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Florida (and other states) take aim at regulating Third-Party Litigation Funding

With the state legislative season in full-swing, Florida, along with several other states, has introduced legislation focused on regulating Third-Party Litigation Funding (TPLF). Specifically, Florida Senate Bill 1612 (SB 1612) and Florida House Bill 1447 (HB 1447) set-forth a series of proposals which, in part, would require litigation funders to register with the Florida Department of State, post a surety bond, and include certain terms and disclosures as part of litigation funding contracts. The bills also seek to regulate other aspects, such as funder interest rates and fees, and contain provisions regarding prohibited activities and practices. 

To help assess Florida’s proposals, this article provides a general overview of SB 1612 and HB 1447. In addition, while this article is not a 50-state survey of proposed TPLF bills nationwide, the author includes a brief section on some other states which have also recently introduced similar TPLF bills over the past few months.

With the above noted, the author presents the following overview:

Florida’s TPLF proposals

HB 1447, titled the “Litigation Financing Consumer Protection Act,” was introduced by Representative Tobin Rogers Overdorf (R-District 83) and filed on March 3, 2023. SB 1612, titled the same as the House bill, was introduced by Senator Clay Yarborough (R-District 4) and was also filed on March 3, 2023. Overall, both bills contain almost identical proposals focused on regulating TPLF practices on several fronts. 

While a complete breakdown of each provision in HB 1447 and SB 1612 is beyond this article’s scope, the following provides a general outline of key proposals and points of likely interest:

Litigation financing (defined) - This term is defined as “a nonrecourse transaction in which a litigation financier provides funds to a consumer in exchange for an assignment of the consumer’s contingent right to receive an amount of the potential net proceeds of the consumer’s civil action or claim.”[1] Excepted from this definition are, in general, legal services provided on a contingency fee basis, a commercial tort claim, as defined by F.S. 679.1021(1)(m); a workers’ compensation claim under chapter 440; lending or financing arrangements between an attorney or law firm and a lending institution to fund litigation costs in the ordinary course of business; or a consumer finance loan, as defined in F.S. 516.01(2).[2]

Litigation financier (defined) - The proposals define this term to mean “a person engaged in the business of litigation financing.”[3] 

Registration – As proposed, litigation financiers would have to register with the Florida Department of State (“department”) and comply with certain registration requirements, including the filing of a $250,000 surety bond secured in accordance with related requirements.[4] The department would have the ability to revoke a litigation financier’s registration if the funder failed to properly comply with the registration requirements.[5]

Contracts terms and disclosure - The bills contain several proposed provisions regulating contract terms and disclosures between the litigation funder and consumer. For example, the bills mandate that the contract contains a right of rescission, requires the consumer’s written acknowledgement regarding if the consumer is represented by attorney, and include a statement indicating that in the event the proceeds of a civil action or claims are paid into a settlement fund or trust, the litigation financier must notify the fund or trust administrator of any outstanding financial obligations arising from the contract.[6] In addition, the bills propose that the contract contain various disclosures regarding several different items, including, in part, the right to a completely filled out contract; the funding amount and interest rate; right of cancellation; the right to consult an attorney, accountant, tax advisor, or financial professional; and a statement that the funder does not have the right to make decisions regarding, or otherwise influence, “the conduct of the civil action” and that such decisions remain solely with the consumer.[7]

Prohibited conduct - Under the proposals, the litigation financier would be prohibited from engaging in a variety of different activities. For example, the funder would be precluded from paying, offering, or accepting “a commission, referral fee, rebate, or other consideration from any person, including an attorney, law firm, or healthcare practitioner.”[8] The litigation financier would also be prohibited from referring a consumer to a specific attorney, law firm, or health practitioner. However, if the consumer does not have legal representation, the funder may refer him/her to an attorney referral service operated by a county or state bar association.[9] In addition, under the proposed bills the funder would be prohibited from “attempt[ing] to obtain a waiver of any remedy, including, but not limited to, compensatory, statutory, or punitive damages, that the consumer might otherwise have in the subject civil action or claim” or “attempt[ing] to affect arbitration or waiver of a consumer’s right to a jury trial in the subject civil action or claim.”[10]

Claim decisions - The bills prohibit the litigation financier from “direct[ing], or mak[ing] any decisions with respect to, the course of the subject civil action or claim or any settlement thereof.”[11]

