Title: HB 2108 (Session 114) — Tennessee Business and Commerce: Registration and Regulation of Litigation Financiers
Overview
HB 2108, as amended and introduced in the 114th Tennessee General Assembly, tightens registration requirements, governance, and conduct rules for litigation financiers and commercial litigation financiers operating in Tennessee. The bill clarifies definitions, imposes registration and bonding requirements, restricts certain activities, and imposes financial and disclosure safeguards intended to protect plaintiffs, claimants, and the integrity of the legal process.
Key Provisions and Changes
- Definitions (Section 1)
- Clarifies who qualifies as a “commercial litigation financier” and a “litigation financier,” and what constitutes “commercial litigation financing” and “litigation financing.”
- Exclusions include: a party to the action, an attorney or insurer with preexisting obligations, and certain nonprofit organizations funded by private donations that represent clients pro bono (with limited exception for cost/attorney fee awards).
- Establishes related terms: “foreign person,” “sovereign wealth fund,” and “consumer.”
Registration and Bonding (Section 2)
- Requires every litigation financier or commercial litigation financier to register in Tennessee to engage in financing activities in-state.
- For entities, registration is conditioned on compliance with bond requirements, active status in the SOS records, and organizational documents naming the entity as a designated financier.
- For individuals or non-business entities, registration requires a $100 filing fee, detailed information (name, addresses, contact, registered agent, etc.), and affirmation of designation as a financier.
- Bond requirement: a $50,000 surety bond payable to the State of Tennessee for the benefit of the Attorney General and any potential plaintiffs.
- Public records: all filed documents are public.
- Fees: $20 per copy of filed documents, with the secretary of state empowered to set related administrative fees.
Conduct Limitations (Sections 3–7)
- Commercial litigation financiers may not direct or control the course of litigation, settlement decisions, appointment or use of experts, or litigation strategy. Control remains with the parties and their counsel.
- Financial compensation: financiers may not receive more than their proportional share of proceeds after payment of attorney fees and costs; the contract must reflect a cap aligned with the parties’ share of proceeds.
- Contract disclosures: litigation financing contracts must include statutorily prescribed disclosures; commercial contracts must explicitly state the financier’s lack of control over litigation.
- Court filing: parties or their counsel must file the commercial litigation financing contract with the court and provide copies to other parties within 14 days of filing the initial pleading or contract execution/modification; protective orders may be sought to limit disclosure.
- Indemnification and liability: commercial financiers may be jointly and severally liable for court-imposed costs and sanctions; they must indemnify plaintiffs and their counsel against adverse costs, fees, damages, or sanctions, subject to an exception for misconduct by the plaintiff or counsel.
Fees and Sanctions (Section 7)
- Prohibits charging an annual fee of more than 10% of the original amount advanced under a commercial litigation financing transaction.
Effective Date
- The act applies to contracts entered into, amended, or renewed on or after it becomes law.
Fiscal/Impact Notes
- Fiscal impact is assessed as not significant. The changes are primarily regulatory and contractual, with costs borne by private parties; public sector impact on courts is not expected to be substantial.
Impact on Stakeholders
- Plaintiffs/claimants: enhanced protections, greater transparency, potential limits on financiers’ leverage.
- Financially funded actions: clarified disclosure requirements; potential reduction in financier-driven control.
- Financiers: new registration, bonding, and fee requirements; ongoing compliance obligations; capped fees.
- Courts: minor procedural adjustments for filing and disclosure of financing contracts.
Overall, HB 2108 aims to create a regulated framework for litigation financing in Tennessee, ensuring transparency, limiting financiers’ control over litigation, and aligning compensation with outcomes and costs awarded.
