84R3827 GRM-F

By: Thompson of Harris H.B. No. 3454

A BILL TO BE ENTITLED

AN ACT

relating to transactions involving the assignment of rights in an individual's legal claim; authorizing the imposition of a fee.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. The heading to Title 5, Business & Commerce Code, is amended to read as follows:

TITLE 5. REGULATION OF BUSINESSES, [AND] SERVICES, AND

CERTAIN TRANSACTIONS

SECTION 2. The heading to Subtitle C, Title 5, Business & Commerce Code, is amended to read as follows:

SUBTITLE C. BUSINESS OPERATIONS AND TRANSACTIONS

SECTION 3. Subtitle C, Title 5, Business & Commerce Code, is amended by adding Chapter 111 to read as follows:

CHAPTER 111. REGULATION OF CIVIL JUSTICE FUNDING

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 111.001. SHORT TITLE. This chapter may be cited as the Civil Justice Funding Act.

Sec. 111.002. DEFINITIONS. In this chapter:

(1) "Advertise" means to publish or disseminate a written, electronic, or printed communication, or to publish, disseminate, circulate, or place directly or indirectly before the public a communication by means of a recorded telephone message or a communication transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, for the purpose of inducing a person to enter into a civil justice funding transaction.

(2) "Charge" or "charges" means the amount of money paid to a civil justice funding company by or on behalf of the consumer, in addition to the funded amount provided by or on behalf of the company to a consumer. The term includes an administrative fee, origination fee, underwriting fee, and other fees, regardless of how the fee is denominated.

(3) "Civil justice funding company" or "company" means a person that enters into a civil justice funding transaction with a consumer.

(4) "Civil justice funding transaction" means a non-recourse transaction in which a civil justice funding company purchases, and a consumer assigns to the company, a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award, or verdict obtained in the consumer's legal claim.

(5) "Consumer" means an individual who has a pending legal claim and who:

(A) resides in this state; or

(B) has a legal claim in this state.

(6) "Department" means the Texas Department of Licensing and Regulation.

(7) "Funded amount" means the amount of money provided to or on behalf of the consumer in a civil justice funding transaction. The term does not include a charge.

(8) "Funding date" means the date on which the civil justice funding company:

(A) transfers the funded amount to the consumer by personal delivery or by wire, ACH debit, or other electronic means; or

(B) mails the funded amount to the consumer by insured, certified, or registered United States mail.

(9) "Immediate family member" means:

(A) a parent, sibling, spouse, grandparent, or grandchild of an individual; or

(B) a child related by blood, adoption, or marriage to an individual.

(10) "Legal claim" means a bona fide civil claim or cause of action.

(11) "Resolution date" means the date on which the sum of the amount funded to the consumer and the agreed to charges is delivered to the civil justice funding company.

Sec. 111.003. INAPPLICABILITY OF CHAPTER. (a) This chapter does not apply to the following persons who enter into a civil justice funding transaction with a consumer:

(1) an immediate family member of the consumer; or

(2) an attorney or accountant who provides services to the consumer.

(b) This chapter does not apply to a bank, lender, financing entity, or other special purpose entity:

(1) that provides financing to a civil justice funding company; or

(2) to which a civil justice funding company grants a security interest or transfers any rights or interest in a civil justice funding transaction.

Sec. 111.004. ASSIGNMENT OF RIGHT TO THIRD PARTY. A consumer may assign the contingent right to receive an amount of the potential proceeds of a legal claim to a third party.

Sec. 111.005. FUNDING TRANSACTION NOT LOAN. (a) Nothing in this chapter shall be construed to cause a civil justice funding transaction in conformance with this chapter to be considered a loan or to be subject to state laws governing loans.

(b) A civil justice funding transaction that complies with this chapter is not subject to any other state laws governing loans or investment contracts or to regulatory provisions of this state governing loans or investment contracts.

Sec. 111.006. EFFECT OF COMMUNICATION RELATING TO FUNDING TRANSACTION ON RECOGNIZED PRIVILEGES. A communication between the consumer's attorney handling the legal claim and the civil justice funding company that pertains to a civil justice funding transaction does not limit, waive, or abrogate the scope or nature of any applicable statutory or common law privilege, including the work-product doctrine and the attorney-client privilege.

Sec. 111.007. PRIORITY OF LIEN. (a) Only the following liens take priority over a lien of the civil justice funding company:

(1) an attorney's lien related to the legal claim;

(2) a lien related to Medicare; or

(3) another statutory lien related to the legal claim.

(b) All other liens shall take priority by normal operation of law.

Sec. 111.008. CONFLICT WITH OTHER LAW. To the extent that this chapter conflicts with other law with respect to the regulation of civil justice funding companies, this chapter controls.

Sec. 111.009. RULES. The Texas Commission of Licensing and Regulation shall adopt rules necessary to implement this chapter.

