2023 -- H 5926

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LC002069

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2023

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A N   A C T

RELATING TO COURTS AND CIVIL PROCEDURE -- PROCEDURE GENERALLY --

THIRD-PARTY LITIGATION FINANCING CONSUMER PROTECTION ACT

     

     Introduced By: Representative Brian P. Kennedy

     Date Introduced: March 01, 2023

     Referred To: House Judiciary

     It is enacted by the General Assembly as follows:

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     SECTION 1. Title 9 of the General Laws entitled "COURTS AND CIVIL PROCEDURE

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—PROCEDURE GENERALLY" is hereby amended by adding thereto the following chapter:

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CHAPTER 3.1

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THIRD-PARTY LITIGATION FINANCING CONSUMER PROTECTION ACT

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     9-3.1-1. Short title.

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     This act shall be known and may be cited as the "Third-Party Litigation Financing

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Consumer Protection Act".

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     9-3.1-2. Definitions.

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     As used in this chapter:

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     (1) "Consumer" means any natural person or persons who resides, is present or is domiciled

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in this state, or who is or may become a plaintiff or complainant in a lawsuit or other legal dispute

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in this state.

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     (2) "Legal representative" means an attorney, group of attorneys or law firm who may be

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entitled to represent a person or persons in a legal dispute in this state.

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     (3) "Litigation financer" means a person, group of persons, or legal entity, engaged in the

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business of litigation financing or any other mechanism created with the intent of so doing.

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     (4) "Litigation financing" means the funding of litigation activities or related claims by

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anyone other than the parties to the claim or litigation themselves, their counsel, or entities with a

 

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preexisting contractual indemnitor or a liability insurer relationship with one of the parties.

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Litigation financing includes the purchase of bills, accounts or liens or otherwise paying for or

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purchasing services rendered related to claims or litigation.

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     (5) "Litigation financing transaction" means a transaction in which litigation financing is

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provided to a consumer, legal representative, or medical provider in return for assigning to the

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litigation financer a contingent right to receive an amount or amounts of the potential proceeds of

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consumer judgments, awards, settlements or verdicts obtained with respect to the consumer's legal

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claim, or agreeing to pay the litigation financer interest, fees or any other consideration for the

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financing provided. The term "litigation financing transaction" does not include legal

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representation services provided to a consumer by a legal representative on a contingency fee basis,

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or legal costs advanced by a legal representative, where such services or costs are provided to or

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on behalf of a consumer by a legal representative in the dispute and in accordance with the Rhode

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Island disciplinary rules of professional conduct.

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     (6) "Medical provider" means any person or business providing medical services of any

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kind to a consumer, including, but not limited to, physicians, nurse practitioners, hospitals, physical

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therapists, chiropractors, or radiologists, as well as any of their employees, contractors, practice

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groups, partnerships or incorporations of the same.

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     9-3.1-3. Litigation financer - Registration - Bond - Public record.

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     (a)(1) No litigation financer shall engage in a litigation financing transaction in Rhode

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Island unless it is registered as a litigation financer in this state.

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     (2) A litigation financer that is a business entity or partnership is registered in this state if:

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     (i) It has a status of active and in good standing as reflected in the records of the secretary

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of state; and

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     (ii) Its charter, articles of organization, certificate of limited partnership, or other

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organizational document, or, if a foreign entity, its Rhode Island application for a certificate of

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authority, contains a statement that it shall be designated as a litigation financer pursuant to this

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chapter.

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     (3) A litigation financer that is not a business entity or partnership is registered in this state

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if it files an application for registration as a litigation financer on a form prescribed by the secretary

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of state, along with a filing fee of one hundred dollars ($100), that contains the following:

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     (i) Applicant's full legal name;

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     (ii) Business name of applicant, if any;

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     (iii) Physical street address and mailing address of the applicant;

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     (iv) A telephone number through which the applicant can be reached;

 

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     (v) The name, physical street address, mailing address, and telephone number for a Rhode

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     Island registered agent appointed to accept service of process on behalf of the applicant;

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     (vi) A statement that the applicant shall be designated as a litigation financer pursuant to

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     this chapter; and

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     (vii) Any other information the secretary of state deems necessary.

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     (b) Each litigation financer shall file with the secretary of state a surety bond of not less

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than fifty thousand dollars ($50,000). The bond shall be payable to the state for the use of the

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attorney general and any person who may have a cause of action against the obligor of the bond for

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any violation of this chapter. The bond shall continue in effect as long as a litigation financer is

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designated as a litigation financer in the records of the secretary of state.

