Bill Text: TX HB3454 | 2015-2016 | 84th Legislature | Introduced
Bill Title: Relating to transactions involving the assignment of rights in an individual's legal claim; authorizing the imposition of a fee.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2015-04-28 - Left pending in committee [HB3454 Detail]
Download: Texas-2015-HB3454-Introduced.html
84R3827 GRM-F | ||
By: Thompson of Harris | H.B. No. 3454 |
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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, [ |
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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. |