Summary:

 House Bill 312 (HB 312):  The Litigation Financing Transparency Act requires greater openness about third-party funding arrangements in lawsuits. It obligates funded parties (and their counsel) to share copies of the agreements and related details with all sides of a case, relevant agencies, and the court. It also restricts what financiers can do, including banning them from controlling a lawsuit or transferring their funding interest. Violations can void the agreements and subject the financiers to penalties under the Unfair Practices Act.

 

Legislation Overview:

 House Bill 312 (HB 312):  The bill proposes to increase transparency and regulation around agreements in which a “litigation financier” pays or advances money toward a lawsuit or claim in return for repayment that depends on the suit’s outcome.
a)	Key Definitions:
•	Litigation Financier - A person or entity providing funding for fees, costs, or expenses related to a lawsuit or legal action in exchange for repayment that depends on the lawsuit’s outcome.
b)	Litigation Financing Agreement
•	Any arrangement where someone (other than the named parties or their lawyers working on contingency) funds or advances money for a lawsuit in return for a financial stake in the outcome. Certain types of loans and insurance agreements are excluded.
c)	Foreign Person/Foreign Principal
•	Essentially, anyone or any entity that is not a U.S. citizen or not organized/incorporated in the U.S., or is controlled by a government outside the U.S.
d)	Sovereign Wealth Fund
•	An investment fund owned or controlled by a foreign government or government entity.
e)	Prohibited Conduct - A litigation financier:
•	Cannot Control the Lawsuit
•	The financier may not direct or make decisions about the lawsuit’s course (e.g., choosing lawyers, setting strategy, picking expert witnesses).
•	Cannot Pay Referral Fees
•	It is prohibited to pay a commission or referral fee to people like lawyers or health care providers for sending clients to the financier.
•	Cannot Assign or Securitize the Agreement
•	A financier may not sell, transfer, or securitize its rights under the funding agreement to other parties.
•	Cannot Obtain an Assignment of the Lawsuit
•	The financier may not be assigned ownership or control of the underlying legal claims.
f)	Mandatory Disclosures
•	Disclosure to Clients
•	A lawyer who enters into a litigation financing agreement must provide a copy of it to their clients in the lawsuit within 30 days after being retained or after entering into the agreement (whichever is earlier). 
•	Disclosure to Other Parties, Court, and Certain Agencies
•	Within 30 days of starting a lawsuit, the funded party or their lawyer must:
•	Give a copy of the litigation financing agreement to:
•	All other parties or their lawyers.
•	The court (or agency/tribunal) hearing the case.
•	Any known person or insurer who has a contractual obligation to defend or indemnify a party.
•	Class members (if it is a class action), upon request.
•	In multidistrict litigation, all appointed lead or executive committee counsel.
•	Disclose any existing financial or other relationships between the party’s legal counsel and the financier.
•	Disclose (to the specified parties, the U.S. Department of State, and the U.S. Attorney General’s Office) if a foreign person, foreign principal, or sovereign wealth fund is involved in providing the financing or could receive a payout.
Continuing Obligation:
•	If the financing agreement is amended or replaced, or a new one is signed, the party must make updated disclosures.
•	In-Camera Review - If the content of the financing agreement is requested in discovery, a party can ask the court to first review it privately (in camera) to confirm it qualifies as a litigation financing agreement. Parties can redact identifying information about the financier until the court makes that determination.
Sanctions:
•	If a party does not comply with these disclosure rules, the court can order sanctions. An incomplete or evasive disclosure is treated as a failure to disclose.
g)	Indemnification
•	A litigation financier must indemnify (i.e., cover) the funded individual(s) for any court-ordered costs, fees, damages, or sanctions that arise in the lawsuit, unless those costs result from the funded person’s intentional wrongful conduct.
h)	Violation and Enforcement - Void Agreements
•	A litigation financing agreement made in violation of the Act is automatically void.
•	Unfair Practices - Any violation of the Act is considered an unlawful act under the state’s Unfair Practices Act, potentially exposing the violator to further legal penalties or actions.
i)	 Applicability and Effective Date
•	The Act applies to any lawsuit, administrative proceeding, claim, or cause of action that is pending or commenced on or after the effective date.
The law would take effect on December 31, 2025.
 

Current Law:

 [NEW MATERIAL] --This act may be cited as the "Litigation Financing Transparency Act".