North Carolina has become the first state to outright ban third-party litigation (TPLF) investment, with HB 315 passing the legislature nearly unanimously. While more durable reforms would have insisted on disclosure and equal tax treatment of TPLF earnings, North Carolina’s ban sends a message to the trial bar — the civil justice system shouldn’t be treated as an investment vehicle free of accountability. More reforms are needed to ensure a fair and effective civil justice system.
TPLF enables outside investors to bankroll lawsuits in exchange for a portion of the payout. This often dubious model detaches litigation from the merits of a case. Instead of pursuing justice, funders prioritize maximizing their return on investment — often pressuring lawyers to manufacture flawed, unreliable science to prop up speculative claims rather than relying on evidence-based data. Coupled with a lack of disclosure requirements, preferential tax treatment of TPLF arrangements fans the flames and makes this practice more prolific than it ought to be. In a recent campaign, the Taxpayers Protection Alliance (TPA) explained these problems in detail and called for ending the tax loophole benefiting TPLF earnings. TPA has also called on the International Trade Commission to mandate TPLF disclosures.
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However, reforming the TPLF system is not enough. TPLF doesn’t just fund cases but perpetuates the paid expert witness ecosystem. Firms for well-funded plaintiffs shop around for expert witnesses who are willing to support manufactured claims with speculative science.
The problem is deeper than any single case or funder. Expert evidence standards vary state by state. Expert witnesses can present unreliable and unvetted evidence in courtrooms, depending on the case’s location. The Federal Rule of Evidence (FRE) 702 addresses this problem head-on, requiring judges to act as gatekeepers of misleading or faulty science in testimony or discovery, ensuring they put all evidence to the test. FRE 702 instructs courts to ask basic questions of whether the expert is qualified, the methodology is sound, and the science is being applied correctly. When gatekeeping fails or states don’t have rigorous evidence admissibility rules aligned with FRE 702, speculation can persuade juries and distort verdicts.
North Carolina knows this firsthand. Howerton v. Arai Helmet, Ltd. illustrates what can happen when states don’t align their evidentiary standards with the federal rule. In 1996, Dr. W. Bruce Howerton was in a motorcycle collision while riding on a motocross track. He brought a products liability action against Arai Helmet, Ltd., alleging the helmet’s flexible chin guard was negligently designed, causing his quadriplegia.
Howerton offered four expert witnesses to prove causation between his injuries and the helmet chin guard. Under the existing standard, the trial court excluded all four testimonies and granted Arai summary judgment, finding that without reliable expert testimony, Howerton had no evidence linking the chin guard to his injuries. Unfortunately, the North Carolina Supreme Court later reversed the decision, ruling in Howerton’s favor while holding the state did not adopt strict Daubert standards for screening expert witnesses.
The legislature eventually stepped in with the 2011 amendment, aligning the state with FRE 702, declaring North Carolina a Daubert state. This landmark reform required expert evidence be based on sufficient data, reliable principles, and reliably applied to the facts — a standard later cemented by State v. McGrady.
Passing a law is only half the battle; consistent enforcement remains a challenge. The case of Howerton v. Arai Helmet, Ltd. is proof of what’s at stake when expert evidence standards lag and why continuous judicial vigilance is required. Bringing accountability to the TPLF system is an important step, but courts must still safeguard the courtroom.
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Stronger enforcement of gatekeeping under Rule 702 will prevent manufactured science from manufacturing outcomes. If courts rigorously apply these directives, the economic model for meritless litigation will collapse. To ensure financial incentives don’t distort litigation, aligning state expert testimony standards with FRE 702 should be the American judicial system’s priority.
North Carolina must ensure its evidence admissibility standards reflect reliable science before evidence ever reaches a jury. Rigorous standards keep unreliable science off the witness stand, ensuring frivolous cases never make it to the bench.
Ross Marchand is the executive director of the Taxpayers Protection Alliance.