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Montana enacts the “Litigation Financing Transparency and Consumer Protection Act” – new law regulates TPLF practices and includes disclosure and discovery provisions

As noted in our recent article, several state legislatures have introduced third-party litigation funding (TPLF) proposals over the past few months.  In a new development on this front, on May 2, 2023, Montana Governor Greg Gianforte (R) signed the “Litigation Financing Transparency and Consumer Protection Act” into law.[1] This new law is referenced as 2023 Montana Laws Ch. 360 (S.B. 269) and is intended to be codified as a new chapter in Title 31 (Credit Transactions and Relationships).[2]   This new law becomes effective January 1, 2024. [3]

In general, S.B. 269 regulates various aspects of TPLF practices.  For example, as outlined below, Montana’s new law contains provisions regulating such areas including, in part, registration, consumer contract disclosures, various litigation financing protections (including limitations on the amount a funder may recover), costs, class actions, and exemptions.  In addition, S.B. 269 contains, what may be viewed as, broad disclosure and discovery provisions regarding litigation financing contracts and other related items.

The article provides a general, and non-exhaustive overview, of S.B. 269, and provides thoughts on the new law’s relation to larger TPLF issues, as follows:

Definitions

S.B. 269 (Section 2) defines several key terms as used in the context of Litigation Financing Transparency and Consumer Protection Act.  While a complete examination of each defined term is beyond the scope of this article, the following select terms of likely interest are highlighted:

The term “consumer” is defined to mean “any individual who resides, is present, or is domiciled in this state or who is or may become a plaintiff, claimant, or complainant in a civil action or an administrative proceeding or in pursuit of any claim or cause of action in this state.”[4]  

The term “litigation financer” is defined as “any person or group of persons engaged in, or formed, created, or established for the purpose of engaging in, the business of litigation financing or any other business or economic activity in which a person or group of persons receive consideration of any kind in exchange for providing litigation financing.”[5]

In addition, “litigation financing” is defined as “mean[ing] the financing, funding, advancing, or loaning of money to pay for fees, costs, expenses, or any other sums arising from or in any manner related to a civil action, administrative proceeding, claim, or cause of action, if the financing, funding, advancing, or loaning of money is provided by any person other than a person who is: (a) a party to the civil action, administrative proceeding, claim, or cause of action; (b) a legal representative engaged, directly or indirectly through another legal representative, to represent a party in the civil action, administrative proceeding, claim, or cause of action; or (c) an entity or insurer with a preexisting contractual obligation to indemnify or defend a party to the civil action, administrative proceeding, claim, or cause of action.”[6]

Registration

Per S.B. 269 (Section 3), litigation financers must register with the Montana Secretary of State and comply with various detailed registration requirements, including the requirement to amend their registration documents “within 30 days whenever the information contained in the most recently filed registration changes or becomes inaccurate or incomplete in any respect.”[7]

Prohibited Activities

S.B. 269 (Section 4) is entitled “Litigation financing protections” and outlines various prohibited activities.  For example, under this section the litigation financer is barred, in part, from “pay[ing] or offer[ing] commissions, referral fees, rebates, or other forms of consideration to any person in exchange for referring a consumer to a litigation financer”[8] or “accept[ing] any commissions, referral fees, rebates, or other forms of consideration from any person providing any goods or rendering any services to the consumer.”[9] 

In addition, the financer is prohibited from false or misleading advertising,[10] failing to promptly deliver a fully completed and signed contract to the consumer and the consumer’s legal representative,[11] or provide legal advice.[12]  In addition, this section bars “[a] person who provides any goods or renders any services to the consumer may not have a financial interest in litigation financing and may not receive any commissions, referral fees, rebates, or other forms of consideration from any litigation financer or the litigation financer’s employees, owners, or affiliates.”[13] See Section 4 in its entirety for a complete listing of all prohibited activities.

Payments/Interest Rates

Under S.B. 269 (Section 4), a litigation financer cannot receive or recover any payment “that exceeds 25% of the amount of any judgment, award, settlement, verdict, or other form of monetary relief obtained in the civil action, administrative proceeding, claim, or cause of action that is the subject of the litigation contract.”[14]   In addition, the financer is barred from charging a “rate of interest that exceeds that rate of interest allowed under 31–1–107.”[15]   Further, S.B. (Section 11) provides that “[i]f the litigation financer charges a rate of interest that exceeds the rate of interest allowed under 31–1–107, the litigation financer shall be subject to a penalty for usury and an action to recover excessive interest as authorized under 31–1–108.”[16]