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     (c) A litigation financer shall amend its registration with the secretary of state under

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subsection (a) of this section within thirty (30) days whenever the information contained in such

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record changes or becomes inaccurate or incomplete in any respect. A litigation financer that is not

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a business entity or partnership may amend its registration with the secretary of state by filing an

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amendment on a form prescribed by the secretary of state, along with a filing fee of twenty dollars

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($20.00).

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     (d) All documents filed pursuant to this section are public record.

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     9-3.1-4. Litigation financing protections.

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      (a) A litigation financer shall not:

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     (1) Pay or offer commissions, referral fees or other forms of consideration to any legal

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representative, medical provider, or any of their employees for referring a consumer to a litigation

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financer;

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     (2) Accept any commissions, referral fees, rebates or other forms of consideration from a

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legal representative, medical provider or any of their employees;

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     (3) Advertise false or misleading information regarding its products or services;

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     (4) Refer a consumer or potential consumer to a specific legal representative, medical

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provider or any of their employees;

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     (5) Fail to promptly supply copies of any complete litigation financing contracts to the

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consumer and the consumer's legal representative;

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     (6) Attempt to secure a remedy or obtain a waiver of any remedy, including, but not limited

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to, compensatory, statutory, or punitive damages, that the consumer might otherwise be or not be

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entitled to pursue;

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     (7) Attempt to effect arbitration or otherwise effect waiver of a consumer's right to trial by

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jury;

 

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     (8) Offer or provide legal advice to the consumer regarding the litigation financing or the

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underlying dispute;

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     (9) Assign, which includes securitizing, a litigation financing contract in whole or part;

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     (10) Report a consumer to a credit reporting agency if insufficient funds remain from the

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net proceeds to repay the litigation financer; or

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     (11) Receive or exercise any right to direct, nor make any decisions with respect to, the

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conduct of the consumer's legal claim or any settlement or resolution thereof. The right to make

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such decisions shall remain solely with the consumer and his or her legal representative.

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     (b) A legal representative retained by a consumer, or a medical provider for such consumer,

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or any of their employees shall not have a financial interest in litigation financing and shall not

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receive a referral fee or other consideration from any litigation financer, its employees, owners or

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its affiliates.

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     9-3.1-5. Litigation financing contracts - Disclosures.

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     (a) The terms of the litigation financing agreement shall be set forth in a written contract

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that is completely filled in. There shall be no incomplete sections when the contract is offered or

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presented to the consumer, legal representative, or medical provider.

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     (b) Litigation financing contracts shall contain the disclosures specified in this section,

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which shall constitute material terms of the litigation financing contract.

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     (c) These disclosures shall be typed in at least fourteen (14) point, bold font and be placed

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clearly and conspicuously immediately above the consumer's signature line in the litigation

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financing contract:

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     (1) Consumer's Right to Cancellation: You may cancel this contract without penalty or

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further obligation within five (5) business days from the date you signed this contract or received

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financing from [insert name of the litigation financer] by either returning the funds to [insert name,

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office address and office hours of the litigation financer] or by U.S. mail, [insert name and mailing

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address of litigation financer]. For return by U.S. mail, the postmark date on the returned funds or,

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if mailed by registered or certified mail, the date of the return receipt requested shall be the date of

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return.

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     (2) The fees charged pursuant to this agreement shall not exceed [litigation financer to

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insert annual interest percentage rate, percentage of award or settlement proceeds, or dollar

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amount].

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     (3) The litigation financer agrees that it has no right to and will not make any decisions

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about the conduct of your lawsuit or dispute and that the right to make those decisions remains

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solely with you and your legal representative;

 

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     (4) If there is no recovery of any money from your legal claim or if there is not enough

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money to satisfy the portion assigned to [insert name of the litigation financer] in full, you will not

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owe anything in excess of your recovery.

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     (5) Do not sign this contract before you read it completely. If this contract contains any

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incomplete sections, you are entitled to a completely filled-in copy of the contract prior to signing

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it. Before you sign this contract, you should obtain the advice of an attorney. Depending on the

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circumstances, you may want to consult a tax advisor, a financial professional or an accountant.

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     (d) If the consumer is represented by a legal representative in the dispute that is the subject

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of the litigation financing contract, the legal representative shall acknowledge in the contract that

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he or she or their employer or employees have neither received nor paid a referral fee or any other

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consideration from or to the litigation financer, nor will in the future do so.

