On Tuesday, Governor Josh Stein signed legislation making North Carolina the first state in the U.S. to ban outside investors from financing civil litigation claims in the state in return for a portion of any verdict or settlement. The new law addresses growing concerns that such investors drive choices on litigation strategy and resolution, distorting the civil litigation environment in the state.

The legislation includes several exceptions, including contingency fee arrangements and payment of expenses and legal fees by relatives of the litigants. Persons or entities that violate the law can face investigation from the state Attorney General and private lawsuits seeking damages up to three times the amount of the litigation funding provided.

For North Carolina employers, this legislation could deter some class action discrimination or wage and hour lawsuits. In many cases, this complex litigation requires resources that plaintiffs' attorneys may not be willing to provide in the absence of outside funding. As third-party funding of lawsuits becomes more commonplace, it will be interesting to compare the litigation environment in North Carolina to states that choose not to restrict such investing practices.

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