Contractual Disclosures

S.B. 269 (Section 5) sets-forth detailed requirements regarding litigation financing contract disclosures. While a complete review of these provisions is beyond the scope of this article, in general, this section is focused on transparency of contractual terms and conditions between the financer and the consumer.  As part of this section, the financer is required to include specific disclosure statements in the contract, with one such disclosure stating that “[t]he litigation financer agrees that it has no right to, and will not demand, request, receive, or exercise any right to, influence, affect, or otherwise make any decision in the handling, conduct, administration, litigation, settlement, or resolution of your civil action, administrative proceeding, claim, or cause of action. All of these rights remain solely with you and your legal representative.”[17] 

Disclosure and discovery of litigation financing contracts

S.B. 269 (Section 6) requires, in general and in part, the consumer, or the consumer’s representative, to disclose the litigation funding contract and provides that the contract, “and all participants or parties to a litigation financing contract are permissible subjects of discovery … regardless of whether a civil action or and administrative proceeding has commenced.”

This section states, in full, as follows:

(1) Except as otherwise stipulated or ordered by a court of competent jurisdiction, a consumer or the consumer’s legal representative shall, without awaiting a discovery request, disclose and deliver to the following persons the litigation financing contract:

  • each party to the civil action, administrative proceeding, claim, or cause of action, or to each party’s legal representative;
  • the court, agency, or tribunal in which the civil action, administrative proceeding, claim, or cause of action may be pending; and
  • any known person, including an insurer, with a preexisting contractual obligation to indemnify or defend a party to the civil action, administrative proceeding, claim, or cause of action.

(2) The disclosure obligation under subsection (1) exists regardless of whether a civil action or an administrative proceeding has commenced.

(3) The disclosure obligation under subsection (1) is a continuing obligation, and within 30 days of entering into a litigation financing contract or amending an existing litigation financing contract, the consumer or the consumer’s legal representative shall disclose and deliver any new or amended litigation financing contracts.

(4) The existence of the litigation financing contract and all participants or parties to a litigation financing contract are permissible subjects of discovery in any civil action, administrative proceeding, claim, or cause of action to which litigation financing is provided under the litigation financing contract, regardless of whether a civil action or an administrative proceeding has commenced.

Class Actions

S.B. 269 (Section 8) states, in general, that this new law applies “to any civil action filed or certified as a class action in which litigation financing is provided.”[18]   In addition, this section provides that “[a] litigation financer owes a fiduciary duty to all class members or intended beneficiaries of a certified class and shall act in a manner consistent with the litigation financer’s fiduciary duty throughout the civil action.” [19]

Further, this section states “[i]n addition to the disclosure requirements set forth in [sections 1 through 11], the legal representative of the putative class shall disclose to all parties, putative class members, and the court any legal, financial, or other relationship between the legal representative and the litigation financer. A class member is entitled to receive from the class counsel a true and correct copy of the litigation financing contract on request.”[20]

Joint and Several Liability for Costs

S.B. 269 (Section 9) makes the litigation financer jointly and severally liable for costs. In full, this section states: “A litigation financer is jointly and severally liable for any award or order imposing or assessing costs or monetary sanctions against a consumer arising from or relating to any civil action, administrative proceeding, claim, or cause of action for which the litigation financer is providing litigation financing.”[21]

Other Provisions

In addition to the above, S.B. 269 contains the following other provisions which are beyond the scope of this article: Act violation – unenforceable contract (Section 11) and Severability (Section 13).   Also, Section 7 outlines various Exemptions.[22]

Effective Date

S.B. 269 (Section 15) states this new law “applies to any civil action or administrative proceeding pending on or commenced after January 1, 2024.”[23] 

Claims Considerations

In the bigger picture, S.B. 269 will likely attract interest from those who have been following TPLF developments over the past several years.  On one front, Montana’s new law contains several provisions aimed at better regulating TPLF practices, which will likely be welcomed by those who have been advocating for stronger consumer protection measures.  As an example, S.B. 269, as outlined above, contains a detailed registration process.  In this regard, Montana now joins several other states which have enacted statutes aimed at regulating certain aspects of third-party litigation funding.  While a complete 50 state survey on TPLF funding statutes is beyond the scope of this article, it is noted that Illinois, Indiana, Maine, Nebraska, Nevada, Oklahoma, Tennessee, Vermont, and West Virginia have also implemented provisions requiring some form of third-party funding registration or licensure,[24] while Ohio mandates that funders disclose certain contractual terms and information to the consumer.[25] 

