Texas 2013 - 83rd Regular

Texas House Bill HB1595 Compare Versions

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1	1	83R24731 ATP-F
2	2	By: Miller of Comal, Workman H.B. No. 1595
3	3	Substitute the following for H.B. No. 1595:
4	4	By: King of Hemphill C.S.H.B. No. 1595
5	5
6	6
7	7	A BILL TO BE ENTITLED
8	8	AN ACT
9	9	relating to litigation financing transactions; authorizing the
10	10	imposition of a fee.
11	11	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
12	12	SECTION 1. Subtitle B, Title 4, Finance Code, is amended by
13	13	adding Chapter 354 to read as follows:
14	14	CHAPTER 354. LITIGATION FINANCING AGREEMENTS
15	15	SUBCHAPTER A. GENERAL PROVISIONS
16	16	Sec. 354.001. DEFINITIONS. In this chapter:
17	17	(1) "Advertise" means to publish or disseminate a
18	18	written, electronic, or printed communication, or to publish,
19	19	disseminate, circulate, or place directly or indirectly before the
20	20	public a communication by means of a recorded telephone message or a
21	21	communication transmitted on radio, television, the Internet, or
22	22	similar communications media, including film strips, motion
23	23	pictures, and videos, for the purpose of inducing a person to enter
24	24	into a litigation financing agreement.
25	25	(2) "Charge" or "charges" means the amount paid to a
26	26	litigation financing company by or on behalf of the consumer, in
27	27	addition to the funded amount provided by or on behalf of the
28	28	company to a consumer. The term includes:
29	29	(A) an administrative fee, origination fee,
30	30	underwriting fee, and other fees, regardless of how the fee is
31	31	denominated; and
32	32	(B) any amounts denominated as interest.
33	33	(3) "Consumer" means an individual who has a pending
34	34	legal claim and who:
35	35	(A) resides in this state; or
36	36	(B) has the legal claim in this state.
37	37	(4) "Funded amount" means the amount provided to or on
38	38	behalf of the consumer under a litigation financing agreement. The
39	39	term does not include a charge.
40	40	(5) "Funding date" means the date on which the
41	41	litigation financing company:
42	42	(A) transfers the funded amount to the consumer
43	43	by personal delivery or by wire, ACH debit, or other electronic
44	44	means; or
45	45	(B) mails the funded amount to the consumer by
46	46	insured, certified, or registered United States mail.
47	47	(6) "Immediate family member" means:
48	48	(A) a parent, sibling, spouse, grandparent, or
49	49	grandchild of an individual; or
50	50	(B) a child related by blood, adoption, or
51	51	marriage to an individual.
52	52	(7) "Legal claim" includes:
53	53	(A) a civil action;
54	54	(B) an alternative dispute resolution
55	55	proceeding; or
56	56	(C) an administrative proceeding before an
57	57	agency of this state.
58	58	(8) "Litigation financing agreement" means an
59	59	agreement under which:
60	60	(A) money is provided to or on behalf of a
61	61	consumer by a litigation financing company for a purpose other than
62	62	prosecuting the consumer's legal claim; and
63	63	(B) the repayment of the money is in accordance
64	64	with a litigation financing transaction the terms of which are
65	65	included as part of the litigation financing agreement.
66	66	(9) "Litigation financing company" or "company" means
67	67	a person that enters into a litigation financing agreement with a
68	68	consumer.
69	69	(10) "Litigation financing transaction" means a
70	70	non-recourse transaction in which a litigation financing company
71	71	purchases, and a consumer assigns to the company, a contingent
72	72	right to receive an amount of the potential proceeds of a
73	73	settlement, judgment, award, or verdict obtained in the consumer's
74	74	legal claim.
75	75	(11) "Office" means the Office of Consumer Credit
76	76	Commissioner.
77	77	(12) "Resolution date" means the date on which the sum
78	78	of the amount funded to the consumer and the agreed-to charges is
79	79	delivered to the litigation financing company.
80	80	Sec. 354.002. NONAPPLICABILITY OF CHAPTER. Except as
81	81	specifically provided by this chapter, this chapter does not apply
82	82	to the following persons who enter into a litigation financing
83	83	agreement with a consumer:
84	84	(1) an immediate family member of the consumer;
85	85	(2) an accountant who provides accounting services to
86	86	the consumer; or
87	87	(3) an attorney who, at the time money is provided to
88	88	or on behalf of a consumer under a litigation financing agreement,
89	89	has an attorney-client relationship with the consumer concerning
90	90	the consumer's legal claim.