Interest rates and fees – Both bills contain provisions limiting the interest rate a funder may charge; however, the interest rate amount is different under each bill. The Senate bills proposes a 35% interest rate, while the House bill proposes a 25% rate. On this point, SB 1612, sec. 7 states: “A litigation financier may not directly or indirectly charge, contract for, or receive an interest rate of greater than 35 percent of the funded amount per annum.” In contrast, HB 1147, sec. 7 contains the same language but limits the interest rate to 25%. Under each bill, the “computations used must be simple interest and not add-on interest or any other computation.”[12] The bills further state that “the maximum interest rate that may be contracted for 260 and received by a litigation financier is 12 times the maximum monthly rate, and the maximum monthly rate must be computed on the basis of one-twelfth of the annual rate for each full month. The maximum daily rate must be computed on the basis of the maximum monthly rate divided by the number of days in the month.”[13] The bills also place certain limits on interest accrual as follows: “interest may accrue only until a court enters a final order or a settlement agreement is executed in the civil action or claim that is the subject of the litigation financing contract, whichever is earlier, but interest may not accrue for a period exceeding 3 years after the date the consumer receives the funds from the litigation financier. The total interest assessed must be calculated based on the actual number of days for which interest accrued.”[14]

Attorney client privilege and work-product: As proposed, communication between a consumer’s attorney and a litigation financier “regarding a litigation financing contract does not limit, waive, or abrogate the scope or nature of any statutory or common-law privilege, including the work-product doctrine and attorney-client privilege.” [15]

Violation and enforcement – The bills propose several enforcement mechanisms for violations. Specifically, the bills provide that violations would constitute unfair and deceptive trade practices actionable under Florida law.[16] Further, the bills propose that this section “does not limit the: (a) Enforcing authority’s exercise of powers or performance of duties that the enforcing authority is otherwise legally authorized or required to exercise or perform; or (b) Rights and remedies available to the state or a person under any other law.”[17]

In reviewing the proposals, it is interesting to note that there are no provisions that would require the disclosure of information regarding the existence of TPLF (or the actual funding agreement) to the defendants as part of litigation. 

In terms of status, as of the time this article was drafted, SB 1612 was referred to the Judiciary and Fiscal Policy Committees, while HB 1447 was referred to the Judiciary Committee and Justice Subcommittee. If enacted into law, the proposed provisions would become effective July 1, 2023.[18] In the bigger picture, it is interesting to note that some of the proposals contained in SB 1612 and HB 1447 are similar to provisions enacted into law last year in Illinois as part of the Illinois Consumer Litigation Funding Act

Other states

While, as noted above, this article is not a 50-state survey on currently proposed TPLF bills, the author notes that the following states have recently introduced TPLF regulation bills, which like Florida, propose to regulate a wide range of litigation funding areas: CaliforniaColoradoKentuckyMissouriMontanaNew JerseyNorth CarolinaNevada, and Rhode Island (SB 632 and H 5509). In New York, several different TPLF bills have been introduced: NY AB 115NY AB 2702NY SB 2594, and NY AB 2702Iowa has introduced a bill prohibiting third-party funding altogether. Meanwhile, Ohio and Illinois have introduced bills proposing changes to their existing TPLF statutes.

One area of particular interest to many regards the issue of whether information regarding the existence of litigation funding (or the actual litigation TPLF agreement itself) should be required to be produced to defendants as part of litigation. On this point, the bills introduced in California, Missouri, New Jersey, North Carolina, New Jersey, Ohio, and Rhode Island as noted above contain provisions addressing this issue. Similarly, TPLF disclosure proposals have also been introduced in Kansas, Mississippi, and Montana, as well as Louisiana and Oklahoma.

Questions?

Going forward, it will be interesting to see if any of the proposed bills discussed above (or perhaps others subsequently introduced) get enacted into law. The author will continue to monitor developments and provide updates as warranted. In the interim, please do not hesitate to contact the author if you have any questions.


[1] SB 1612, sec. 2 and HB 1447, sec. 2.

[2] Id.

[3] Id.

[4] SB 1612, sec. 3 and HB 1447, sec.3.

[5] Id.

[6] SB 1612, sec. 4 and HB 1447, sec. 4.

[7] SB 1612, sec. 6 and HB 1447, sec. 6.

[8] SB 1612, sec. 5 and HB 1447, sec. 5.

[9] Id.

[10] Id.

[11] Id.

[12] SB 1612, sec. 7 and HB 1447, sec. 7.

[13] Id.

[14] Id.

[15] SB 1612, sec. 8 and HB 1447, sec. 8.

[16] SB 1612, sec. 9 and HB 1447, sec. 9.

[17] SB 1612, sec. 9 and HB 1447, sec. 9.

[18]  SB 1612, sec. 10 and HB 1447, sec. 10.


Mark Popolizio, J.D.

Mark Popolizio, J.D., is vice president of MSP compliance, Casualty Solutions at Verisk. You can contact Mark at mpopolizio@verisk.com.


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