Montana’s new law also limits financer fees and interest rates.  Here, Montana joins Arkansas, Illinois Indiana, Nevada, Tennessee, and West Virginia which have also enacted laws regulating TPLF interest rates or fees.[26]  Meanwhile, in Colorado, that state’s Supreme Court held, in part, that a TPLF company agreeing to advance money to tort plaintiffs in exchange for future litigation proceeds is making a loan, thereby subject to regulation under Colorado’s Uniform Consumer Credit Code.[27]  Similarly, the South Carolina Department of Consumer affairs has issued a ruling that entities funding litigation in exchange for a portion of the recovery proceeds are providing loans subject to compliance under South Carolina’s laws governing lending.[28]

On another front, those more focused on TPLF’s impact in the claims and litigation context will also likely view certain provisions as positive steps.  For example, as noted above, S.B. 269 prohibits financer influence or control over litigation and settlement decisions.  Further, and perhaps significantly, the provisions regarding TPLF disclosure and discovery are likely to garner interest from those who have been pushing for TPLF disclosure rules. 

While a detailed review of this continuing (and intense) debate regarding TPLF disclosure at the state and federal levels is discussed by the author in prior articles,  for purposes of this article it is interesting to note that Montana’s new law, as outlined above, not only mandates automatic production of the litigation financing contract without request to each litigant and court, but it also provides that the “litigation financing contract and all participants or parties to a litigation financing contract are permissible subjects of discovery in any civil action, administrative proceeding, claim, or cause of action to which litigation financing is provided under the litigation financing contract, regardless of whether a civil action or an administrative proceeding has commenced.”[29]  In this regard, to the author’s knowledge, up until this point West Virginia and Wisconsin had been the only other two states to have enacted TPLF disclosure provisions.  In comparison to those states’ laws, Montana’s new law is more detailed and broader.[30]  Going forward, from a macro level, S.B. 269 could possibly serve as a model for TPLF disclosure proponents in the continuing TPLF discovery and disclosure debate.[31]  

With S.B. 269 now in place, it will be interesting to see how this new law plays out in terms of its potential impact on consumer legal funding practices in Montana and general claims litigation.  In the interim, the author will continue to monitor TPLF developments and will provide future updates as warranted.

Additional TPLF resources

See our additional TPLF articles here!

Questions?

Please do not hesitate to contact the author if you have any questions regarding the above or TPLF issues in general.


[1] See, https://legiscan.com/MT/bill/SB269/2023 and https://apps.montanafreepress.org/capitol-tracker-2023/bills/sb-269/

[2] S.B. 269, Section 12.  This section states in full as follows:  Section 12. Codification instruction. [Sections 1 through 11] are intended to be codified as a new chapter in Title 31, and the provisions of Title 31 apply to [sections 1 through 11].

[3] S.B. 269, Section 14.

[4] S.B. 269, Section 2 (1).

[5] S.B. 269, Section 2 (4).

[6] S.B. 269, Section 2 (5).

[7] S.B. 269, Section 3 (5).

[8] S.B. 269, Section 4 (1) (a).

[9] S.B. 269, Section 4 (1) (b).

[10] S.B. 269, Section 4 (1) (e).

[11] S.B. 269, Section 4 (1) (g).

[12] S.B. 269, Section 4 (1) (i).

[13] S.B. 269, Section 4 (2).

[14] S.B. 269, Section 4 (1) (d).

[15] S.B. 269, Section 4 (1) (c).

[16] S.B. 269, Section 11 (2).  Montana Code Annotated 31-1-107 is titled “Interest rate allowed by agreement” and states, in full, as follows: 

(1) Parties may agree in writing to the payment of any rate of interest that does not exceed the greater of 15% or an amount that is 6 percentage points per year above the prime rate published by the federal reserve system in its statistical release H.15 Selected Interest Rates for bank prime loans dated 3 business days prior to the execution of the agreement. Interest must be allowed according to the terms of the agreement.  (2) A loan that is not usurious when made is lawful for the duration of the loan, provided the loan agreement is not substantially changed. This subsection does not apply to loan renewals. (3) The provisions of this section do not apply to regulated lenders as defined in 31-1-111.

[17] S.B. 269, Section 5 (4), paragraph 3.

[18] S.B. 269, Section 8.

[19] S.B. 269, Section 8.

[20] S.B. 269, Section 8.

[21] S.B. 269, Section 9.

