HB2638 - 562R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 12, Arizona Revised Statutes, is amended by adding chapter 27, to read:

CHAPTER 27

LITIGATION FINANCING

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE12-3401. Definitions

In this chapter, unless the context otherwise requires:

1. "Action" means a civil action, administrative proceeding, claim or other cause of action.

2. "Consumer" or "funded consumer" means any person who has entered into a litigation financing agreement or whose recovery or outcome in an action is affected by or subject to a litigation financing agreement.

3. "Foreign person" means a person that is not any of the following:

(a) A citizen of the United States.

(b) An alien lawfully admitted for permanent residence in the United States.

(c) An unincorporated association with a majority number of members of which are citizens of the United States or aliens lawfully admitted for permanent residence in the United States.

(d) A corporation, limited liability company, partnership, society or other business entity that was formed or incorporated in the United States.

4. "Foreign principal" means any of the following:

(a) The government or a government official of any country other than the United States.

(b) A political subdivision or political party of a country other than the United States.

(c) A partnership, association, corporation, organization or other combination of persons organized under the laws or having its principal place of business in a country other than the United States whose shares or other ownership interest is owned by the government or a government official of a country other than the United States or owned by a political subdivision or political party of a country other than the United States.

5. "Licensed health care provider" has the same meaning prescribed in section 12-561.

6. "Litigation financier" means a person that has entered into a litigation financing agreement with a party to an action or counsel of record for a party to an action.

7. "Litigation financing agreement" or "litigation financing" means any agreement that establishes a right to receive payment by anyone and that is contingent in any respect on the outcome of an action or on the outcome of any matter within a portfolio that includes the action and involves the same counsel or affiliated counsel, but excluding any of the following loans, agreements, contracts or arrangements entered into with or by:

(a) A named party to the action if payments made to the named party are provided exclusively for personal and family use and are provided on condition that they are not to be used for legal filings, legal document preparation and drafting, appeals, creation of a litigation strategy, drafting testimony or other expenses directly related to litigation.

(b) A counsel of record for legal services provided on a contingency fee basis or advanced legal costs provided by counsel of record, where the services or costs are provided by a legal counsel of record in accordance with the rules of professional conduct adopted by the supreme court.

(c) A person with a preexisting contractual obligation to indemnify or defend a party to the action or a health insurer who has paid or is obligated to pay any sums for health care services rendered to an injured person under the terms of a health insurance policy, plan or agreement.

(d) A financial institution, as defined in section 6-101, for repayment of loans made directly to a party or a party's counsel when repayment of the loan is not contingent on the outcome of an action by settlement, judgment or otherwise or on the outcome of any matter within a portfolio that includes the action and involves the same counsel or affiliated counsel.

(e) A nonprofit legal organization that is funded by private donors and that represents clients on a pro bono, no-cost basis if the nonprofit legal organization seeks only injunctive relief on behalf of its clients. This chapter does not affect awards of costs or attorney fees to nonprofit legal organizations in the pro bono, no-cost pursuit of injunctive relief.

8. "National security interests" means those interests that encompass national defense, foreign intelligence and counterintelligence, international and internal security and foreign relations of the United States.

9. "Proprietary information" means information that is developed, created or discovered by a person or that became known by or was conveyed to the person, that has commercial value in the person's business, including domain names, trade secrets, copyrights, ideas, techniques, inventions, whether patentable or not, and other information of any type relating to designs, configurations, documentation, recorded data, schematics, circuits, mask works, layouts, source code, object code, master works, master databases, algorithms, flow charts, formulae, works of authorship, mechanisms, research, manufacture, improvements, assembly, installation, intellectual property, including patents and patent applications, and information concerning the person's actual or anticipated business, research or development or that is received in confidence by or for the person from any other source.

10. "Sovereign wealth fund" means an investment fund that is owned or controlled by a foreign principal or an agent of a foreign principal.

11. "Trade secrets" has the same meaning prescribed in section 44-401. END_STATUTE

START_STATUTE12-3402. Preserving consumer control and recoveries

A. A litigation financier may not direct or make any decisions with respect to the course of any action that is subject to a litigation financing agreement or any settlement or other disposition thereof, including decisions concerning appointing or changing counsel, choice of or use of expert witnesses and litigation strategy. The named party and counsel of record shall retain all rights to control and decision-making with regard to the action.

B. A litigation financier may not, directly or indirectly, receive a larger share of the proceeds of an action than the named parties to the action that is subject to a litigation financing agreement.

C. In a class action litigation, the court shall consider the existence of litigation financing and any related conflicts of interest when determining whether a class representative or class counsel would adequately and fairly represent the interests of the class.

