A2159

An Act concerning third-party litigation funding agreements and supplementing Title 2A of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. As used in this act:

“Court” means any court, agency, or tribunal in which a civil action is brought.

“Civil action” means:

a. any form of civil action;

b. an alternative dispute resolution proceeding; and

c. an administrative proceeding before an agency of this State, except for workers’ compensation claims.

“Litigation expenses” means costs incurred to pursue a civil action, including, but not limited to, court costs, filing fees, attorneys’ fees, expert witness fees, travel expenses, and expenses related to identifying or soliciting potential clients to participate in the litigation before, during, or after filing or resolving the civil action.

“Litigation funder” means a person or entity that enters a litigation funding agreement or any person or entity who has a direct or indirect right to receive compensation from the agreement. A litigation funder shall not include:

a. a parent, sibling, spouse, grandparent, grandchild, or child related by blood, adoption, or marriage of the party being funded;

b. an attorney who, at the time money is provided to or on behalf of a client under a litigation funding agreement, has an attorney-client relationship with the party concerning the party’s civil action;

c. a licensed or registered financial institution that does not receive, in consideration for loaning money to any person, a right to receive payment from the value of any proceeds or other consideration realized from any judgment, award, settlement, verdict, or other form of monetary relief any person may receive or recover in relation to any civil action;

d. a nonprofit entity that provides pro bono legal services to the party with no right to receive payment from the amount of any judgment, award, settlement, verdict, or other form of monetary compensation obtained in the civil action. Court ordered awards of costs or attorney fees to nonprofit legal organizations shall not be affected by this section; or

e. a person or entity that provides money to a party to litigation solely for purposes other than funding litigation expenses.

“Litigation funding agreement” means, with respect to any civil action or group of civil actions, any written agreement:

a. whereby a third party agrees to provide funds to one of the named parties, or any law firm affiliated with the action or group of civil actions; and

b. which creates a direct or collateralized interest in the proceeds of a civil action or group of civil actions, by settlement, verdict, judgment or otherwise, and whose interest is based, in whole or in part, on a funding-based obligation to the action or group of actions or the appearing counsel or any contractual co-counsel or the law firms of the counsel or co-counsel executed with:

(1) any attorney representing a party;

(2) any co-counsel in the litigation with a contingent fee interest in the representation of that party; or

(3) any third-party who has a collateral-based interest in the contingency fees of the counsel or co-counsel firm related in whole or part to the fees derived from representing that party.

2. a. In any civil action, except as otherwise stipulated by the parties or ordered by a court, a party or party’s attorney shall, without awaiting a discovery request, provide the court and all parties with any litigation funding agreement with respect to the action.

b. Disclosure of a litigation funding agreement required by subsection a. of this section shall include all correspondence, documents, or other statements that comprise the agreement and shall be made at the time of the filing of an initial pleading or at the time of the agreement, if the agreement occurs after the initial pleading. Any amendment to a litigation funding agreement disclosed pursuant to subsection a. of this section shall be provided to the court and all parties at the time the amendment is made.

c. In addition to the disclosures required by this section, the participants or parties to any litigation funding agreement and the nature of that investment or arrangement shall be permissible subjects for discovery in any civil action.

d. The court shall determine sanctions for any party that fails to make the disclosures required by this section. An evasive or incomplete disclosure shall be treated as failure to make the disclosure.

e. This section shall not require disclosure of a contingent fee agreement entered into by a party and the party’s legal representative in a civil action.

3. a. A litigation funder shall have a fiduciary duty to a party in a civil action if it has provided litigation funding to that civil action.

b. A litigation funder shall not engage in any act, practice, or course of business that is inconsistent with the funder’s fiduciary duty pursuant to subsection a. of this section.

c. A litigation funder shall be jointly liable for any award or order imposing or assessing costs or monetary sanctions against a funded party or funded party’s attorney arising from or relating to the funded civil action.

