Texas 2015 - 84th Regular

Texas House Bill HB3454 Compare Versions

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1	1	84R3827 GRM-F
2	2	By: Thompson of Harris H.B. No. 3454
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to transactions involving the assignment of rights in an
8	8	individual's legal claim; authorizing the imposition of a fee.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. The heading to Title 5, Business & Commerce Code,
11	11	is amended to read as follows:
12	12	TITLE 5. REGULATION OF BUSINESSES, [AND] SERVICES, AND
13	13	CERTAIN TRANSACTIONS
14	14	SECTION 2. The heading to Subtitle C, Title 5, Business &
15	15	Commerce Code, is amended to read as follows:
16	16	SUBTITLE C. BUSINESS OPERATIONS AND TRANSACTIONS
17	17	SECTION 3. Subtitle C, Title 5, Business & Commerce Code, is
18	18	amended by adding Chapter 111 to read as follows:
19	19	CHAPTER 111. REGULATION OF CIVIL JUSTICE FUNDING
20	20	SUBCHAPTER A. GENERAL PROVISIONS
21	21	Sec. 111.001. SHORT TITLE. This chapter may be cited as the
22	22	Civil Justice Funding Act.
23	23	Sec. 111.002. DEFINITIONS. In this chapter:
24	24	(1) "Advertise" means to publish or disseminate a
25	25	written, electronic, or printed communication, or to publish,
26	26	disseminate, circulate, or place directly or indirectly before the
27	27	public a communication by means of a recorded telephone message or a
28	28	communication transmitted on radio, television, the Internet, or
29	29	similar communications media, including film strips, motion
30	30	pictures, and videos, for the purpose of inducing a person to enter
31	31	into a civil justice funding transaction.
32	32	(2) "Charge" or "charges" means the amount of money
33	33	paid to a civil justice funding company by or on behalf of the
34	34	consumer, in addition to the funded amount provided by or on behalf
35	35	of the company to a consumer. The term includes an administrative
36	36	fee, origination fee, underwriting fee, and other fees, regardless
37	37	of how the fee is denominated.
38	38	(3) "Civil justice funding company" or "company" means
39	39	a person that enters into a civil justice funding transaction with a
40	40	consumer.
41	41	(4) "Civil justice funding transaction" means a
42	42	non-recourse transaction in which a civil justice funding company
43	43	purchases, and a consumer assigns to the company, a contingent
44	44	right to receive an amount of the potential proceeds of a
45	45	settlement, judgment, award, or verdict obtained in the consumer's
46	46	legal claim.
47	47	(5) "Consumer" means an individual who has a pending
48	48	legal claim and who:
49	49	(A) resides in this state; or
50	50	(B) has a legal claim in this state.
51	51	(6) "Department" means the Texas Department of
52	52	Licensing and Regulation.
53	53	(7) "Funded amount" means the amount of money provided
54	54	to or on behalf of the consumer in a civil justice funding
55	55	transaction. The term does not include a charge.
56	56	(8) "Funding date" means the date on which the civil
57	57	justice funding company:
58	58	(A) transfers the funded amount to the consumer
59	59	by personal delivery or by wire, ACH debit, or other electronic
60	60	means; or
61	61	(B) mails the funded amount to the consumer by
62	62	insured, certified, or registered United States mail.
63	63	(9) "Immediate family member" means:
64	64	(A) a parent, sibling, spouse, grandparent, or
65	65	grandchild of an individual; or
66	66	(B) a child related by blood, adoption, or
67	67	marriage to an individual.
68	68	(10) "Legal claim" means a bona fide civil claim or
69	69	cause of action.
70	70	(11) "Resolution date" means the date on which the sum
71	71	of the amount funded to the consumer and the agreed to charges is
72	72	delivered to the civil justice funding company.
73	73	Sec. 111.003. INAPPLICABILITY OF CHAPTER. (a) This
74	74	chapter does not apply to the following persons who enter into a
75	75	civil justice funding transaction with a consumer:
76	76	(1) an immediate family member of the consumer; or
77	77	(2) an attorney or accountant who provides services to
78	78	the consumer.
79	79	(b) This chapter does not apply to a bank, lender, financing
80	80	entity, or other special purpose entity:
81	81	(1) that provides financing to a civil justice funding
82	82	company; or
83	83	(2) to which a civil justice funding company grants a
84	84	security interest or transfers any rights or interest in a civil
85	85	justice funding transaction.
86	86	Sec. 111.004. ASSIGNMENT OF RIGHT TO THIRD PARTY. A
87	87	consumer may assign the contingent right to receive an amount of the
88	88	potential proceeds of a legal claim to a third party.