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     (e) If the consumer's legal representative is a party to a litigation financing agreement

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related to the consumer's legal proceeding, the legal representative shall share with the consumer

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the agreement between the legal representative and the litigation financer. The agreement shall be

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accompanied by the disclosure required by this section, and the consumer shall sign both an

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acknowledgement that the agreement has been read and the required disclosure.

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     9-3.1-6. Discosure of financing agreements - Discovery.

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     (a) Except as otherwise stipulated or ordered by the court, a consumer or their legal

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representative shall, without awaiting a discovery request, provide to all parties to the litigation,

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including their insurer if prior to litigation, any litigation financing contract or agreement under

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which anyone, other than a legal representative permitted to charge a contingent fee representing a

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party, has received or has a right to receive compensation or proceeds from the consumer that are

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contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or

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otherwise.

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     (b) The existence of litigation financing, litigation financing transactions and all

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participants in such financing arrangements are permissible subjects of discovery in all personal

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injury litigation or matters arising out of personal injuries.

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     9-3.1-7. Annual report.

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     (a) Each litigation financer shall file a report annually with the secretary of state in

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accordance with such procedures as the secretary may require. The report shall contain at least the

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following:

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     (1) For each person that, directly or indirectly, owns, controls, holds with the power to vote,

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or holds proxies representing, five percent (5%) or more of the voting securities of the litigation

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financer:

 

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     (i) The legal name and address of each person;

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     (ii) If the person is an individual, his or her principal occupation and offices and positions

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held during the past five (5) years, and any conviction of crimes other than minor traffic violations

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during the past ten (10) years; and

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     (iii) If the person is not an individual, a report of the nature of its business operations during

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the past five (5) years or for the lesser period as the person and any predecessors shall have been in

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existence; a narrative description of the business intended to be done by the person and the person's

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subsidiaries; and a list of all individuals who are or who have been selected to become directors or

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executive officers of the person. The list shall include for each individual the information required

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by subsection (a)(1)(ii) of this section; and

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     (2) For each litigation financing transaction entered in this state or involving a claim to be

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litigated in this state, the litigation financer shall identify:

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     (i) The amount, date(s) of payment(s), and name and address of each person that received

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any amount of financing from a litigation financer during the previous calendar year;

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     (ii) The amount, date of payment, and source of payment for all proceeds obtained by the

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litigation financer during the previous calendar year from any judgment, award, settlement or

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verdict in a litigation financing transaction; and

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     (iii) Any other information the secretary deems necessary to the administration of justice.

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     (b) Secretary of state reporting obligations

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     (1) The secretary of state shall provide to the house and senate judiciary committees an

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annual report within six (6) months of the receipt of the information in subsection (a) of this section

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     containing all of the information therein and a summary. This report as filed shall not be

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made available to the public and shall be confidential by law and privileged, shall not be subject to

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the

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     provisions of chapter 2 of title 38, shall not be subject to subpoena, and shall not be subject

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to discovery or admissible in evidence in any private civil action.

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     (2) The secretary of state shall release the report and summary under subsection (b)(1) of

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this section to the public subject to the removal of all personally identifiable information of any

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consumer. Nothing in this subsection shall affect the obligation to disclose litigation financing

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contracts or other agreements under § 9-3.1-6.

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     9-3.1-8. Class action lawsuits.

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     This chapter shall apply to any class action. Putative class members and the court shall be

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advised that the proposed class attorney has a legal or financial relationship with a litigation

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financer.

 

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     9-3.1-9. Commercial litigation exemption - Limitation.

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     This chapter does not apply to litigation financing provided to commercial enterprises in

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support of commercial litigation. This exemption does not apply to situations arising from a

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personal injury claim or an aggregation of personal injury claims, whether by subrogation,

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assignment, or any other basis.

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     9-3.1-10. Regulatory oversight.

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     The practice of litigation financing shall be regulated by the secretary of state. The office

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of the secretary of state shall adopt rules and regulations consistent with this chapter and its

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authority under law.

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     9-3.1-11. Act violation - Unenforceable contract.

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     Any violation of this chapter shall make the litigation financing contract unenforceable by

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the litigation financer, the consumer, or any successor-in-interest to the litigation financing

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contract.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO COURTS AND CIVIL PROCEDURE -- PROCEDURE GENERALLY --

THIRD-PARTY LITIGATION FINANCING CONSUMER PROTECTION ACT

***

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     This act would comprehensively regulate the practices of third-party litigation financers in

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Rhode Island to provide transparency in litigation.

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     This act would take effect upon passage.

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LC002069

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