91	91	Sec. 354.003. AGREEMENT REQUIRED. A person may not enter
92	92	into a litigation financing transaction with a consumer except
93	93	under a litigation financing agreement that complies with this
94	94	chapter.
95	95	Sec. 354.004. DISCOVERY OF AGREEMENT. A party to the legal
96	96	dispute to which a litigation financing agreement relates is
97	97	entitled to obtain, under the rules applicable to discovery in the
98	98	forum where the legal claim is being resolved, contested, or
99	99	litigated, discovery of:
100	100	(1) the existence of the agreement between the
101	101	consumer and the litigation financing company;
102	102	(2) the name and principal place of business of the
103	103	litigation financing company; and
104	104	(3) the names of all employees of the litigation
105	105	financing company who reside or work in the county in which the
106	106	forum where the legal claim is being resolved, contested, or
107	107	litigated is located.
108	108	Sec. 354.005. DUTY OF ATTORNEY. An attorney representing a
109	109	consumer in a legal claim is not under a duty to assign any portion
110	110	of payments from a settlement, judgment, award, or verdict to the
111	111	litigation financing company unless the attorney has agreed to do
112	112	so in writing.
113	113	SUBCHAPTER B. AGREEMENT REQUIREMENTS
114	114	Sec. 354.051. FORM OF AGREEMENT; REQUIREMENT OF EXISTING
115	115	LEGAL CLAIM. (a) A litigation financing agreement must:
116	116	(1) be in writing;
117	117	(2) contain the initials of the consumer on each page;
118	118	and
119	119	(3) be otherwise complete when presented to the
120	120	consumer for signature.
121	121	(b) A litigation financing agreement may be entered into
122	122	only if the agreement relates to:
123	123	(1) an existing legal claim that has been made by or on
124	124	behalf of the consumer against another person, including the other
125	125	person's insurer or the consumer's own insurer; or
126	126	(2) an existing proceeding in which the consumer's
127	127	legal claim is intended to be resolved and with regard to which the
128	128	consumer is represented by an attorney.
129	129	Sec. 354.052. RIGHT OF RESCISSION. A litigation financing
130	130	agreement must provide a right of rescission under which the
131	131	consumer may cancel the agreement without penalty or further
132	132	obligation if, not later than the fifth business day after the
133	133	funding date, the consumer:
134	134	(1) returns to the litigation financing company the
135	135	full amount of the disbursed funds by personally delivering the
136	136	company's uncashed check to the company's office; or
137	137	(2) mails by insured, certified, or registered United
138	138	States mail to the address specified in the agreement a notice of
139	139	cancellation and the full amount of disbursed funds in the form of
140	140	the company's uncashed check or a registered or certified check or
141	141	money order.
142	142	Sec. 354.053. REQUIRED TERMS; DISCLOSURES. (a) A
143	143	litigation financing agreement must provide the terms required by
144	144	this section, which are material terms and must be disclosed as
145	145	provided by this section. The disclosures must be clear and
146	146	conspicuous and, unless otherwise provided by this section, must be
147	147	in at least 12-point bold type.
148	148	(b) On the front page of the agreement under appropriate
149	149	headings, the agreement must disclose:
150	150	(1) the funded amount to be paid to the consumer by the
151	151	litigation financing company;
152	152	(2) an itemization of one-time charges;
153	153	(3) the total amount to be assigned by the consumer to
154	154	the company, including the funded amount and all charges; and
155	155	(4) a payment schedule that:
156	156	(A) includes the funded amount and charges; and
157	157	(B) lists all dates and the amount due at the end
158	158	of each 180-day period from the funding date until the due date of
159	159	the maximum amount due to the company by the consumer to satisfy the
160	160	amount owed under the agreement.
161	161	(c) The agreement must contain the following statement
162	162	within a box: "CONSUMER'S RIGHT TO CANCELLATION: You may cancel
163	163	this agreement without penalty or further obligation within five
164	164	business days after the funding date if you either:
165	165	"i. return to the litigation financing company the full
166	166	amount of the disbursed funds by delivering the company's uncashed
167	167	check to the company's office in person; or
168	168	"ii. mail, by insured, certified, or registered United
169	169	States mail, to the company at the address specified in the
170	170	agreement, a notice of cancellation and include in the mailing a
171	171	return of the full amount of disbursed funds in the form of the
172	172	company's uncashed check or a registered or certified check or
173	173	money order."