SUBCHAPTER B. CONTRACT

Sec. 111.051. FORM OF CONTRACT. A civil justice funding contract must:

(1) be in writing;

(2) contain the initials of the consumer on each page of the contract; and

(3) be completely filled in when presented to the consumer for signature.

Sec. 111.052. RIGHT OF RESCISSION. A civil justice funding contract must contain inside a text box, in bold type, a right of rescission permitting the consumer to cancel the contract without penalty or further obligation if, not later than the fifth business day after the funding date, the consumer:

(1) returns to the civil justice funding company the full amount of the disbursed funds by personally delivering the company's uncashed check to the company's office; or

(2) mails by insured, certified, or registered United States mail to the address specified in the contract a notice of cancellation and the full amount of disbursed funds in the form of the company's uncashed check or a registered or certified check or money order.

Sec. 111.053. DISCLOSURES. (a) A civil justice funding contract must contain the disclosures required by this section, which constitute material terms of the contract. The disclosures must be clear and conspicuous and in at least 12-point bold type, except as provided by Subsection (f).

(b) On the front page of the contract under appropriate headings, the contract must disclose:

(1) the funded amount to be paid to the consumer by the civil justice funding company;

(2) an itemization of one-time charges;

(3) the total amount to be assigned by the consumer to the company, including the funded amount and all charges; and

(4) a payment schedule that:

(A) includes the funded amount and charges; and

(B) lists all dates and the amount due at the end of each 180-day period from the funding date until the due date of the maximum amount due to the company by the consumer to satisfy the contract amount.

(c) Pursuant to the requirements set forth in Section 111.052, the contract must contain the following statement: "CONSUMER'S RIGHT TO CANCELLATION: You may cancel this contract without penalty or further obligation within five business days after the funding date if you either:

"i. return to the civil justice funding company the full amount of the disbursed funds by delivering the company's uncashed check to the company's office in person; or

"ii. mail, by insured, certified, or registered United States mail, to the company at the address specified in the contract, a notice of cancellation and include in the mailing a return of the full amount of disbursed funds in the form of the company's uncashed check or a registered or certified check or money order."

(d) The contract must disclose that:

(1) the civil justice funding company may not participate in deciding whether, when, or the amount for which a legal claim is settled;

(2) the company may seek updated information about the status of the legal claim but may not interfere with the independent professional judgment of the attorney in handling the legal claim or any settlement of the claim; and

(3) the consumer and the consumer's attorney must notify the company of the settlement or adjudication of the legal claim before the resolution date.

(e) The contract must contain in all capital letters the following language within a text box: "THE FUNDED AMOUNT AND AGREED TO CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAILABLE PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF THE CIVIL JUSTICE FUNDING COMPANY) ANYTHING IF THERE ARE NO PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU OR YOUR ATTORNEY HAVE VIOLATED ANY MATERIAL TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST THE CIVIL JUSTICE FUNDING COMPANY."

(f) Immediately above the line for the consumer's signature, the contract must contain the following disclosure in 12-point type: "Do not sign this contract before you read it completely or if it contains any blank spaces. You are entitled to a copy of the completed contract. Before you sign this contract, you should obtain the advice of an attorney. Depending on the circumstances, you may want to consult a tax, public or private benefits planning, or financial professional. You acknowledge that the attorney handling your legal claim has provided no tax, public or private benefit planning, or financial advice regarding this transaction."

Sec. 111.054. WRITTEN ACKNOWLEDGMENT OF ATTORNEY. (a) The contract must contain a written acknowledgment by the attorney representing the consumer in the legal claim attesting to the following:

(1) to the best of the attorney's knowledge, all costs and charges relating to the civil justice funding transaction have been disclosed to the consumer;

(2) the attorney is being paid on a contingency basis under a written fee agreement;

(3) all proceeds of the legal claim will be disbursed through the trust account of the attorney or a settlement fund established to receive the proceeds of the legal claim on the consumer's behalf;

(4) the attorney is following the consumer's written instructions regarding the civil justice funding transaction; and

(5) the attorney has not received, or will not receive at a later date, from the civil justice funding company a referral fee or other form of consideration in connection with the civil justice funding transaction.

(b) If the acknowledgment required by Subsection (a) is not completed by the attorney representing the consumer in the legal claim, the contract is void.

(c) The contract will remain enforceable if the consumer terminates the initial attorney or retains a new attorney with respect to the legal claim, who then completes the acknowledgment required by Subsection (a).

Sec. 111.055. CONTRACT AMOUNT. A civil justice funding company shall require the contracted amount to be paid to the company to be a predetermined amount based on periodic intervals from the funding date through the resolution date, and not an amount determined as a percentage of the recovery from the legal claim.

Sec. 111.056. CONTRACT FILING REQUIREMENT. A civil justice funding contract must be filed with the department in accordance with the filing procedures specified by the department.

