Enacts the consumer litigation funding act to promote consumer protections related to consumer litigation funding transactions; provides for contract requirements, including that the contract contain a no penalty provision for the prepayment of the funded amount prior to the settlement of his or her case; makes related provisions.
STATE OF NEW YORK
________________________________________________________________________
115
2023-2024 Regular Sessions
IN ASSEMBLY(Prefiled)
January 4, 2023
___________
Introduced by M. of A. MAGNARELLI, SIMON, SAYEGH, BUTTENSCHON, COOK,
WILLIAMS, GUNTHER, DINOWITZ, DICKENS, STIRPE, WALLACE, JACKSON, GONZA-
LEZ-ROJAS, BURGOS, HEVESI -- read once and referred to the Committee
on Consumer Affairs and Protection
AN ACT to amend the general business law, in relation to consumer liti-
gation funding
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Short title. This act shall be known and may be cited as
2 the "consumer litigation funding act".
3 § 2. Legislative intent. In an effort to promote consumer protections
4 related to consumer litigation funding transactions, this act estab-
5 lishes that such transactions should be subject to state regulation and
6 sets forth requirements regarding disclosure, licensing, funding company
7 and attorney responsibilities and limitations, violations and other
8 items.
9 § 3. The general business law is amended by adding a new article 39-H
10 to read as follows:
11 ARTICLE 39-H
12 THIRD PARTY LITIGATION FINANCING
13 Section 899-ccc. Definitions.
14 899-ddd. Contract requirements; right of rescission.
15 899-eee. Prohibitions and charge limitations.
16 899-fff. Contracted amounts.
17 899-ggg. Disclosures.
18 899-hhh. Violations.
19 899-iii. Assignability; liens.
20 899-jjj. Effect of communication on privileges.
21 899-kkk. Registration.
22 899-lll. Reporting.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD00249-01-3
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1 899-mmm. Severability.
2 § 899-ccc. Definitions. As used in this article, the following terms
3 shall have the following meanings:
4 1. "Advertise" means publishing or disseminating any written, oral,
5 electronic or printed communication or any communication by means of
6 recorded telephone messages or transmitted or broadcast on radio, tele-
7 vision, the internet or similar communications media, including audio
8 recordings, film strips, motion pictures and videos, published, dissem-
9 inated, circulated or placed before the public, directly or indirectly,
10 for the purpose of inducing a consumer to enter into a consumer liti-
11 gation funding.
12 2. "Charges" means the amount of money to be paid to the consumer
13 litigation funding company by or on behalf of the consumer, above the
14 funded amount provided by or on behalf of the company to a New York
15 consumer pursuant to this article. Charges include all administrative,
16 origination, underwriting or other fees, including interest, no matter
17 how denominated.
18 3. "Consumer litigation funding" means a non-recourse transaction in
19 which a consumer litigation funding company purchases and a consumer
20 assigns to the company a contingent right to receive an amount of the
21 potential proceeds of a settlement, judgment, award, or verdict obtained
22 in the consumer's legal claim.
23 4. "Consumer litigation funding company" or "company" means a person
24 or entity that enters into a consumer litigation funding contract of no
25 more than five hundred thousand dollars with a consumer. This term shall
26 not include:
27 (a) an immediate family member of the consumer;
28 (b) a bank, lender, financing entity, or other special purpose entity:
29 (i) that provides financing to a consumer litigation funding company;
30 or
31 (ii) to which a consumer litigation funding company grants a security
32 interest or transfers any rights or interest in a consumer litigation
33 funding; or
34 (c) an attorney or accountant who provides services to a consumer.
35 5. "Consumer" means a natural person who has a pending legal claim and
36 who resides or is domiciled in New York.
37 6. "Funded amount" means the amount of monies provided to, or on
38 behalf of, the consumer in the consumer litigation funding. "Funded
39 amount" excludes charges.
40 7. "Funding date" means the date on which the funded amount is trans-
41 ferred to the consumer by the consumer litigation funding company either
42 by personal delivery or via wire, ACH or other electronic means or
43 mailed by insured, certified or registered United States mail.
44 8. "Immediate family member" means a parent; sibling; child by blood,
45 adoption, or marriage; spouse; grandparent; or grandchild.
46 9. "Legal claim" means a bona fide civil claim or cause of action.
47 10. "Resolution date" means the date the funded amount, plus the
48 agreed upon charges, are delivered to the consumer litigation funding
49 company by the consumer, the consumer's attorney or otherwise.
