98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
HB2301

 

Introduced , by Rep. André M. Thapedi

 

SYNOPSIS AS INTRODUCED:
 
New Act

    Creates the Non-Recourse Civil Litigation Funding Act. Provides that all contracts for non-recourse civil litigation funding must meet specified criteria. Provides that the contract shall provide that the consumer may cancel the contract within 5 business days following the consumer's receipt of funds, without penalty or further obligation. Specifies the notice requirements for contracts. Sets requirements for fee calculations. Prohibits unregistered companies from entering into a non-recourse civil litigation funding transaction with consumers. Provides requirements for the Department of Financial and Professional Regulation to consider while making decisions regarding registration. Authorizes the Department to make and enforce reasonable rules and regulations as may be necessary to carry out the provisions of the Act.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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1    AN ACT concerning regulation.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 1. Short title. This Act may be cited as the
5Non-Recourse Civil Litigation Funding Act.
 
6    Section 5. Definitions. In this Act:
7    "Civil litigation funding company" means a person or entity
8that enters into a non-recourse civil litigation funding
9transaction with a consumer.
10    "Consumer" means a person residing or domiciled in Illinois
11or who elects to enter into a transaction under this Act,
12whether it be in-person, over the Internet, by facsimile, or by
13any other electronic means, and who has a pending legal claim
14and is represented by an attorney at the time he or she
15receives the non-recourse civil litigation funding.
16    "Department" means the Department of Financial and
17Professional Regulation.
18    "Legal claim" means a civil claim or action.
19    "Non-recourse civil litigation funding" means a
20transaction in which a civil litigation funding company
21purchases and a consumer assigns the contingent right to
22receive an amount of the potential proceeds of a settlement,
23judgment, award, or verdict obtained in the consumer's legal

 

 

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1claim to the civil litigation funding company.
 
2    Section 10. Contract provisions.
3    (a) All contracts for non-recourse civil litigation
4funding shall comply with the following requirements:
5        (1) The contract shall contain on the front page,
6    appropriately headed and in at least 12-point bold face
7    type, the following disclosures:
8            (A) the total dollar amount of funds to be paid to
9        the consumer;
10            (B) an itemization of one-time fees;
11            (C) the total dollar amount being assigned by the
12        consumer to the civil litigation funding company, set
13        forth in 6-month intervals for 36 months, including all
14        fees;
15            (D) the total dollar amount in broker fees that are
16        involved in the transaction; and
17            (E) the annual percentage rate of return,
18        calculated as of the last day of each 6-month interval,
19        including frequency of compounding.
20        (2) The contract shall provide that the consumer may
21    cancel the contract within 5 business days following the
22    consumer's receipt of funds, without penalty or further
23    obligation. The contract shall contain the following
24    notice written in at least 12-point, bold face type:
25        "Consumer's right to cancellation: You may cancel this

 

 

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1    contract without penalty or further obligation within 5
2    business days after the date you receive funds from (insert
3    name of civil litigation funding company).".
4        The contract also shall specify that in order for the
5    cancellation to be effective, the consumer shall either
6    return to the civil litigation funding company the full
7    amount of disbursed funds by delivering the civil
8    litigation funding company's uncashed check to the civil
9    litigation company's offices in person within 5 business
10    days after the disbursement of the funds or mail a notice
11    of cancellation and include in that mailing a return of the
12    full amount of disbursed funds in the form of the civil
13    litigation funding company's uncashed check, or a
14    registered or certified check or money order, by insured,
15    registered, or certified United States mail, postmarked
16    within 5 business days after the receipt of those funds
17    from the civil litigation funding company, at the address
18    specified in the contract for cancellation.
19        (3) The contract shall contain the following statement
20    in at least 12-point bold face type:
21            "The civil litigation funding company agrees that
22        it shall have no right to and will not make any
23        decisions with respect to the conduct of the underlying
24        legal claim or any settlement or resolution thereof and
25        that the right to make those decisions remains solely
26        with you and your attorney in the legal claim.".