174	174	(d) The agreement must disclose that:
175	175	(1) the litigation financing company may not
176	176	participate in deciding whether, when, or the amount for which a
177	177	legal claim is settled;
178	178	(2) the company may not interfere with the independent
179	179	professional judgment of the attorney handling the legal claim or
180	180	any settlement of the legal claim; and
181	181	(3) the consumer must notify the company of the
182	182	settlement or adjudication of the legal claim before the resolution
183	183	date.
184	184	(e) The agreement must contain in all capital letters the
185	185	following statement within a box: "THE FUNDED AMOUNT AND AGREED-TO
186	186	CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR LEGAL CLAIM,
187	187	AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAILABLE
188	188	PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF
189	189	THE LITIGATION FINANCING COMPANY) ANYTHING IF THERE ARE NO PROCEEDS
190	190	FROM YOUR LEGAL CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL TERM OF
191	191	THIS AGREEMENT OR YOU HAVE COMMITTED FRAUD AGAINST THE LITIGATION
192	192	FINANCING COMPANY."
193	193	(f) Immediately above the line for the consumer's
194	194	signature, the agreement must contain the following disclosure in
195	195	12-point type: "Do not sign this agreement before you read it
196	196	completely or if it contains any blank spaces. You are entitled to a
197	197	completed copy of the agreement. Before you sign this agreement,
198	198	you should obtain the advice of an attorney. Depending on the
199	199	circumstances, you may want to consult a tax, public or private
200	200	benefits planning, or financial professional."
201	201	Sec. 354.054. AGREEMENT AMOUNT. A litigation financing
202	202	company shall require the amount due under the agreement to be paid
203	203	to the company in a predetermined amount based on periodic
204	204	intervals from the funding date through the resolution date, and
205	205	not an amount determined as a percentage of the recovery from the
206	206	legal claim.
207	207	SUBCHAPTER C. LICENSING
208	208	Sec. 354.101. LICENSE REQUIRED; APPLICATION. (a) A
209	209	litigation financing company must obtain a license from the office
210	210	before engaging in an activity in this state that must be performed
211	211	under a litigation financing agreement that complies with this
212	212	chapter.
213	213	(b) A litigation financing company must file a license
214	214	application in the form and manner prescribed by the commissioner.
215	215	The application must:
216	216	(1) contain all information the office requires to
217	217	evaluate the character and fitness of the applicant, and if the
218	218	applicant is an entity, the character and fitness of each officer
219	219	and director of the applicant company; and
220	220	(2) be accompanied by a reasonable fee in an amount
221	221	determined by the commissioner.
222	222	Sec. 354.102. BOND; LETTER OF CREDIT. (a) The commissioner
223	223	may require an applicant to file with the application or a license
224	224	holder to file a bond in an amount not to exceed $50,000.
225	225	(b) The bond terms must run concurrent with the licensing
226	226	period. The bond must provide that the license holder will, during
227	227	the licensing period:
228	228	(1) faithfully conform to and abide by:
229	229	(A) the requirements of this chapter; and
230	230	(B) the rules adopted by the finance commission
231	231	to administer this chapter; and
232	232	(2) provide any amount that may become due or owing to
233	233	the state from the license holder under this chapter.
234	234	(c) In lieu of the bond, the applicant or license holder, at
235	235	the applicant's or license holder's option, may post an irrevocable
236	236	letter of credit.
237	237	Sec. 354.103. ISSUANCE OF LICENSE. The commissioner may
238	238	not issue a license under this chapter unless the commissioner,
239	239	following an investigation, determines that the character and
240	240	fitness of the applicant or of the applicant company's officers and
241	241	directors warrant belief that the business will be operated
242	242	honestly and fairly in accordance with this chapter.
243	243	Sec. 354.104. HEARING. (a) On written request, the
244	244	commissioner shall set a hearing before the State Office of
245	245	Administrative Hearings to determine an applicant's qualifications
246	246	for licensure if:
247	247	(1) the commissioner has notified the applicant in
248	248	writing of the denial of the application; or
249	249	(2) the commissioner has not issued a license before
250	250	the 61st day after the date the applicant filed the application.