50 § 899-ddd. Contract requirements; right of rescission. 1. All consumer
51 litigation funding contracts shall meet the following requirements:
52 (a) a contract shall be written in a clear and coherent manner using
53 words with common, everyday meanings to enable the average consumer who
54 makes a reasonable effort under ordinary circumstances to read and
55 understand the terms of the contract without having to obtain the
56 assistance of a professional;
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1 (b) the contract shall be completely filled in when presented to the
2 consumer for signature;
3 (c) the contract shall contain, in twelve point bold type font, a
4 right of rescission, allowing the consumer to cancel the contract with-
5 out penalty or further obligation if, within ten business days after the
6 funding date, the consumer returns to the consumer litigation funding
7 company the full amount of the disbursed funds;
8 (d) the contract shall contain the initials of the consumer on each
9 page;
10 (e) a statement that there are no fees or charges to be paid by the
11 consumer other than what is disclosed on the disclosure form;
12 (f) in the event the consumer seeks more than one litigation funding
13 contract from the same company, a disclosure providing the cumulative
14 amount due from the consumer for all transactions, including charges
15 under all contracts, if repayment is made any time after the contracts
16 are executed;
17 (g) a statement of the maximum amount the consumer may be obligated to
18 pay under the contract other than in a case of material breach, fraud or
19 misrepresentation by or on behalf of the consumer; and
20 (h) clear and conspicuous detail of how charges, including any appli-
21 cable fees, are incurred or accrued.
22 2. The contract shall contain a written acknowledgement by the attor-
23 ney retained by the consumer in the legal claim that attests to the
24 following:
25 (a) the attorney has reviewed the mandatory disclosures in section
26 eight hundred ninety-nine-ggg of this article with the consumer;
27 (b) the attorney is being paid on a contingency basis pursuant to a
28 written fee agreement;
29 (c) all proceeds of the legal claim will be disbursed via either the
30 trust account of the attorney or a settlement fund established to
31 receive the proceeds of the legal claim on behalf of the consumer;
32 (d) the attorney is obligated to disburse funds from the legal claim
33 and take any other steps to ensure that the terms of the litigation
34 funding contract are fulfilled;
35 (e) the attorney has not received a referral fee or other consider-
36 ation from the consumer litigation funding company in connection with
37 the consumer litigation funding, nor will the attorney receive such fee
38 or other consideration in the future; and
39 (f) the attorney in the legal claim has provided no tax, public or
40 private benefit planning, or financial advice regarding this trans-
41 action.
42 3. In the event that the acknowledgement required pursuant to para-
43 graph (c) of subdivision two of this section is not completed by the
44 attorney or firm retained by the consumer in the legal claim, the
45 contract shall be null and void. The contract shall remain valid and
46 enforceable in the event the consumer terminates the initial attorney
47 and/or retains a new attorney with respect to the legal claim.
48 4. Notwithstanding paragraph b of subdivision three of section 5-501
49 of the general obligations law, no prepayment penalties or fees shall be
50 charged or collected on consumer litigation funding. A prepayment
51 penalty on consumer litigation funding shall be unenforceable.
52 § 899-eee. Prohibitions and charge limitations. 1. Consumer liti-
53 gation funding companies shall be prohibited from:
54 (a) paying or offering to pay commissions, referral fees, or other
55 forms of consideration to any attorney, law firm, medical provider,
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1 chiropractor or physical therapist or any of their employees for refer-
2 ring a consumer to the company;
3 (b) accepting any commissions, referral fees, rebates or other forms
4 of consideration from an attorney, law firm, medical provider, chiro-
5 practor or physical therapist or any of their employees;
6 (c) intentionally advertising materially false or misleading informa-
7 tion regarding its products or services;
8 (d) referring, in furtherance of an initial legal funding, a customer
9 or potential customer to a specific attorney, law firm, medical provid-
10 er, chiropractor or physical therapist or any of their employees;
11 provided, however, if a customer needs legal representation, the company
12 may refer the customer to a local or state bar association referral
13 service;
14 (e) knowingly providing funding to a consumer who has previously
15 assigned and/or sold a portion of the consumer's right to proceeds from
16 his or her legal claim without first making payment to and/or purchasing
17 a prior unsatisfied consumer litigation funding company's entire funded
18 amount and contracted charges, unless a lesser amount is otherwise
19 agreed to in writing by the consumer litigation funding companies,
20 except that multiple companies may agree to contemporaneously provide
21 funding to a consumer provided that the consumer and the consumer's
22 attorney consent to the arrangement in writing;
23 (f) receiving any right to, or making, any decisions with respect to
24 the conduct of the underlying legal claim or any settlement or resol-
25 ution thereof. The right to make such decisions shall remain solely with
26 the consumer and the attorney in the legal claim;
27 (g) attempting to obtain a waiver of any remedy or right by the
28 consumer, including but not limited to the right to trial by jury; and
29 (h) knowingly paying or offering to pay for court costs, filing fees
30 or attorney's fees either during or after the resolution of the legal
31 claim, using funds from the consumer litigation funding transaction.