[22] In this regard, S.B. 269, Section 7 states:

Section 7. Exemptions.  [Sections 1 through 11] do not apply to the following:

(1) a nonprofit entity that provides litigation financing, directly or indirectly, for the benefit of the nonprofit or one or more of its members without receiving, in consideration for the litigation financing:
  • the payment of interest, fees, or other consideration; or
  • except for in-house counsel of the nonprofit, any right to recovery or payment from the amount of any judgment, award, settlement, verdict, or other form of monetary relief obtained in the civil action, administrative proceeding, claim, or cause of action;
(2) any litigation financing provided by an entity engaged in commerce or business activity, but only if the entity does not:
  • charge or collect any interest, fees, or other consideration;
  • retain or receive any financial interest in the outcome of the civil action, administrative proceeding, claim, or cause of action; or
  • receive any right to recovery or payment from the amount of any judgment, award, settlement, verdict, or other form of monetary relief obtained in the civil action, administrative proceeding, claim, or cause of action; or
(3) a regulated lender that does not receive, in consideration for loaning money to any person, a right to receive payment from the value of any proceeds or other consideration realized from any judgment award, settlement, verdict, or other form of monetary relief any person may receive or recover in relation to any civil action, administrative proceeding, claim, or cause of action.

[23] S.B. 269, Section 14.

[24] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing, Indiana (IC § 24-12), Maine (ME Rev. Stat. Ann. 9-A, § 12), Nebraska (Neb. Rev. St. § 25-3301, et. seq.), Nevada (NRS § 604C.320), Oklahoma (Okla. Stat.  § 14A-3-801(6)), Tennessee (Tenn. Code Ann. § 47-16-101, et. seq.), Vermont (8 V.S.A. § 2252), and West Virginia (W. Va. Code § 46A-6N-2).  Illinois’s law is codified at 815 ILCS § 121.

[25] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing Ohio Rev. Code §. 1349.55(A)(1).

[26] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing Arkansas (A.C.A. § 4-57-109), Indiana (Ind. Code § 24-4.5-3-110), Nevada (NRS § 604C.310), Tennessee (Tenn. Code Ann. § 47-16-101), and West Virginia W. Va. Code § 46A-6N-9.  More specifically, this source reports that Nevada licenses and regulates consumer litigation financing and requires that the funded amount plus charges and   fees of each transaction cannot exceed a rate of 40% of the funded amount annually.  By contrast, in Tennessee a financier may impose a fee of up to 10% of the original amount provided to the consumer and may impose a maximum annual fee of $360 per year for each $1,000 of the unpaid principal of the funds advanced to the consumer for up to a maximum of 3 years.  In addition, it is noted that West Virginia caps interest on such transactions at 18% while Indiana authorizes a litigation financier to impose an annual fee of 36% of the funded amount and an annual servicing charge of up to 7% of the funded amount, as well as a onetime document charge.  See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5 (citations omitted).

[27] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5, citing Oasis Legal Finance Group v. Coffman, [361 P. 3d 400 2015 (Nov. 16, 2015)].  In this case, two national TPLF companies brought an action against Colorado’s Attorney General and Uniform Consumer Credit Code (UCCC) Administrator for declaratory judgment that funding agreements for personal injury litigation were not loans.  The Attorney General and UCCC Administrator counterclaimed, in part, to enjoin these companies from making or collecting loans without being properly licensed.   The Colorado Supreme Court held, in pertinent part, that the TPLF companies in this case who had agreed to advance money to tort plaintiffs in exchange for future litigation proceeds were making “loans” making them subject to Colorado’s UCCC provisions, even if the plaintiffs did not have to repay any deficiency if the litigation proceeds were ultimately less than the amount due.  Oasis Legal Finance Group, LLC v. Coffman, 361 P.3d 400, 401 (2015).

[28] See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5-6, citing South Carolina, Department of Consumer Affairs, Administrative Interpretation: Legal/Litigation Funding Transactions, (Nov. 14, 2014), Administrative Interpretation 3.104, 106-1403, 3.104,106-1403 Litigation FundingTransactions.pdf (sc.gov)

[29] S.B. 269, Section 4 (6).

[30] Wisconsin’s law is codified at Wis. Stat. Ann. § 804.01(2)(bg) and states:  “Third party agreements. Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.”  West Virginia’s statute, codified at W. Va. Code Ann. § 46A-6N-6 states: “Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any litigation financier, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.

[31] Regarding Montana’s disclosure and discovery provisions, it is noted that it shares some similarities with TPLF discovery provisions enacted by Wisconsin and West Virginia.  However, Montana’s provisions are more detailed and broader than Wisconsin’s and West Virginia’s statutes.  In this regard, Wis. Stat. Ann. § 804.01(2)(bg) states:  “Third party agreements. Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.”  West Virginia’s statute, codified at W. Va. Code Ann. § 46A-6N-6 states: “Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any litigation financier, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.”

 


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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