SUBCHAPTER C. REGISTRATION

Sec. 111.101. REGISTRATION REQUIRED; APPLICATION. (a) A civil justice funding company must register with the department before engaging in civil justice funding transactions in this state.

(b) A civil justice funding company must file a registration application in the form and manner prescribed by the department. The application must:

(1) contain all information the department requires to evaluate the character and fitness of the applicant, and if the applicant is an entity, the character and fitness of each officer and director of the applicant company; and

(2) be accompanied by a reasonable fee in an amount determined by the department.

Sec. 111.102. BOND; LETTER OF CREDIT. (a) The department may require an applicant or registrant to file a bond with the application in an amount not to exceed $50,000.

(b) The bond terms must run concurrent with the registration period. The bond must provide that the registrant will, during the registration period:

(1) faithfully conform to and abide by:

(A) this chapter; and

(B) the rules adopted by the Texas Commission of Licensing and Regulation to administer this chapter; and

(2) provide any amount that may become due or owing to the state from the registrant under this chapter.

(c) In lieu of the bond, the applicant or registrant, at the applicant's or registrant's option, may post an irrevocable letter of credit.

Sec. 111.103. ISSUANCE OF CERTIFICATE OF REGISTRATION. The department may not issue a certificate of registration unless the department, following an investigation, determines that the character and fitness of the applicant and, if the applicant is an entity, of the applicant company's officers and directors warrant belief that the business will be operated honestly and fairly and in accordance with this chapter.

Sec. 111.104. HEARING. (a) On written request, the department shall set a hearing before the State Office of Administrative Hearings to determine an applicant's qualifications for registration if:

(1) the department has notified the applicant in writing of the denial of the application; or

(2) the department has not issued a certificate of registration before the 61st day after the date the applicant filed the application.

(b) An applicant may not request a hearing under this section after the 16th day after the date the department sends written notice to the applicant that the application has been denied and stating the reasons for the denial.

Sec. 111.105. RENEWAL OF REGISTRATION. A civil justice funding company must renew its registration on September 30 every two years by paying a $200 renewal fee.

SUBCHAPTER D. PROHIBITIONS

Sec. 111.151. PROHIBITED ACTIVITIES OR CONDUCT. A civil justice funding company may not:

(1) pay or offer to pay a commission, referral fee, or other form of consideration to an attorney, law firm, medical provider, chiropractor, or physical therapist or an employee of such a person for referring a consumer to the company;

(2) accept any commission, referral fee, rebate, or other form of consideration from an attorney, law firm, medical provider, chiropractor, or physical therapist or an employee of such a person;

(3) intentionally advertise materially false or misleading information about the company's products or services;

(4) refer, to further an initial legal funding, a customer or potential customer to a specific attorney, law firm, medical provider, chiropractor, or physical therapist or an employee of such a person, except that the company may refer a customer or potential customer who needs legal representation to a local or state bar association referral service;

(5) fail to promptly provide a copy of the executed contract to the consumer's attorney;

(6) knowingly provide funding to a consumer who has previously assigned or sold a portion of the consumer's right to proceeds from the consumer's legal claim without first paying to or purchasing from a previously unsatisfied civil justice funding company that company's entire funded amount and contracted charges, unless:

(A) a lesser amount is otherwise agreed to in writing by the civil justice funding companies; or

(B) multiple companies have agreed to concurrently provide funding to a consumer, if the consumer and the consumer's attorney consent to the arrangement in writing;

(7) make a decision relating to the conduct, settlement, or resolution of the underlying legal claim, the power of which must remain solely with the consumer and the attorney handling the legal claim; or

(8) knowingly pay or offer to pay, using funds from the civil justice funding transaction, court costs, filing fees, or attorney's fees during or after the resolution of the legal claim.

SUBCHAPTER E. ENFORCEMENT

Sec. 111.201. VIOLATION OF CHAPTER. (a) If a court finds that a civil justice funding company has intentionally violated this chapter with respect to a civil justice funding transaction, the company is entitled to recover only the funded amount provided to the consumer and is not entitled to recover any additional charges.

(b) Nothing in this chapter shall be construed to restrict the attorney general from exercising the powers conferred on the attorney general by law or from performing duties as required by law.

SECTION 4. As soon as practicable after the effective date of this Act, but not later than January 1, 2016, the Texas Commission of Licensing and Regulation shall adopt the rules and procedures necessary to implement Chapter 111, Business & Commerce Code, as added by this Act.

SECTION 5. The changes in law made by this Act apply only to a civil justice funding contract entered into on or after the effective date of this Act. A civil justice funding contract entered into before the effective date of this Act is governed by the law in effect on the date the contract was entered into, and the former law is continued in effect for that purpose.

SECTION 6. (a) Except as provided by Subsection (b) of this section, this Act takes effect September 1, 2015.

(b) Subchapter C, Chapter 111, Business & Commerce Code, as added by this Act, takes effect January 1, 2016.