violations, and courts may impose a civil penalty of up to $50,000 per violation. Additionally, a person injured by a violation may bring a private action to recover damages and elect between damages awarded by the trier of fact and statutory damages equal to three times the full value of the potential litigation investment contemplated by the investor, including an award of court costs and attorneys’ fees, in addition to other remedies provided for by law.

If you have questions about how the ban on third-party litigation investment will affect potential or pending civil cases in North Carolina, we encourage you to contact our Litigation team. Teague Campbell will continue to monitor developments relating to this law.