SF 2704

1st Engrossment - 86th Legislature (2009 - 2010) Posted on 03/17/2010 11:46am

A bill for an act
relating to commerce; regulating nonrecourse civil litigation funding transactions;
proposing coding for new law as Minnesota Statutes, chapter 80G.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [80G.01] CITATION.
new text end

new text begin This chapter shall be known and may be cited as the "Minnesota Nonrecourse Civil
Litigation Funding Act."
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end

Sec. 2.

new text begin [80G.02] DEFINITIONS.
new text end

new text begin (a) For purposes of this chapter, the terms defined in this subdivision have the
meanings given.
new text end

new text begin (b) "Civil litigation funding company" means an entity that enters into a nonrecourse
civil litigation funding transaction with a consumer.
new text end

new text begin (c) "Commissioner" means the commissioner of commerce.
new text end

new text begin (d) "Consumer" means an individual or entity residing or domiciled in Minnesota or
who elects to enter into a transaction under this chapter, whether in person or over the
Internet, by facsimile, or any other electronic means, and who has a pending civil claim or
action and is represented by an attorney in connection with that pending civil claim or
action at the time of receiving the nonrecourse civil litigation funding.
new text end

new text begin (e) "Contract" means a written agreement between a consumer and a civil litigation
funding company in which the civil litigation funding company agrees to provide
nonrecourse civil litigation funding to the consumer in compliance with this section.
new text end

new text begin (f) "Nonrecourse civil litigation funding" means a transaction in which:
new text end

new text begin (1) a civil litigation funding company purchases the right to receive an amount of the
potential proceeds from a consumer who has a pending civil claim or action; and
new text end

new text begin (2) the return on investment to the civil litigation funding company is made only
out of the proceeds, if any, of the realized settlement, judgment, award, or verdict the
consumer may receive in the civil claim or action. For this purpose, the proceeds received
by the consumer do not include attorney fees and reimbursements incurred by the
consumer's attorney in connection with the civil claim or action, in accordance with the
contingent fee agreement between the consumer and the consumer's attorney.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end

Sec. 3.

new text begin [80G.03] REGISTRATION.
new text end

new text begin Subdivision 1. new text end

new text begin Registration required. new text end

new text begin No person or entity may engage in the
business of providing nonrecourse civil litigation funding in this state unless the person or
entity is registered with the commissioner on a form prescribed by the commissioner.
new text end

new text begin Subd. 2. new text end

new text begin Contents. new text end

new text begin (a) A person or entity shall register with the commissioner
under this section by filing with the commissioner an initial registration, which must be
updated annually thereafter and within 30 days of any change. The registration must
include the following information:
new text end

new text begin (1) the registrant's name, any assumed names under which the registrant does
business or intends to do business in this state, the principal office address, telephone
number, and e-mail address;
new text end

new text begin (2) the name and address of the registrant's agent for service of process in this state,
if other than the registrant;
new text end

new text begin (3) the names of the registrant's executive officer or officers who are directly
responsible for the registrant's nonrecourse civil litigation funding business;
new text end

new text begin (4) the name, address, and telephone number of any administrator designated by the
registrant as responsible for administration of the registrant's business in this state; and
new text end

new text begin (5) a copy of each contract and other form that the registrant proposes to use in
this state.
new text end

new text begin (b) The commissioner must make the information in paragraph (a), clauses (1)
and (2), available to the public.
new text end

new text begin (c) If a renewal registration is more than 30 days late, the commissioner may
suspend the registration.
new text end

new text begin Subd. 3. new text end

new text begin Registration fee. new text end

new text begin The commissioner may charge the registrant a fee to
offset the cost of registration and maintenance of records in the amount of $1,000 for the
initial year of registration and $500 per year thereafter. Fees received under this section
must be deposited in an account in the special revenue fund and are appropriated to the
commissioner of commerce for purposes of this chapter.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end

Sec. 4.

new text begin [80G.04] RECORD KEEPING.
new text end

new text begin (a) The registrant shall keep accurate accounts, books, and records concerning
transactions regulated under this chapter. The records must include copies of all contracts;
the name of each customer; and the dates, amounts, and descriptions of all funds provided
to or received from customers, including funds provided or received through an attorney
or other third party.
new text end

new text begin (b) The registrant shall retain all required records pertaining to each contract for
at least two years after the contract has been fulfilled, terminated, or is otherwise no
longer in effect. A registrant that discontinues doing business as a civil litigation funding
company in this state shall maintain its records as required under this section until it
furnishes to the commissioner satisfactory proof that it has discharged all of its obligations
to customers in this state.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end

Sec. 5.

