New Law Restricts Corporate Funder Influence Over Litigation Decisions

Legal Services Transactions attorneys Pippa Balestrieri and David Jargiello authored a Daily Journal article about California Assembly Bill (AB) 2305, a new law that limits corporate funders' influence over attorney judgment and substantive litigation decisions. Effective for contracts entered into on or after January 1, 2027, AB 2305 treats interference from newly defined "corporate legal funders" as the unauthorized practice of law and invalidates contractual terms that enable such conduct, compromise an attorney's independent professional judgment or prioritize investor returns over client interests. The authors explain how the legislation applies to ownership, financing, management and service arrangements, including certain management services organization (MSO) structures, while conditionally protecting nonrecourse litigation financing that meets statutory requirements. Pippa and David encourage California litigation practices, funders and management entities to review agreements involving client selection, case strategy, settlements, budgets, approval rights and reporting restrictions, noting that violations can result in State Bar discipline, damages and other civil remedies.

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