4. It shall be prohibited for a litigation funder to engage in the following conduct:

a. influence, make, or overturn a decision relating to the initiation, conduct, settlement, or resolution of the underlying civil action, the power of which shall remain solely with the party and attorney handling the action for the party;

b. offer to provide or provide legal advice to a funded party or party’s attorney, or identify, recommend, or select a funded party’s attorney;

c. attempt to secure a remedy or obtain a waiver of any remedy, including but not limited to compensatory, statutory, or punitive damages, that a party to a civil action may or may not be entitled to pursue or otherwise recover;

d. receive or recover any payment that exceeds 25 percent of the amount of any settlement, judgment, award, or other monetary relief obtained as a result of the civil action that is the subject of the litigation funding agreement. Absent express consent of the funded party or funded parties to the litigation, the combined payment to the litigation funder and fee to the attorney of a funded party shall not exceed 50 percent of the monetary relief obtained as a result of the civil action; or

e. assign, including securitizing, a litigation funding agreement in whole or in part.

5. a. A litigation funding agreement shall be unenforceable by the litigation funder or any successor-in-interest to the litigation funding agreement if the funder has engaged in conduct that violates sections 3 or 4 of this act.

b. A court may, upon a motion of a party to litigation funded through a litigation funding agreement or sua sponte, find that a litigation funding agreement, or a provision thereof, violates this act and is unenforceable.

c. A violation of sections 3 or 4 of this act shall constitute an unfair or deceptive act or practice and shall be a violation of P.L.1960, c.39 (C.56:8-1 et seq.).

d. A court may impose sanctions, in addition to any remedy otherwise available, for noncompliance with any provision of this act.

6. This act shall take effect on the 90th day next following enactment and shall apply to litigation funding agreements entered into on or after that date.

STATEMENT

This bill requires disclosure of third-party litigation funding agreements and establishes certain responsibilities for litigation funders.

The bill provides that, in any civil action, a party or party’s attorney is to, without awaiting a discovery request, disclose any litigation funding agreement, defined, in part, to mean a written agreement in which a third party agrees to provide funding to one of the named parties or affiliated law firms and that creates a direct or collateralized interest in the proceeds of the civil action or group of civil actions.

The bill also provides that the litigation funding agreement is to be disclosed at the time of the filing of an initial pleading or at the time of the agreement, if the agreement occurs after the initial pleading. Any amendment to a litigation funding agreement that is required to be disclosed is to be provided to the court and all parties at the time the amendment is made. The participants to any litigation funding agreement and nature of that investment or arrangement also are permissible subjects for discovery.

The court is authorized to impose sanctions for a party’s failure to make the required disclosures. The bill does not require disclosure of a contingent fee agreement entered into by a party and the party’s legal representative in a civil action.

The bill additionally codifies a fiduciary duty by litigation funders to a funded party to ensure the funder acts in the interests of the funded party. The litigation funder is jointly liable for costs and any monetary sanction against the funded party or funded party’s attorney.

The bill also prohibits a litigation funder from engaging in certain conduct that can interfere with the funded party’s civil action. Specifically, a funder is prohibited from (1) influencing, making or overturning decisions relating to the initiation, conduct, settlement, or resolution of the underlying civil action, (2) offering to provide or providing legal advice to the funded party or party’s attorney, or selecting a funded party’s attorney, (3) attempting to secure a particular remedy or obtain a waiver of any remedy potentially available to the funded party, (4) receiving any payment that exceeds 25 percent of the litigation proceeds, or receiving without express consent of the funded party a combined payment with the funded party’s attorney fee that exceeds 50 percent of the monetary relief obtained, and (5) assigning or securitizing a litigation funding agreement in whole or in part.

Finally, the bill provides that a litigation funding agreement is unenforceable by the litigation funder or any successor-in-interest if the funder breaches its fiduciary duty or engages in conduct prohibited by the bill. The bill also provides that a court may find a litigation funding agreement violates the bill and is unenforceable. Further, a funder’s breach of fiduciary duty or engagement in conduct prohibited by the bill constitutes an unfair or deceptive act or practice and a violation of the New Jersey consumer fraud act. The bill also authorizes a court to impose sanctions, in addition to any remedy otherwise available, for noncompliance with any provision of the bill.