 

 

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1        (4) The contract for non-recourse civil litigation
2    funding shall contain an acknowledgement by the consumer
3    that he or she has reviewed the contract in its entirety.
4        (5) The contract shall contain the following statement
5    in at least 12-point bold face type located immediately
6    above the space where the consumer signature is required:
7        "Do not sign this Agreement before you read it
8    completely or if it contains any blank spaces. You are
9    entitled to a completely filled-in copy of this contract.
10    Before you sign this Agreement you should obtain the advice
11    of an attorney. Depending on the circumstances, you may
12    want to consult a tax, public, or private benefit planning
13    or financial professional. You acknowledge that your
14    attorney in the legal claim has provided no tax, public, or
15    private benefit planning regarding this transaction.".
16        (6) The contract shall contain a written
17    acknowledgment by the attorney representing the consumer
18    in the legal claim that states all of the following:
19            (A) the attorney representing the consumer in the
20        legal claim has reviewed the contract and all costs and
21        fees have been disclosed, including the annualized
22        rate of return applied to calculate the amount to be
23        paid by the consumer;
24            (B) the attorney representing the consumer in the
25        legal claim is being paid on a contingency basis, per a
26        written fee agreement;

 

 

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1            (C) all proceeds of the civil litigation will be
2        disbursed via the trust account of the attorney
3        representing the consumer in the legal claim or a
4        settlement fund established to receive the proceeds of
5        the civil litigation from the defendant on behalf of
6        the consumer;
7            (D) the attorney representing the consumer in the
8        legal claim is following the written instructions of
9        the consumer with regard to the non-recourse civil
10        litigation funding;
11            (E) the attorney representing the consumer in the
12        legal claim shall not be paid or offered to be paid
13        commissions or referral fees; and
14            (F) whether the attorney representing the consumer
15        in the legal claim does or does not have a financial
16        interest in the civil litigation funding company.
17        (7) All contracts to the consumer must contain the
18    following statement, in plain language in a box with
19    15-point, bold face type, in all capitalized letters:
20        "IF THERE IS NO RECOVERY OF PROCEEDS FROM YOUR LEGAL
21    CLAIM, OR IF THERE IS NOT ENOUGH MONEY TO PAY THE CIVIL
22    LITIGATION FUNDING COMPANY IN FULL, YOU WILL NOT OWE THE
23    CIVIL LITIGATION FUNDING COMPANY ANYTHING IN EXCESS OF YOUR
24    RECOVERY, UNLESS YOU VIOLATED THIS PURCHASE AGREEMENT.".
25    (b) If a dispute arises between the consumer and the civil
26litigation funding company concerning the contract for

 

 

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1non-recourse civil litigation funding, the responsibilities of
2the attorney representing the consumer in the legal claim shall
3be no greater than the attorney's responsibilities under the
4Illinois Rules of Professional Conduct.
 
5    Section 15. Standards and practices. The civil litigation
6funding company shall not pay or offer to pay commissions or
7referral fees to any attorney or employee of a law firm or to
8any medical provider, chiropractor, or physical therapist or
9their employees for referring a consumer to the civil
10litigation funding company.
11    The civil litigation funding company shall not accept any
12commissions, referral fees, or rebates from any attorney or
13employee of a law firm or any medical provider, chiropractor,
14or physical therapist or their employees.
15    The civil litigation funding company shall not advertise
16false or intentionally misleading information regarding its
17product or services.
18    The civil litigation funding company shall not knowingly
19provide non-recourse civil litigation funding to a consumer who
20has previously sold and assigned an amount of the consumer's
21potential proceeds from the legal claim to another civil
22litigation funding company without first purchasing that civil
23litigation funding company's entire accrued balance, unless
24otherwise agreed in writing by the civil litigation funding
25companies and the consumer.
 

 

 

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1    Section 20. Assessment of fees; restrictions; calculation.
2    (a) A civil litigation funding company may not assess fees
3for any period exceeding 36 months from the date of the
4contract with the consumer.
5    (b) Fees assessed by the civil litigation funding company
6shall compound at least semi-annually but shall not compound
7based on any lesser time period.
8    (c) In calculating the annual percentage fee or rate of
9return, a civil litigation funding company shall include all
10charges payable directly or indirectly by the consumer and
11shall compute the rate based only on amounts actually received
12and retained by a consumer.
 
