83R6740 RWG-F
By: Thompson of Harris H.B. No. 1254
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 109 to read as follows:
CHAPTER 109. REGULATION OF CIVIL JUSTICE FUNDING
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 109.001. SHORT TITLE. This chapter may be cited as the
Civil Justice Funding Act.
Sec. 109.002. 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 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 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.
(4) "Civil justice funding company" or "company" means
a person that enters into a civil justice funding transaction with a
consumer.
(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 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. 109.003. NONAPPLICABILITY 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. 109.004. 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. 109.005. FUNDING TRANSACTION NOT A LOAN. (a) Nothing
in this chapter shall be construed to cause a civil justice funding
transaction under 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 law or to regulatory
provisions of this state governing loans or investment contracts.
Sec. 109.006. 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. 109.007. 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. 109.008. 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.
SUBCHAPTER B. CONTRACT
Sec. 109.051. FORM OF CONTRACT. A civil justice funding
contract must:
(1) be in writing;
(2) contain the initials of the consumer on each page;
and
(3) be completed when presented to the consumer for
signature.
Sec. 109.052. 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. 109.053. 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
109.052, 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 text within a 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
completed copy of the 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. 109.054. 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. 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. 109.055. 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. 109.056. 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. 109.101. 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. 109.102. 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) the requirements of 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. 109.103. 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 or of the applicant
company's officers and directors warrant belief that the business
will be operated honestly and fairly in accordance with this
chapter.
Sec. 109.104. 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 not later than the 60th 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. 109.105. 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. 109.151. 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 supply 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
attorneys' fees during or after the resolution of the legal claim.
SUBCHAPTER E. ENFORCEMENT
Sec. 109.201. 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 the funded amount provided to the
consumer and may not receive 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, 2014, the Texas
Commission of Licensing and Regulation shall adopt the rules and
procedures necessary to implement Chapter 109, 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, 2013.
(b) Subchapter C, Chapter 109, Business & Commerce Code, as
added by this Act, takes effect January 1, 2014.