Assembly passes AB 2305 barring corporate investors from directing litigation decisions

The California State Assembly passed AB 2305 on Jan. 20, 2026, a bill that seeks to prohibit corporate investors — including private equity firms and hedge funds — from directing or influencing litigation decisions in law firms. Assemblymember Carlra presented the bill, saying alternative business structures and creative accounting have created pathways for nonlawyer ownership to influence case strategy.

"This risk[s] litigation decisions such as whether to file a case, how to resolve a case, or whether to pursue a certain strategy being influenced by investor return expectations over the interest of injured clients or consumers," Assemblymember Carlra said. He urged an "aye" vote, saying the bill closes loopholes and ensures litigation decisions remain with licensed attorneys and clients.

Floor debate was closed and the clerk conducted a roll call vote; the clerk announced a total tally and indicated no opposing votes were recorded on the consent call. The presiding officer declared AB 2305 passed.

Why it matters: Supporters argue the measure protects client interests and legal ethics by preventing financial players from dictating litigation choices. Critics (not recorded on the floor in this transcript) have sometimes questioned whether such restrictions affect capital availability for small firms; this floor record does not include an opposing floor statement.

Next steps: The Assembly voted to pass AB 2305 on the floor; the bill will continue through subsequent legislative steps as required.