32 2. An attorney or law firm retained by the consumer in the legal claim
33 shall not have a financial interest in the consumer litigation funding
34 company offering consumer litigation funding to that consumer.
35 3. Any attorney who has referred the consumer to his or her retained
36 attorney shall not have a financial interest in the consumer litigation
37 funding company offering consumer litigation funding to that consumer.
38 4. The attorney may only disclose privileged information to the
39 consumer litigation funding company with the written consent of the
40 consumer.
41 5. Notwithstanding any provision of law to the contrary, charges paid
42 to a consumer litigation funding company by or on behalf of a consumer
43 under this article shall not exceed twenty-five per centum per annum or
44 its equivalent rate for a longer or shorter period. Any contract which
45 exceeds such rate shall be considered usurious as defined by section
46 5-501 of the general obligations law.
47 § 899-fff. Contracted amounts. The contracted amount to be paid to the
48 consumer litigation funding company shall be a predetermined amount
49 based upon intervals of time from the funding date through the resol-
50 ution date, and shall not be determined as a percentage of the recovery
51 from the legal claim.
52 § 899-ggg. Disclosures. All consumer litigation funding contracts
53 shall contain the disclosures specified in this section, which shall
54 constitute material terms of the contract. Unless otherwise specified,
55 such disclosures shall be typed in at least twelve point bold type font
56 and be placed clearly and conspicuously within the contract, as follows:
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1 1. On the front page under appropriate headings, language specifying:
2 (a) the funded amount to be paid to the consumer by the consumer liti-
3 gation funding company;
4 (b) an itemization of one-time charges;
5 (c) the maximum total amount to be assigned by the consumer to the
6 company, including the funded amount and all charges; and
7 (d) a payment schedule to include the funded amount and charges, list-
8 ing all dates and the amount due at the end of each one hundred eighty
9 day period from the funding date, until the date the maximum amount due
10 to the company pursuant to the contract is paid.
11 2. Pursuant to the provisions set forth in this section, within the
12 body of the contract: "Consumer's right to cancellation: you may cancel
13 this contract without penalty or further obligation within ten business
14 days after the funding date if you return to the consumer litigation
15 funding company the full amount of the disbursed funds."
16 3. The consumer litigation funding company shall have no role in
17 deciding whether, when and how much the legal claim is settled for,
18 however, the consumer and consumer's attorney must notify the company of
19 the outcome of the legal claim by settlement or adjudication prior to
20 the resolution date. The company may seek updated information about the
21 status of the legal claim but in no event shall the company interfere
22 with the independent professional judgement of the attorney in the
23 handling of the legal claim or any settlement thereof.
24 4. Within the body of the contract, in all capital letters in at least
25 twelve point bold type font contained within a box: "THE FUNDED AMOUNT
26 AND AGREED UPON CHARGES SHALL BE PAID ONLY FROM THE PROCEEDS OF YOUR
27 LEGAL CLAIM, AND SHALL BE PAID ONLY TO THE EXTENT THAT THERE ARE AVAIL-
28 ABLE PROCEEDS FROM YOUR LEGAL CLAIM. YOU WILL NOT OWE (INSERT NAME OF
29 THE CONSUMER LITIGATION FUNDING COMPANY) ANYTHING IF THERE ARE NO
30 PROCEEDS FROM YOUR LEGAL CLAIM, UNLESS YOU HAVE VIOLATED ANY MATERIAL
31 TERM OF THIS CONTRACT OR YOU HAVE COMMITTED FRAUD AGAINST (INSERT NAME
32 OF CONSUMER LITIGATION FUNDING COMPANY)."
33 5. Located immediately above the place on the contract where the
34 consumer's signature is required, in twelve point bold type font: "Do
35 not sign this contract before you read it completely. Do not sign this
36 contract if it contains any blank spaces. You are entitled to a
37 completely filled-in copy of the contract before you sign this contract.
38 You should obtain the advice of any attorney. Depending on the circum-
39 stances, you may want to consult a tax, public or private benefits plan-
40 ning, or financial professional. You acknowledge that your attorney in
41 the legal claim has provided no tax, public or private benefit planning,
42 or financial advice regarding this transaction. You further acknowledge
43 that your attorney has explained the terms and conditions of the consum-
44 er litigation funding contract."
45 6. A copy of the executed contract shall promptly be delivered to the
46 attorney for the consumer.
47 § 899-hhh. Violations. 1. Any consumer litigation funding company
48 found in willful violation of any provision of this article in a specif-
49 ic funding case: (a) waives its right to recover both the funded amount
50 and any and all charges, as defined in subdivision two of section eight
51 hundred ninety-nine-ccc of this article, in that particular case; and
52 (b) shall be liable for a civil penalty of not more than five thousand
53 dollars for each violation, which shall accrue to the state of New York
54 and may be recovered in a civil action brought by the attorney general.
