California Enacts AB 2305 to Regulate Litigation Funding Influence
California Governor Gavin Newsom signed Assembly Bill 2305 into law on September 20, 2026, targeting the influence of corporate legal funders on litigation decisions. This legislation, effective for contracts entered into on or after January 1, 2027, restricts private equity firms, hedge funds, and other capital providers from controlling or improperly influencing substantive litigation decisions. The law specifically prohibits funders from interfering with client representation, litigation strategy, settlement decisions, funding choices, and the selection or management of legal counsel. While AB 2305 does not ban nonrecourse litigation finance entirely, it establishes clear boundaries to prevent funders from engaging in what could be considered the unauthorized practice of law. Violations can lead to State Bar discipline for attorneys and civil remedies for both attorneys and corporate legal funders, including statutory damages of $10,000 per violation or three times actual damages, whichever is greater.
