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Senate bill designed to tighten third-party litigation financing
KEITH ARNOLD
Special to the Legal News
Published: February 24, 2023
Lawmakers in the Ohio Senate took a first look at a bill that targets a type of litigation financing that critics say introduces the interests of an unknown third party into an otherwise typical legal action.
Senate Bill 19 would bring much needed structure to the practice, according to sponsor Sen. Steve Wilson, R-Maineville.
He cited a recent survey by the U.S. Chamber of Commerce, which found that Ohio was the 15th worst state for lawsuit abuse.
“Simply put, this financing is bad for business and bad for Ohioans,” Wilson said during a Judiciary Committee hearing.
Litigation financing typically involves a lender or litigation finance company providing funds to a plaintiff in a lawsuit in exchange for the right to collect proceeds when the plaintiff obtains a settlement or judgment in the case, analysis by the non-partisan Ohio Legislative Service Commission provided.
Such transactions are regulated by a state statute referred to as the “nonrecourse civil litigation advance contract” law.
“Existing law requires that a contract for a nonrecourse civil litigation advance include information such as the total amount to be advanced to the consumer, an itemization of fees, the total dollar amount to be repaid and the annual percentage rate on the advance,” commission fellow Abby Gerty wrote in SB 19’s analysis. “The law also permits the consumer to cancel the contract within five business days of receiving funds without any penalty and requires certain representations by the attorney representing the consumer.”
The bill would require companies engaged in the practice to register with the Department of Commerce and obtain a corporate surety bond of at least $50,000, Wilson said.
A registration fee of an amount not to exceed $150 would be paid to the department’s superintendent of financial institutions, analysis detailed.
“Unlike the current law, we would restrict the fees (associated with this specific type of financing) … to 10 percent of the original amount provided to the consumer,” the lawmaker explained. “We would also cap the annual interest (to) protect the consumers from what often end up being exorbitant fees and interest payments.”
In a blog published last month, the U.S. Chamber noted that the practice has rapidly grown to a worldwide multibillion-dollar industry.
Third-party litigation financing has led to an in-crease in the filing of questionable claims, driving up litigation costs and raising various ethical questions, the blog detailed.
Another of the bill’s provisions would require the consumer of the advance to file a copy of the contract with the court and serve a copy of it on each opposing party.
“The consumer must also file and serve a copy of any amendments or modifications made to the contract,” Gerty wrote.
In addition to strengthening the enforcement and penalties for any violations, the legislation prohibits third-party investors from affecting arbitration in any way, Wilson said.
“Ohio has always been a strong state for business and with these malicious practices we are losing our businesses to other more litigation-friendly states,” he said.
“We have to protect Ohioans, consumers and the businesses. This legislation is a step forward in that direction.”
A second hearing of SB 19 had not been scheduled at time of publication.
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