Arizona: Third-Party Litigation Funding Agreement Bill Narrowly Passes House Committee

An Arizona House bill to regulate litigation financing agreements passed the House Judiciary Committee Feb. 14 by a 5-4 vote. NAMIC submitted a letter to the House Judiciary in support of HB 2638.

HB 2638, sponsored by Speaker Pro Tem Travis Grantham, provides much-needed regulation of litigation funding agreements, also known as third-party litigation funding agreements. NAMIC has been supporting similar legislation in several other states as TPLF encourages unnecessary litigation and is a serious cost driver for businesses, including insurers.

The bill is a great first step in providing “sunlight” into the dark money funneled by hedge funds and other deep-pocketed litigation finance companies, including foreign sovereign wealth funds, that provide funds to a plaintiff in a lawsuit in exchange for the right to collect proceeds when the plaintiff obtains a settlement or judgement in a case.

Among its many key provisions, HB 2638:

• Enables transparency by requiring a party to an action or the party’s counsel of record to, without awaiting a discovery request and within 30 days after commencement of the action, deliver a copy of the litigation agreement to all parties to the action; and
• Proscribes a litigation financier from, directly or indirectly, receiving a larger share of the proceeds of an action than the named parties to the action that is subject to an agreement.

If left unregulated, TPLF agreements allow exorbitant fees and charges to be extracted from plaintiffs that cause them to not receive any or very little recovery in suits, especially when attorney fees are deducted as well forcing plaintiffs to litigate to pay their funders and get a decent recovery for themselves.