In recent years, third-party litigation funding (TPLF) has become increasingly prevalent in commercial and real estate disputes in New York, particularly in Manhattan. The team at Levy Goldenberg Law has seen this firsthand. Ranging from high-stakes construction litigation to landlord‑tenant matters, this financial mechanism offers plaintiffs access to litigation capital—but it also introduces ethical, legal, and strategic complications for all involved.
What Is Litigation Funding—and Why It Matters in Real Estate
Litigation funding involves a non-recourse advance from a third‑party funder to a plaintiff, in exchange for sharing a portion of any recovery. The industry—now worth several billion dollars—is especially active in commercial litigation, including real estate disputes, where legal costs and financial exposure are substantial.
Proponents argue TPLF democratizes access to justice—allowing resource-constrained plaintiffs to pursue meritorious claims. Critics contend it encourages frivolous lawsuits, skews settlement dynamics, and may create conflicts between plaintiffs’ attorneys and funders.
Manhattan Real Estate Litigation Fueled by Litigation Funding
In Manhattan’s high-value real estate sector, litigation funding is increasingly involved in construction defect suits, landlord‑tenant class actions, and claims under New York’s strict Scaffold Law. Real estate groups, such as REBNY, warn that unregulated TPLF is fueling a surge in liability claims, which in turn are raising insurance premiums and construction costs across the city.
The Scaffold Law’s strict liability framework makes Manhattan a prime target for injury-based lawsuits. TPLF often provides cash advances to plaintiffs, typically low-wage workers, for filing litigation while awaiting settlements, creating an ecosystem where litigation proliferates even in cases of questionable merit.
Legal and Ethical Implications for Real Estate Disputes
Usury and Champerty Concerns
Litigation funding agreements sometimes come under fire as violating the doctrines of usury or champerty. In New York, courts have split on whether high rates or profit-sharing structures cross legal lines—but the debate is ongoing. Parties often seek to challenge such agreements post-settlement, claiming that the termsare unconscionable.
Control Over Litigation Strategy
TPLF agreements often require plaintiffs to disclose case documents to funders and notify them before making settlement decisions, thereby giving funders indirect influence over litigation. This raises ethical concerns regarding the waiver of attorney-client privilege, conflicts of interest, or third-party control over strategic decision-making.
Disclosure and Transparency Issues
There is currently no statutory obligation in New York to disclose the existence of a litigation funding agreement during litigation. As a result, defendants and courts may be unaware of the funder’s influence—and plaintiffs may be under pressure to prosecute cases in ways that disproportionately benefit the funder’s return.
Strategic Consequences for Manhattan Defendants and Property Owners
More Persistent Plaintiffs
Litigants with TPLF backing can withstand long litigation timelines and reject early settlement offers—because funders absorb risk and demand higher returns, damaging defenses based on attrition or delay.
Higher Settlement Costs
Because funders expect substantial ROI, sometimes exceeding 100% returns, they may push for higher settlement amounts, undermining reasonable resolution efforts.
Ethical Complexity for Counsel
Lawyers must navigate disclosure obligations, avoid funder influence over strategic judgment, and carefully document advice to clients about the terms and risks of the funding arrangement.
How Manhattan Property Owners and Developers Can Respond
- Anticipate Litigation Funding: Assume TPLF may be involved in major real estate disputes—especially under the Scaffold Law or construction injury suits—and be prepared to request disclosure during discovery.
- Negotiate Defense Strategy: Recognize that opposition may be backed by external capital—they may be less inclined to settle early and more persistent in litigation.
- Watch Regulatory Reform: New York lawmakers have recently enacted the Consumer Litigation Funding Act, which requires funders to be licensed, caps interest rates at approximately 36%, mandates plain-language contracts, and prohibits funders from controlling litigation decisions.
- Seek Experienced Counsel: Skilled litigators in Manhattan can help manage TPLF risk, frame discovery requests, advise on privilege preservation, and strategize defense tactics in high-stakes real estate litigation.
Your Next Step in High-Stakes Real Estate Litigation
With third-party litigation funding reshaping the legal landscape in Manhattan real estate disputes, property owners and developers must adapt. From controlling insurance costs to defending against aggressive capital-backed plaintiffs, the presence of TPLF affects case strategy, settlement thresholds, and ethical considerations.
Levy Goldenberg LLP has deep experience in defending commercial and real estate litigation in Manhattan, including matters involving third-party litigation funding. Contact us today to discuss how we can support your defense strategy if faced with TPLF-backed claims.