D. In multidistrict litigation, the court shall consider the existence of litigation financing and any related conflicts of interest when approving or appointing counsel to leadership positions. For the purposes of this subsection, "leadership positions" means any lead counsel, colead counsel, common benefit counsel, steering committee membership, executive committee membership and other similar positions or roles. END_STATUTE

START_STATUTE12-3403. Prohibited conduct

A litigation financier may not do any of the following:

1. Pay or offer to pay a commission, referral fee or other consideration to any person, including legal counsel, a law firm or a licensed health care provider, for referring a person to the litigation financier.

2. Assign, including securitizing, a litigation financing agreement in whole or in part.

3. Be assigned rights to an action that is subject to a litigation financing agreement to which that litigation financier is a party. END_STATUTE

START_STATUTE12-3404. Required disclosures

A. Legal counsel who enters into a litigation financing agreement must deliver a copy of the litigation financing agreement to all persons legal counsel is representing in the subject action within thirty days after the earlier of being retained as legal counsel or entering into the litigation financing agreement.

B. Except as otherwise stipulated or ordered by a court of competent jurisdiction, a party to an action or the party's counsel of record, without awaiting a discovery request and within thirty days after commencement of the action, shall deliver a copy of the litigation financing agreement to all the following persons:

1. All parties to the action or to the parties' counsels of record.

2. The court, agency or tribunal in which the action is pending.

3. Any known person with a preexisting contractual obligation to indemnify or defend a party to the action, including an insurer providing indemnification or paying a party's defense costs.

4. For class actions, any member of the class on request.

5. For multidistrict litigation consolidated in this state, all legal counsel approved or appointed to a leadership position.

C. Except as otherwise stipulated or ordered by a court of competent jurisdiction, a party to an action or the party's counsel of record, without awaiting a discovery request and within thirty days after commencement of the action, shall disclose in writing the existence and nature of any legal, financial or other relationship between legal counsel for the party to the action that is subject to a litigation financing agreement and the litigation financier to the persons listed in subsection b, paragraphs 1, 2 and 3 of this section.

D. In addition to the disclosures required by subsections B and C of this section and except as otherwise stipulated or ordered by a court of competent jurisdiction, a party to an action or the party's legal counsel of record, without awaiting a discovery request and within thirty days after commencement of the action, shall disclose in writing to the persons listed in subsection b, paragraphs 1, 2 and 3 of this section and to the united states department of state and united states office of the attorney general the name, address and citizenship or country of incorporation or registration of any foreign person, foreign principal or sovereign wealth fund, other than the named parties or legal counsel of record:

1. That has a right to receive any payment that is contingent in any respect on the outcome of the action by settlement, judgment or otherwise, or on the outcome of any matter within a portfolio that includes the action and involves the same or affiliated legal counsel.

2. From which money that is used to satisfy any term of the litigation financing agreement has been or will be directly or indirectly sourced, in whole or in part.

3. That has received or is entitled to receive proprietary information or information affecting national security interests obtained as a result of the action.

E. The disclosure obligations required by this section are continuing obligations and are triggered on any party or the party's legal counsel of record entering into a new litigation financing agreement or amending an existing litigation financing agreement.

F. The existence of a litigation financing agreement and all participants in or parties to the litigation financing agreement are permissible subjects for discovery in any action that is subject to a litigation financing agreement.

G. The disclosure obligations prescribed by this section apply to class actions and multidistrict litigation. END_STATUTE

START_STATUTE12-3405. Consumer protection from adverse determinations

A. In any litigation financing agreement, a litigation financier must indemnify the funded consumers against any adverse costs, attorney fees, damages or sanctions that may be ordered or awarded in any action for which the litigation financier is providing litigation financing.

B. Notwithstanding subsection a of this section, indemnification is not required for any adverse costs, attorney fees, damages or sanctions that result from the consumer's intentionally wrongful conduct. END_STATUTE

START_STATUTE12-3406. Violations; enforcement

A. A litigation financing agreement that is entered into in violation of this chapter is void.

B. A litigation financier who violates section 12-3402, 12-3403 or 12-3405 commits an unlawful practice under section 44-1522.

C. The court shall determine sanctions for any party that fails to make the disclosures required by section 12-3404. An evasive or incomplete disclosure shall be treated as a failure to make the required disclosure. END_STATUTE

Sec. 2. Applicability

This act applies to any civil action, administrative proceeding, claim or cause of action that is pending or commenced on or after the effective date of this act.

Sec. 3. Effective date

This act is effective from and after December 31, 2024.