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California makes litigation-funder control of cases unauthorized practice of law

By LexCircuit Desk · · AI-drafted, human-reviewed

Governor Newsom signed AB 2305 on September 20, adding Article 7.5 (Business and Professions Code sections 6134 to 6134.14). For contracts entered on or after January 1, 2027, a corporate legal funder that interferes with a substantive litigation decision or controls a litigation function commits the unauthorized practice of law. Litigation practices may not accept funder terms that restrict withdrawal, bar reporting, or penalize resistance; such terms are void. Compliant nonrecourse litigation finance is not impermissible fee sharing.

Enrolled text (California Legislative Information) → · Governor of California

Key points

  • A corporate legal funder interfering with a substantive litigation decision or controlling a litigation function commits unauthorized practice of law.California Legislative Information
  • Litigation practices may not contract with funders on terms restricting withdrawal, barring public reporting, or imposing penalties for reporting unauthorized practice.California Legislative Information
  • Violations expose the attorney and funder to statutory damages of $10,000 per violation or treble damages, fees, and injunctive relief; attorneys face State Bar discipline.California Legislative Information
  • Nonrecourse litigation finance is not impermissible fee sharing where the contract caps the payout, limits returns, and funds only identified matters.California Legislative Information
  • The article applies only to contracts entered into on or after January 1, 2027; a violation is not a crime. Signed September 20.California Legislative Information

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RegulationCal.AB 2305 — Corporate Legal Funder Unauthorized PracticeProfessional responsibilityRegulatoryFor practitionersFor governance