251	251	(b) An applicant may not request a hearing under this
252	252	section after the 16th day after the date the commissioner sends
253	253	written notice to the applicant that the application has been
254	254	denied and stating the reasons for the denial.
255	255	Sec. 354.105. RENEWAL OF LICENSE. A litigation financing
256	256	company must renew its license on September 1 every two years by
257	257	paying a renewal fee as determined by the commissioner.
258	258	SUBCHAPTER D. PROHIBITIONS
259	259	Sec. 354.151. PROHIBITED ACTIVITIES OR CONDUCT. A
260	260	litigation financing company may not:
261	261	(1) pay or offer to pay a commission, referral fee, or
262	262	other form of consideration to an attorney, law firm, medical
263	263	provider, chiropractor, or physical therapist or an employee of a
264	264	person described by this subdivision for referring a consumer to
265	265	the company;
266	266	(2) accept any commission, referral fee, rebate, or
267	267	other form of consideration from an attorney, law firm, medical
268	268	provider, chiropractor, or physical therapist or an employee of a
269	269	person described by this subdivision;
270	270	(3) intentionally advertise materially false or
271	271	misleading information about the company's products or services;
272	272	(4) refer, to further an initial legal funding, a
273	273	customer or potential customer to a specific attorney, law firm,
274	274	medical provider, chiropractor, or physical therapist or an
275	275	employee of a person described by this subdivision, except that the
276	276	company may refer a customer or potential customer who needs legal
277	277	representation to a local or state bar association referral
278	278	service;
279	279	(5) fail to promptly supply a copy of the executed
280	280	agreement to the consumer's attorney;
281	281	(6) knowingly provide funding to a consumer who has
282	282	previously assigned or sold a portion of the consumer's right to
283	283	proceeds from the consumer's legal claim without first paying to or
284	284	purchasing from a previously unsatisfied litigation financing
285	285	company that company's entire funded amount and charges due under
286	286	that company's applicable agreement, unless:
287	287	(A) a lesser amount is otherwise agreed to in
288	288	writing by the litigation financing companies; or
289	289	(B) multiple companies have agreed to
290	290	concurrently provide funding to a consumer, if the consumer
291	291	consents to the arrangement in writing;
292	292	(7) make a decision relating to the conduct,
293	293	settlement, or resolution of the underlying legal claim, the power
294	294	of which must remain solely with the consumer and the attorney
295	295	handling the legal claim; or
296	296	(8) knowingly pay or offer to pay, using funds from the
297	297	litigation financing transaction, court costs, filing fees, or
298	298	attorneys' fees during or after the resolution of the legal claim.
299	299	SUBCHAPTER E. ENFORCEMENT
300	300	Sec. 354.201. VIOLATION OF CHAPTER. (a) If a court finds
301	301	that a litigation financing company has intentionally violated this
302	302	chapter with respect to a litigation financing transaction, the
303	303	company is entitled to recover the funded amount provided to the
304	304	consumer and may not receive any additional charges.
305	305	(b) In addition to any other applicable investigative and
306	306	enforcement provisions, Subchapters E, F, and G, Chapter 14, apply
307	307	to a violation of this chapter, including the power of the
308	308	commissioner to assess an administrative penalty under Chapter 14
309	309	against a person who knowingly and wilfully violates or causes a
310	310	violation of this chapter or a rule adopted under this chapter.
311	311	SECTION 2. As soon as practicable after the effective date
312	312	of this Act, but not later than January 1, 2014, the Finance
313	313	Commission of Texas shall adopt the rules and procedures necessary
314	314	to implement Chapter 354, Finance Code, as added by this Act.
315	315	SECTION 3. The changes in law made by this Act apply only to
316	316	a litigation financing agreement entered into on or after the
317	317	effective date of this Act. A litigation financing agreement
318	318	entered into before the effective date of this Act is governed by
319	319	the law in effect on the date the agreement was entered into, and
320	320	the former law is continued in effect for that purpose.
321	321	SECTION 4. (a) Except as otherwise provided by this
322	322	section, this Act takes effect September 1, 2013.
323	323	(b) Subchapter C, Chapter 354, Finance Code, as added by
324	324	this Act, takes effect January 1, 2014.