TITLE 1.6C.18. Third Party Litigation Financing Consumer Protection Act
1788.310.
This title shall be known, and may be cited, as the Third Party Litigation Financing Consumer Protection Act.1788.311.
As used in this title:(a) “Charge” means a fee permitted by this title to be charged to a consumer by a litigation financer, regardless of how denominated, including fees denominated as interest or rate.
(b) “Consumer” means a person or entity residing or domiciled in this state with a civil claim or action in this state or any legal representative of that person or entity. state.
(c) “Legal representative” means an attorney, group of attorneys, or law firm who may be entitled to represent a person or persons in a legal dispute in this state.
(d) (1) “Litigation financer” means a person, group of persons, or legal entity, engaged in the business of litigation financing or any other economic activity intended to facilitate litigation financing.
(2) “Litigation financer” does not include an immediate family member of the consumer.
(e) “Litigation financing” means the funding of a civil claim or action by anyone other than the parties to the claim or action themselves, their counsel, or entities with a preexisting contractual indemnitor or a liability insurer relationship with one of the parties.
(f) “Litigation financing contract” means a memorialization of the terms of a litigation financing transaction.
(f)
(g) (1) “Litigation financing transaction” means a nonrecourse transaction in which litigation financing is provided to a
consumer or legal representative in return for assigning to the litigation financer a contingent right to receive an amount out of the proceeds of any realized judgment, award, settlement, or verdict the consumer may receive on the underlying claim or action, or agreeing to pay the litigation financer interest, fees, or other consideration for the financing provided.
(2) “Litigation financing transaction” does not include legal representation services provided to a consumer by a legal representative on a contingency fee basis, or legal costs advanced by a legal representative, if those services or costs are provided to or on behalf of a consumer by a legal representative in the dispute and in accordance with the Rules of Professional Conduct
of the State Bar of California. either of the following:
(A) Legal representation services provided to a consumer by a legal representative on a contingency fee basis, or legal costs advanced by a legal representative, if those services or costs are provided to or on behalf of a consumer by a legal representative in the dispute and in accordance with the Rules of Professional Conduct of the State Bar of California.
(B) The provision of financing to a litigation financer.
1788.312.
(a) (1) A litigation financer shall not engage in a litigation financing transaction in this state unless it is registered with the Secretary of State as a litigation financer in this state.(2) A litigation financer that is a business entity or partnership may be registered in this state if both of the following apply:
(A) It has an active status and is in good standing, as reflected in the records of the Secretary of State.
(B) Its charter, articles of organization, certificate of limited partnership, or other organizational
document, or, if a foreign entity, its application for a certificate of authority with the Secretary of State contains a statement that it shall be designated as a litigation financer pursuant to this title.
(3) A litigation financer that is not a business entity or partnership may be registered in this state if that litigation financer files an application for registration as a litigation financer on a form prescribed by the Secretary of State, along with a filing fee of one hundred dollars ($100), that contains all of the following:
(A) The applicant’s full legal name.
(B) The business name of applicant, if any.
(C) The physical street address and mailing
address of the applicant.
(D) A telephone number through which the applicant can be reached.
(E) The name, physical street address, mailing address, and telephone number for a registered agent in this state who is appointed to accept service of process on behalf of the applicant.
(F) A statement that the applicant shall be designated as a litigation financer pursuant to this title.
(G) Any other relevant information the Secretary of State deems necessary to process the application.
(b) A litigation financer shall file with the Secretary of State a surety bond of not less than
two hundred fifty thousand dollars ($50,000). ($250,000). The bond shall be payable to the state. Upon appropriation by the Legislature, the state may use funds from the bond to reimburse the Attorney General for costs incurred in enforcing a violation of this title. The bond shall continue in effect so long as a litigation financer is designated as a litigation financer in the records of the Secretary of State.
(c) (1) A litigation financer shall amend its registration with the Secretary of State under subdivision (a) within 30 days whenever the information contained in the litigation financer’s record
changes or becomes inaccurate or incomplete in any respect.
(2) A litigation financer that is not a business entity or partnership may amend its registration with the department by filing an amendment on a form prescribed by the Secretary of State, along with a filing fee of twenty dollars ($20.00).
(d) All documents filed pursuant to this section are public records under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code).
1788.313.
(a) A litigation financer shall not do any of the following:(1) Pay or offer commissions, referral fees, or other forms of consideration to any legal representative, medical provider, or any of their employees for referring a consumer to a litigation financer.
(2) Accept any commissions, referral fees, rebates, or other forms of consideration from a legal representative, medical provider, or any of their employees.
(3) Advertise false or misleading information regarding its products or services.
(4) Refer a consumer or potential consumer to a specific legal representative, medical provider, or any of their employees.