13    Section 25. Effect of communication on privileges. No
14communication between the attorney and the civil litigation
15funding company, as it pertains to the non-recourse civil
16litigation funding contract, shall limit, waive, or abrogate
17the scope or nature of any statutory or common-law privilege,
18including, but not limited to, the work-product doctrine and
19attorney-client privilege.
 
20    Section 30. Civil litigation funding company;
21requirements.
22    (a) Unless a civil litigation funding company has first
23registered pursuant to this Act, the civil litigation funding

 

 

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1company shall not engage in the business of non-recourse civil
2litigation funding.
3    (b) A civil litigation funding company shall submit an
4application of registration to the Department in a form
5prescribed by the Department. An application filed under this
6subsection (b) is a public record and shall contain information
7that allows the Department to make an evaluation of the
8character, fitness, and financial responsibility of the
9company such that the Department may determine that the
10business will be operated honestly or fairly within the
11purposes of this Act. For purposes of determining a civil
12litigation funding company's character, fitness, and financial
13responsibility, the Department shall request a company to
14submit: a copy of the company's articles of incorporation,
15articles of organization, certificate of limited partnership,
16or other organizational documents; proof of registration with
17an Illinois registered agent; and proof of a surety bond or
18irrevocable letter of credit, that is equal to double the
19amount of the largest funding in the past calendar year or
20$50,000, whichever is greater, issued and confirmed by a
21financial institution authorized by law to transact business in
22the State.
23    (c) A civil litigation funding company may apply to renew a
24registration by submitting an application for renewal in a form
25prescribed by the Department. An application filed under this
26subsection (c) is a public record. The registration shall

 

 

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1contain current information on all matters required in an
2original registration.
 
3    Section 35. Registration fee; renewal fee.
4    (a) An application for registration or renewal of
5registration under Section 30 shall be accompanied by either an
6application for registration fee or a renewal of registration
7fee, as applicable.
8    (b) The Department may, by rule, establish fees for
9applications for registration and renewals of registration at
10rates sufficient to cover the costs of administering this Act,
11in the event any such fees are required. Such fees shall be
12collected by the Department and all moneys received by the
13Department under this Act shall be deposited in the Financial
14Institution Fund created under Section 6z-26 of the State
15Finance Act.
 
16    Section 40. Certificate or renewal of registration.
17    (a) The Department shall issue a certificate of
18registration or a renewal of registration to a civil litigation
19funding company that complies with Section 30 and its rules.
20    (b) The Department may refuse to issue a certificate of
21registration if the Department determines that the character,
22fitness, or financial responsibility of the civil litigation
23funding company are such as to warrant belief that the business
24will not be operated honestly or fairly within the purposes of

 

 

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1this Act.
2    (c) The Department may suspend, revoke, or refuse to renew
3a certificate of registration for conduct that would have
4justified denial of registration under subsection (b) of this
5Section or for violating Section 15
6    (d) The Department may deny, suspend, revoke, or refuse to
7renew a certificate of registration only after proper notice
8and an opportunity for a hearing. The Illinois Administrative
9Procedure Act applies to this Act.
10    (e) The Department may issue a temporary certificate of
11registration while an application for registration or renewal
12of registration is pending.
13    (f) The Department shall require a civil litigation funding
14company registered pursuant to this Act to annually submit
15certain data, in a form prescribed by the Department, that
16contains:
17        (1) the number of non-recourse civil litigation
18    fundings;
19        (2) the amount of non-recourse civil litigation
20    fundings;
21        (3) the number of non-recourse civil litigation
22    fundings required to be repaid by the consumer;
23        (4) the amount charged to the consumer, including, but
24    not limited to, the annual percentage fee charged to the
25    consumer and the itemized fees charged to the consumer; and
26        (5) the dollar amount and number of cases in which the

 

 

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1    realization to the civil litigation funding company was
2    less than contracted.
3    (g) The Department shall annually prepare and submit a
4report to the Secretary of the Senate, the Clerk of the House,
5and to the Senate and House Judiciary Committees on the status
6of non-recourse civil litigation funding activities in the
7State. The report shall include aggregate information reported
8by registered civil litigation funding companies.
 
9    Section 45. Rules. The Department shall make and enforce
10reasonable rules and regulations as may be necessary to carry
11out the provisions of this Act.