89	89	Sec. 111.005. FUNDING TRANSACTION NOT LOAN. (a) Nothing in
90	90	this chapter shall be construed to cause a civil justice funding
91	91	transaction in conformance with this chapter to be considered a
92	92	loan or to be subject to state laws governing loans.
93	93	(b) A civil justice funding transaction that complies with
94	94	this chapter is not subject to any other state laws governing loans
95	95	or investment contracts or to regulatory provisions of this state
96	96	governing loans or investment contracts.
97	97	Sec. 111.006. EFFECT OF COMMUNICATION RELATING TO FUNDING
98	98	TRANSACTION ON RECOGNIZED PRIVILEGES. A communication between the
99	99	consumer's attorney handling the legal claim and the civil justice
100	100	funding company that pertains to a civil justice funding
101	101	transaction does not limit, waive, or abrogate the scope or nature
102	102	of any applicable statutory or common law privilege, including the
103	103	work-product doctrine and the attorney-client privilege.
104	104	Sec. 111.007. PRIORITY OF LIEN. (a) Only the following
105	105	liens take priority over a lien of the civil justice funding
106	106	company:
107	107	(1) an attorney's lien related to the legal claim;
108	108	(2) a lien related to Medicare; or
109	109	(3) another statutory lien related to the legal claim.
110	110	(b) All other liens shall take priority by normal operation
111	111	of law.
112	112	Sec. 111.008. CONFLICT WITH OTHER LAW. To the extent that
113	113	this chapter conflicts with other law with respect to the
114	114	regulation of civil justice funding companies, this chapter
115	115	controls.
116	116	Sec. 111.009. RULES. The Texas Commission of Licensing and
117	117	Regulation shall adopt rules necessary to implement this chapter.
118	118	SUBCHAPTER B. CONTRACT
119	119	Sec. 111.051. FORM OF CONTRACT. A civil justice funding
120	120	contract must:
121	121	(1) be in writing;
122	122	(2) contain the initials of the consumer on each page
123	123	of the contract; and
124	124	(3) be completely filled in when presented to the
125	125	consumer for signature.
126	126	Sec. 111.052. RIGHT OF RESCISSION. A civil justice funding
127	127	contract must contain inside a text box, in bold type, a right of
128	128	rescission permitting the consumer to cancel the contract without
129	129	penalty or further obligation if, not later than the fifth business
130	130	day after the funding date, the consumer:
131	131	(1) returns to the civil justice funding company the
132	132	full amount of the disbursed funds by personally delivering the
133	133	company's uncashed check to the company's office; or
134	134	(2) mails by insured, certified, or registered United
135	135	States mail to the address specified in the contract a notice of
136	136	cancellation and the full amount of disbursed funds in the form of
137	137	the company's uncashed check or a registered or certified check or
138	138	money order.
139	139	Sec. 111.053. DISCLOSURES. (a) A civil justice funding
140	140	contract must contain the disclosures required by this section,
141	141	which constitute material terms of the contract. The disclosures
142	142	must be clear and conspicuous and in at least 12-point bold type,
143	143	except as provided by Subsection (f).
144	144	(b) On the front page of the contract under appropriate
145	145	headings, the contract must disclose:
146	146	(1) the funded amount to be paid to the consumer by the
147	147	civil justice funding company;
148	148	(2) an itemization of one-time charges;
149	149	(3) the total amount to be assigned by the consumer to
150	150	the company, including the funded amount and all charges; and
151	151	(4) a payment schedule that:
152	152	(A) includes the funded amount and charges; and
153	153	(B) lists all dates and the amount due at the end
154	154	of each 180-day period from the funding date until the due date of
155	155	the maximum amount due to the company by the consumer to satisfy the
156	156	contract amount.
157	157	(c) Pursuant to the requirements set forth in Section
158	158	111.052, the contract must contain the following statement:
159	159	"CONSUMER'S RIGHT TO CANCELLATION: You may cancel this contract
160	160	without penalty or further obligation within five business days
161	161	after the funding date if you either:
162	162	"i. return to the civil justice funding company the full
163	163	amount of the disbursed funds by delivering the company's uncashed
164	164	check to the company's office in person; or
165	165	"ii. mail, by insured, certified, or registered United
166	166	States mail, to the company at the address specified in the
167	167	contract, a notice of cancellation and include in the mailing a
168	168	return of the full amount of disbursed funds in the form of the
169	169	company's uncashed check or a registered or certified check or
170	170	money order."
171	171	(d) The contract must disclose that:
172	172	(1) the civil justice funding company may not
173	173	participate in deciding whether, when, or the amount for which a
174	174	legal claim is settled;
175	175	(2) the company may seek updated information about the
176	176	status of the legal claim but may not interfere with the independent
177	177	professional judgment of the attorney in handling the legal claim
178	178	or any settlement of the claim; and
179	179	(3) the consumer and the consumer's attorney must
180	180	notify the company of the settlement or adjudication of the legal
181	181	claim before the resolution date.