(5) Fail to promptly supply copies of any complete litigation financing contracts to the consumer and the consumer’s legal representative.
(6) Attempt to secure a remedy or obtain a waiver of any remedy, including, but not limited to, compensatory, statutory, or punitive damages, that the consumer might otherwise be entitled to pursue.
(7) Offer or provide legal advice to the consumer regarding the litigation financing or the underlying dispute.
(8) Assign, which includes securitizing, a litigation financing contract in
whole or part.
(9) Report a consumer to a credit reporting agency if insufficient
funds remain from the net proceeds to repay the litigation financer.
(10) Receive or exercise any right to direct, control, or otherwise influence the conduct of the consumer’s legal claim or action, including, but not limited to, any settlement or resolution thereof. The right to make any decision relating to the claim or action shall remain solely with the consumer and their legal representative.
(b) A legal representative retained by a consumer, or a medical provider for a consumer, or any of their employees shall not have a financial interest in litigation financing and shall not receive a referral fee or other consideration from any litigation financer, its employees, owners, or its affiliates.
1788.314.
(a) The terms of a litigation financing agreement contract shall be set forth in a written contract writing in a form that is completely filled in without any incomplete sections when the contract is offered or presented to the consumer, legal representative, or medical provider.(b) A litigation financing contract shall contain
all of the following disclosures in at least 14-point, bold font placed clearly and conspicuously immediately above the consumer’s signature line in the litigation financing contract, which shall constitute material terms of the litigation financing contract:
(1) Consumer’s Right to Cancellation: You may cancel this contract without penalty or further obligation within five business days from the date you signed this contract or received financing from [insert name of the litigation financer] by either returning the funds to [insert name, office address and office hours of the litigation financer] or by U.S. mail, [insert name and mailing address of litigation financer]. For return by U.S. mail, the postmark date on the returned funds or, if mailed by registered or certified mail, the date of the return receipt requested shall be the
date of return.
(2) The fees charged pursuant to this agreement shall not exceed [litigation financer to insert annual interest percentage rate, percentage of award or settlement proceeds, or dollar amount.]
(3) The litigation financer agrees that it has no right to and will not make any decisions about the conduct of your lawsuit or dispute and that the right to make those decisions remains solely with you and your legal representative.
(4) If there is no recovery of any money from your legal claim or if there is not enough money to satisfy the portion assigned to [insert name of the litigation financer] in full, you will not owe anything in excess of your recovery.
(5) Do not sign this contract before you read it completely. If this contract contains any incomplete sections, you are entitled to a completely filled-in copy of the contract prior to signing it. Before you sign this contract, you should obtain the advice of an attorney. Depending on the circumstances you may want to consult a tax advisor, a financial professional, or an accountant.
(c) If the consumer is represented by a legal representative in the dispute that is the subject of the litigation financing contract, the legal representative shall acknowledge in the contract that
the legal representative or that person’s employer or employees have neither received nor paid a referral fee or any other consideration from or to the litigation financer and will not do so in the future.
(d) If the consumer’s legal representative is a party to a litigation financing agreement contract related to the consumer’s legal proceeding, the legal representative shall share with the consumer the agreement between the legal representative and the litigation financer. The agreement shall be accompanied by the disclosures required by this section, and the consumer shall sign both an acknowledgment that the agreement has been read and the required
disclosure.
1788.315.
(a) Notwithstanding any law, a litigation financer may charge the consumer an annual fee not to exceed 36 percent of the original amount of money provided to the consumer for the litigation financing transaction.(b) A litigation financer shall not charge a consumer the annual fee authorized by subdivision (a) more than one time each year with regard to any single legal claim regardless of the number of litigation financing transactions that the litigation financer enters into with the consumer with respect to that legal claim.
(c) Fees assessed by a litigation financer may compound
annually but shall not compound based on any shorter time period.
(d) In calculating the annual percentage fee or rate of return, a litigation financer shall include all charges payable directly or indirectly by the consumer, and shall compute the rate based only on amounts actually received and retained by the consumer.
(e) A litigation financer shall not assess fees for any period exceeding 42 48 months from the date of the contract with the consumer.
(f)A litigation financer shall not enter into an agreement with a consumer that has the effect of incorporating the consumer’s obligations to the litigation financer that are contained in the original litigation financing transaction into a subsequent
litigation financing transaction.
(g)
(f) A litigation financer shall not knowingly provide financing to a consumer who has previously assigned or sold a portion of the consumer’s right to proceeds from their legal claim without first making payment to or purchasing a prior unsatisfied litigation financer’s entire funded amount and contracted charges unless a lesser amount is otherwise expressly agreed to in writing by the litigation financers; except multiple litigation financers may agree to contemporaneously provide financing to a consumer, if the consumer and the consumer’s attorney consent to the agreement in
writing.