new text begin [80G.05] CONTRACT PROVISIONS.
new text end

new text begin (a) All contracts for nonrecourse civil litigation funding must comply with the
requirements provided in this section.
new text end

new text begin (b) The contract must be completely filled in and contain on the front page,
appropriately headed and in at least 12-point bold type, the following disclosures:
new text end

new text begin (1) the total dollar amount to be funded to the consumer;
new text end

new text begin (2) an itemization of all fees related to the contract;
new text end

new text begin (3) the total dollar amount to be repaid by the consumer, in six-month intervals
for 36 months, and including all fees; and
new text end

new text begin (4) the annual percentage rate return, calculated as of the last day of each six-month
interval, including frequency of compounding.
new text end

new text begin (c) The contract must provide that the consumer may cancel the contract within
five business days following the consumer's receipt of funds, without penalty or further
obligation. The contract must contain the following notice written in a clear and
conspicuous manner: "Consumer's right to cancellation: You may cancel this contract
without penalty or further obligation within five business days from the date you receive
funding from [insert name of civil litigation funding company]." The contract must also
specify that in order for the cancellation to be effective, the consumer must either:
new text end

new text begin (1) return to the civil litigation funding company the full amount of disbursed funds
by delivering the civil litigation funding company's uncashed check to the civil litigation
company's offices in person within five business days of the disbursement of funds; or
new text end

new text begin (2) mail a notice of cancellation and include in that mailing a return of the full
amount of disbursement funds in the form of the civil litigation funding company's
uncashed check, or a registered or certified check or money order, by insured, registered,
or certified United States mail, postmarked within five business days after receiving
funds from the civil litigation funding company, to the address specified in the contract
for the cancellation.
new text end

new text begin (d) The contract must contain the following statement in at least 12-point boldface
type: "The civil litigation funding company agrees that it shall have no right to and will
not make any decisions with respect to the conduct of the underlying civil action or claim
or any settlement or resolution of it and that the right to make those decisions remains
solely with you and your attorney in the civil action or claim."
new text end

new text begin (e) The contract must be initialed by the consumer on each page.
new text end

new text begin (f) The contract must contain the following statement in at least 12-point boldface
type located immediately above the place on the contract where the consumer's signature is
required: "Do not sign this contract before you read it completely or if it contains any blank
spaces. You are entitled to a completely filled-in copy of this 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 benefit planning, or financial professional.
You acknowledge that your attorney in the civil action or claim has provided no tax, public
or private benefit planning, or financial advice regarding this transaction. You understand
and agree that the funds received from this nonrecourse civil litigation funding must not
be used to pay for litigation costs related to your underlying legal claim."
new text end

new text begin (g) The contract must contain a written acknowledgment by the attorney representing
the consumer in the civil action or claim that states the following:
new text end

new text begin (1) the attorney representing the consumer in the civil action has reviewed the
contract and determined that all costs and fees have been disclosed, including the
annualized rate of return applied to calculate the amount to be paid by the consumer;
new text end

new text begin (2) the attorney representing the consumer in the civil action or claim is being paid
on a contingency basis under a written fee agreement;
new text end

new text begin (3) all proceeds of the civil litigation will be disbursed via the trust account of the
attorney representing the consumer in the civil action or claim or via a settlement fund
established to receive the proceeds of the civil litigation from the defendant on behalf of
the consumer; and
new text end

new text begin (4) the attorney representing the consumer in the civil action or claim is following the
written instructions of the consumer with regard to the nonrecourse civil litigation funding.
new text end

new text begin (h) All contracts with the consumer must have plain language, in a box with 15-point
font, stating the following in capitalized letters: "IF THERE IS NO RECOVERY OF ANY
MONEY FROM YOUR LEGAL CLAIM OR IF THERE IS NOT ENOUGH MONEY
TO PAY THE CIVIL LITIGATION FUNDING COMPANY BACK IN FULL, YOU
WILL NOT OWE THE CIVIL LITIGATION COMPANY ANYTHING IN EXCESS OF
YOUR RECOVERY UNLESS YOU HAVE VIOLATED THIS AGREEMENT."
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end

Sec. 6.

new text begin [80G.06] CONSUMER PROTECTIONS.
new text end

new text begin (a) The contract must be written in both English and the same language in which
the oral negotiations are conducted between the civil litigation funding company and
the consumer.
new text end

new text begin (b) If a dispute arises between the consumer and the civil litigation funding company
concerning the contract for nonrecourse civil litigation funding, the responsibilities of the
attorney representing the consumer in the civil action or claim shall be no greater than the
attorney's responsibilities under the Minnesota rules of professional conduct.
new text end

new text begin (c) The civil litigation funding company shall not offer to pay or pay commissions,
referral fees, or rebates to any attorney or employee of a law firm or to any medical
provider, chiropractor, or physical therapist or their employees for referring a consumer to
the civil litigation funding company. The civil litigation funding company shall not accept
any commissions, referral fees, or rebates from any attorney or employee of a law firm or
any medical provider, chiropractor, or physical therapist or their employees.
new text end

new text begin (d) The civil litigation funding company shall not knowingly provide funding
to a consumer who has previously sold and assigned an amount of the consumer's
potential proceeds from the consumer's legal claim to another civil litigation funding
company without first buying out that civil litigation funding company's entire accrued
balance, unless otherwise agreed in writing by the civil litigation funding company and
the consumer.
new text end

new text begin (e) The civil litigation funding company shall not advertise false or intentionally
misleading information regarding its product or services.
new text end

new text begin (f) The amount to be paid under the contract to the civil litigation funding company
may not be determined as a percentage of the recovery from the underlying claim but
shall be set as a contractually determined amount based upon intervals of time from the
funding date through the recovery date.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end

Sec. 7.

new text begin [80G.07] COMMISSIONER'S ENFORCEMENT POWERS.
new text end

new text begin The commissioner may take action that is necessary or appropriate to enforce
the provisions of this chapter and the commissioner's rules and orders and to protect
consumers in this state. The commissioner has the enforcement authority in chapter 45
available to enforce the provisions of this chapter and any rules adopted under it.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2011, and applies to
nonrecourse civil litigation funding transactions entered into on or after that date.
new text end