182	182	(e) The contract must contain in all capital letters the
183	183	following language within a text box: "THE FUNDED AMOUNT AND AGREED
184	184	TO CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR LEGAL CLAIM,
185	185	AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAILABLE
186	186	PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF
187	187	THE CIVIL JUSTICE FUNDING COMPANY) ANYTHING IF THERE ARE NO
188	188	PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU OR YOUR ATTORNEY HAVE
189	189	VIOLATED ANY MATERIAL TERM OF THIS CONTRACT OR YOU HAVE COMMITTED
190	190	FRAUD AGAINST THE CIVIL JUSTICE FUNDING COMPANY."
191	191	(f) Immediately above the line for the consumer's
192	192	signature, the contract must contain the following disclosure in
193	193	12-point type: "Do not sign this contract before you read it
194	194	completely or if it contains any blank spaces. You are entitled to a
195	195	copy of the completed contract. Before you sign this contract, you
196	196	should obtain the advice of an attorney. Depending on the
197	197	circumstances, you may want to consult a tax, public or private
198	198	benefits planning, or financial professional. You acknowledge that
199	199	the attorney handling your legal claim has provided no tax, public
200	200	or private benefit planning, or financial advice regarding this
201	201	transaction."
202	202	Sec. 111.054. WRITTEN ACKNOWLEDGMENT OF ATTORNEY. (a) The
203	203	contract must contain a written acknowledgment by the attorney
204	204	representing the consumer in the legal claim attesting to the
205	205	following:
206	206	(1) to the best of the attorney's knowledge, all costs
207	207	and charges relating to the civil justice funding transaction have
208	208	been disclosed to the consumer;
209	209	(2) the attorney is being paid on a contingency basis
210	210	under a written fee agreement;
211	211	(3) all proceeds of the legal claim will be disbursed
212	212	through the trust account of the attorney or a settlement fund
213	213	established to receive the proceeds of the legal claim on the
214	214	consumer's behalf;
215	215	(4) the attorney is following the consumer's written
216	216	instructions regarding the civil justice funding transaction; and
217	217	(5) the attorney has not received, or will not receive
218	218	at a later date, from the civil justice funding company a referral
219	219	fee or other form of consideration in connection with the civil
220	220	justice funding transaction.
221	221	(b) If the acknowledgment required by Subsection (a) is not
222	222	completed by the attorney representing the consumer in the legal
223	223	claim, the contract is void.
224	224	(c) The contract will remain enforceable if the consumer
225	225	terminates the initial attorney or retains a new attorney with
226	226	respect to the legal claim, who then completes the acknowledgment
227	227	required by Subsection (a).
228	228	Sec. 111.055. CONTRACT AMOUNT. A civil justice funding
229	229	company shall require the contracted amount to be paid to the
230	230	company to be a predetermined amount based on periodic intervals
231	231	from the funding date through the resolution date, and not an amount
232	232	determined as a percentage of the recovery from the legal claim.
233	233	Sec. 111.056. CONTRACT FILING REQUIREMENT. A civil justice
234	234	funding contract must be filed with the department in accordance
235	235	with the filing procedures specified by the department.
236	236	SUBCHAPTER C. REGISTRATION
237	237	Sec. 111.101. REGISTRATION REQUIRED; APPLICATION. (a) A
238	238	civil justice funding company must register with the department
239	239	before engaging in civil justice funding transactions in this
240	240	state.
241	241	(b) A civil justice funding company must file a registration
242	242	application in the form and manner prescribed by the department.
243	243	The application must:
244	244	(1) contain all information the department requires to
245	245	evaluate the character and fitness of the applicant, and if the
246	246	applicant is an entity, the character and fitness of each officer
247	247	and director of the applicant company; and
248	248	(2) be accompanied by a reasonable fee in an amount
249	249	determined by the department.
250	250	Sec. 111.102. BOND; LETTER OF CREDIT. (a) The department
251	251	may require an applicant or registrant to file a bond with the
252	252	application in an amount not to exceed $50,000.
253	253	(b) The bond terms must run concurrent with the registration
254	254	period. The bond must provide that the registrant will, during the
255	255	registration period:
256	256	(1) faithfully conform to and abide by:
257	257	(A) this chapter; and
258	258	(B) the rules adopted by the Texas Commission of
259	259	Licensing and Regulation to administer this chapter; and
260	260	(2) provide any amount that may become due or owing to
261	261	the state from the registrant under this chapter.
262	262	(c) In lieu of the bond, the applicant or registrant, at the
263	263	applicant's or registrant's option, may post an irrevocable letter
264	264	of credit.