1788.316.(a)Within 30 calendar days of receipt of a written request, a consumer shall disclose to any party to a legal claim whether the consumer has entered into a litigation financing transaction.
(b)If a consumer enters into a litigation financing transaction after responding to a request pursuant to this section, the consumer shall disclose this fact to the requesting person within 30 calendar days after the consumer entered into the transaction.
(c)Notwithstanding any agreement or provision with respect to confidentiality, litigation financing contracts shall be rebuttably presumed to be discoverable in a civil action.
(d)Litigation financing transactions disclosed or discovered pursuant to this section shall be rebuttably presumed to be inadmissible as evidence.
(e)Communications between a consumer’s attorney and a litigation financier necessary to ascertain the status of a legal claim or a legal claim’s expected value shall not be discoverable by a party with whom the claim is filed or against whom the claim is asserted.
(f)This section does not limit, waive, or abrogate the scope or nature of any statutory or common-law privilege, including the work product doctrine and the attorney-client privilege.
1788.316.
(a) (1) If a court has good cause to believe that a litigation financing transaction involving litigation before the court is being conducted in violation of this title, the court may order a consumer and the consumer’s legal representative to disclose to the court, in an in-camera proceeding, a litigation financing contract involving the litigation before the court. (2) If there is a reasonable basis to believe a violation has occurred, the court may, in its discretion, refer the matter to the Secretary of State for appropriate administrative enforcement.
(b) The court shall not disclose the existence or nonexistence of a litigation financing
contract to any other party to the legal claim before the court.
1788.317.
(a) Each litigation financer shall file a report annually with the Secretary of State in accordance with procedures established by the Secretary of State pursuant to this title. The report shall contain, but is not limited to, all of the following:(1) For each person that, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 5 percent or more of the voting securities of the litigation financer:
(A) The legal name and address of each person.
(B) If the person is an individual, their principal occupation and offices
and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past 10 years.
(C) If the person is not an individual, a report of the nature of the entity’s business operations during the past five years or for the lesser period as the person and any predecessors that have been in existence; a narrative description of the business intended to be done by the person and the person’s subsidiaries; and a list of all individuals who are or who have been selected to become directors or executive officers of the person. The list shall include for each individual the information required by paragraph (2).
(2) For each litigation financing transaction entered in this state or involving a claim to be litigated in this state, the
litigation financer shall identify all of the following:
(A) The amount, dates of any payments, and name and address of each person that received any amount of financing from a litigation financer during the previous calendar year.
(B) The amount, dates of any payment, and source of payment for all proceeds obtained by the litigation financer during the previous calendar year from any judgment, award, settlement, or verdict in a litigation financing transaction.
(C) Any other information the Secretary of State deems reasonably necessary to administer its duties under this title.
(b) (1) The Secretary of State shall submit an annual report to the
Legislature regarding the information received pursuant to subdivision (a). The report shall contain all of the information set forth in subdivision (a), including a summary of the information. The date and records shall be kept confidential. This report as filed shall not be made available to the public and shall be confidential by law and privileged, shall not be subject to disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code) or any other public records act, and shall not be subject to discovery or admissible in evidence in any private civil action.
(2) The Secretary of State shall release the report and summary under paragraph (1) of subdivision (b) to the public, subject to the removal or redaction of all personally identifiable, confidential information of
any consumer. This subdivision shall not affect the obligation to disclose litigation financing contracts or other agreements under this title.
1788.319.
A litigation financer is jointly liable for costs assessed pursuant to this title or any monetary sanction imposed pursuant to title, on the consumer whose claim or action the litigation financer is funding pursuant to a litigation financing transaction.1788.320.
(a) The practice of litigation financing shall be regulated by the Secretary of State. The Secretary of State shall adopt regulations consistent with this title and its authority under law.(b) The Secretary of State may do any of the following if the Secretary of State determines that a litigation financer intentionally violated this title:
(1) Order a litigation financer to cease and desist from entering into any additional consumer legal funding transactions.
(2) Assess an administrative penalty of not more than ten thousand dollars
($10,000) for each violation.
(3) Order the litigation financer to make restitution to an injured consumer.
(c) The powers vested in the Secretary of State by this title do not limit the ability of the Secretary of State or any other officer, employee, or agent of the state to take enforcement action that is authorized under any other provision of law.
1788.321.
Any violation of this title shall make the litigation financing contract unenforceable by the litigation financer, the consumer, or any successor-in-interest to the litigation financing contract. 1788.322.
The provisions of this title are severable. If any provision of this title or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.