84R3827 GRM-F
 
  By: Thompson of Harris H.B. No. 3454
 
 
 
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 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.