55 2. Nothing in this article shall be construed to restrict the exercise
56 of powers or the performance of the duties of the New York state attor-
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1 ney general, which he or she is authorized to exercise or perform by
2 law.
3 § 899-iii. Assignability; liens. 1. The contingent right to receive an
4 amount of the potential proceeds of a legal claim is assignable by a
5 consumer.
6 2. Only attorney's liens related to the legal claim which is the
7 subject of the consumer litigation funding or medicare or other statuto-
8 ry liens related to the legal claim shall take priority over any lien of
9 the consumer litigation funding company. All other liens shall take
10 priority by normal operation of law.
11 § 899-jjj. Effect of communication on privileges. All communication
12 between the consumer's attorney in the legal claim and the consumer
13 legal funding company as it pertains to the consumer legal funding shall
14 fall within the scope of the attorney client privilege, including, with-
15 out limitation, the work-product doctrine.
16 § 899-kkk. Registration. 1. Unless a consumer litigation funding
17 company has first registered with the state of New York pursuant to this
18 article, the company may not engage in the business of consumer liti-
19 gation funding in this state.
20 2. An applicant's registration must be filed in the manner prescribed
21 by the secretary of state and must contain all the information required
22 by the department of state to make an evaluation of the character and
23 fitness of the applicant company. The initial application must be accom-
24 panied by a five hundred dollar fee. A renewal registration must include
25 a two hundred dollar fee. A registration must be renewed every two years
26 and expires on the thirtieth of September.
27 3. A certificate of registration may not be issued unless the depart-
28 ment of state, upon investigation, finds that the character and fitness
29 of the applicant company, and of the officers and directors thereof, are
30 such as to warrant belief that the business will be operated honestly
31 and fairly within the purposes of this article.
32 4. Every registrant shall also, at the time of filing such applica-
33 tion, file with the department of state, if the department of state so
34 requires, a bond satisfactory to the department of state in an amount
35 not to exceed fifty thousand dollars. In lieu of the bond at the option
36 of the registrant, the registrant may post an irrevocable letter of
37 credit. The terms of the bond must run concurrent with the period of
38 time during which the registration will be in effect. The bond must
39 provide that the registrant will faithfully conform to and abide by the
40 provisions of this article and to all rules lawfully made by the admin-
41 istrator under this act and to any such person or persons any and all
42 amounts of money that may become due or owing to the state or to such
43 person or persons from the registrant under and by virtue of this arti-
44 cle during the period for which the bond is given.
45 5. Upon written request, the applicant shall be entitled to a hearing
46 on the question of the applicant's qualifications for registration if:
47 (a) the department of state has notified the applicant in writing that
48 the application has been denied, or
49 (b) the department of state has not issued a registration within sixty
50 days after the application for the registration was filed.
51 6. A request for a hearing may not be made more than fifteen days
52 after the department has mailed a written notice to the applicant that
53 the application has been denied and stating in substance the department
54 of state's findings supporting denial of the application.
55 7. Notwithstanding the prior approval requirement of subdivision one
56 of this section, a consumer litigation funding company that registered
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1 with the department of state between the effective date of this article
2 or when the department of state has made applications available to the
3 public, whichever is later, and one hundred eighty days thereafter may
4 engage in consumer litigation funding while the company's registration
5 is pending approval with the department of state. All funding agreements
6 entered into prior to the effective date of this article are not subject
7 to the terms of this article.
8 8. No consumer litigation funding company may use any form of consumer
9 litigation funding contract in this state unless it has been filed with
10 the department of state in accordance with the filing procedures set
11 forth by the secretary of state.
12 9. The secretary of state is hereby authorized to adopt rules and
13 regulations to implement the provisions of this section as needed.
14 § 899-lll. Reporting. 1. Each consumer litigation funding company that
15 engages in business in the state shall submit a report to the department
16 of state no later than the thirty-first of January of each year specify-
17 ing:
18 (a) number of consumer litigation fundings by the company;
19 (b) summation of funded amounts in dollar figure; and
20 (c) annual percentage charged to each consumer where repayment was
21 made.
22 2. The department of state shall make such information available to
23 the public, in a manner which maintains the confidentiality of the name
24 of each company and consumer, no later than ninety days after the
25 reports are submitted.
26 § 899-mmm. Severability. If any provision of this article is, for any
27 reason, declared unconstitutional or invalid, in whole or in part, by
28 any court of competent jurisdiction, such portion shall be deemed sever-
29 able, and such unconstitutionality or invalidity shall not affect the
30 validity of the remaining portions of this article, which remaining
31 portions shall continue in full force and effect.
32 § 4. This act shall take effect on the one hundred eightieth day after
33 it shall have become a law; provided, however, it shall not apply or in
34 any way affect or invalidate any consumer litigation funding previously
35 effectuated prior to the effective date of this act.