265	265	Sec. 111.103. ISSUANCE OF CERTIFICATE OF REGISTRATION. The
266	266	department may not issue a certificate of registration unless the
267	267	department, following an investigation, determines that the
268	268	character and fitness of the applicant and, if the applicant is an
269	269	entity, of the applicant company's officers and directors warrant
270	270	belief that the business will be operated honestly and fairly and in
271	271	accordance with this chapter.
272	272	Sec. 111.104. HEARING. (a) On written request, the
273	273	department shall set a hearing before the State Office of
274	274	Administrative Hearings to determine an applicant's qualifications
275	275	for registration if:
276	276	(1) the department has notified the applicant in
277	277	writing of the denial of the application; or
278	278	(2) the department has not issued a certificate of
279	279	registration before the 61st day after the date the applicant filed
280	280	the application.
281	281	(b) An applicant may not request a hearing under this
282	282	section after the 16th day after the date the department sends
283	283	written notice to the applicant that the application has been
284	284	denied and stating the reasons for the denial.
285	285	Sec. 111.105. RENEWAL OF REGISTRATION. A civil justice
286	286	funding company must renew its registration on September 30 every
287	287	two years by paying a $200 renewal fee.
288	288	SUBCHAPTER D. PROHIBITIONS
289	289	Sec. 111.151. PROHIBITED ACTIVITIES OR CONDUCT. A civil
290	290	justice funding company may not:
291	291	(1) pay or offer to pay a commission, referral fee, or
292	292	other form of consideration to an attorney, law firm, medical
293	293	provider, chiropractor, or physical therapist or an employee of
294	294	such a person for referring a consumer to the company;
295	295	(2) accept any commission, referral fee, rebate, or
296	296	other form of consideration from an attorney, law firm, medical
297	297	provider, chiropractor, or physical therapist or an employee of
298	298	such a person;
299	299	(3) intentionally advertise materially false or
300	300	misleading information about the company's products or services;
301	301	(4) refer, to further an initial legal funding, a
302	302	customer or potential customer to a specific attorney, law firm,
303	303	medical provider, chiropractor, or physical therapist or an
304	304	employee of such a person, except that the company may refer a
305	305	customer or potential customer who needs legal representation to a
306	306	local or state bar association referral service;
307	307	(5) fail to promptly provide a copy of the executed
308	308	contract to the consumer's attorney;
309	309	(6) knowingly provide funding to a consumer who has
310	310	previously assigned or sold a portion of the consumer's right to
311	311	proceeds from the consumer's legal claim without first paying to or
312	312	purchasing from a previously unsatisfied civil justice funding
313	313	company that company's entire funded amount and contracted charges,
314	314	unless:
315	315	(A) a lesser amount is otherwise agreed to in
316	316	writing by the civil justice funding companies; or
317	317	(B) multiple companies have agreed to
318	318	concurrently provide funding to a consumer, if the consumer and the
319	319	consumer's attorney consent to the arrangement in writing;
320	320	(7) make a decision relating to the conduct,
321	321	settlement, or resolution of the underlying legal claim, the power
322	322	of which must remain solely with the consumer and the attorney
323	323	handling the legal claim; or
324	324	(8) knowingly pay or offer to pay, using funds from the
325	325	civil justice funding transaction, court costs, filing fees, or
326	326	attorney's fees during or after the resolution of the legal claim.
327	327	SUBCHAPTER E. ENFORCEMENT
328	328	Sec. 111.201. VIOLATION OF CHAPTER. (a) If a court finds
329	329	that a civil justice funding company has intentionally violated
330	330	this chapter with respect to a civil justice funding transaction,
331	331	the company is entitled to recover only the funded amount provided
332	332	to the consumer and is not entitled to recover any additional
333	333	charges.
334	334	(b) Nothing in this chapter shall be construed to restrict
335	335	the attorney general from exercising the powers conferred on the
336	336	attorney general by law or from performing duties as required by
337	337	law.
338	338	SECTION 4. As soon as practicable after the effective date
339	339	of this Act, but not later than January 1, 2016, the Texas
340	340	Commission of Licensing and Regulation shall adopt the rules and
341	341	procedures necessary to implement Chapter 111, Business & Commerce
342	342	Code, as added by this Act.
343	343	SECTION 5. The changes in law made by this Act apply only to
344	344	a civil justice funding contract entered into on or after the
345	345	effective date of this Act. A civil justice funding contract
346	346	entered into before the effective date of this Act is governed by
347	347	the law in effect on the date the contract was entered into, and the
348	348	former law is continued in effect for that purpose.
349	349	SECTION 6. (a) Except as provided by Subsection (b) of this
350	350	section, this Act takes effect September 1, 2015.
351	351	(b) Subchapter C, Chapter 111, Business & Commerce Code, as
352	352	added by this Act, takes effect January 1, 2016.