SB1215 - 571R

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

Section 1. Title 12, Arizona Revised Statutes, is amended by adding chapter 28, to read:

CHAPTER 28

LITIGATION FINANCING

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE12-3451. Definitions

In this chapter, unless the context otherwise requires:

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

2. "FOREIGN COUNTRY OF CONCERN" INCLUDES THE FOLLOWING:

(a) A FOREIGN GOVERNMENT LISTED IN 15 CODE OF FEDERAL REGULATIONS SECTION 791.4.

(b) A COUNTRY DESIGNATED AS A THREAT TO CRITICAL INFRASTRUCTURE BY THE FEDERAL GOVERNMENT OR THE GOVERNOR.

3. "FOREIGN ENTITY OF CONCERN" MEANS A PARTNERSHIP, ASSOCIATION, CORPORATION, ORGANIZATION OR OTHER COMBINATION OF PERSONS that meets any of the following:

(a) is ORGANIZED OR INCORPORATED IN A FOREIGN COUNTRY OF CONCERN.

(b) is OWNED OR CONTROLLED BY THE GOVERNMENT, A POLITICAL SUBDIVISION OR A POLITICAL PARTY OF A FOREIGN COUNTRY OF CONCERN.

(d) is OWNED, ORGANIZED OR CONTROLLED BY or affiliated with A FOREIGN ORGANIZATION THAT HAS either been:

(i) plACED ON THE FEDERAL OFFICE OF FOREIGN ASSETS CONTROL SPECIALLY DESIGNATED NATIONALS AND BLOCKED PERSONS LIST.

(ii) DESIGNATED BY THE UNITED STATES SECRETARY OF STATE AS A FOREIGN TERRORIST ORGANIZATION.

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

5. "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.

6. "Litigation financing agreement" or "litigation financing" means any agreement CREATING A RIGHT TO RECEIVE PAYMENT BY ANYONE WHICH 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 that INVOLVES THE SAME COUNSEL OR AFFILIATED COUNSEL, BUT EXCLUDING the following:

(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) Funding that is provided to a nonprofit organization, whether as a party or on behalf of a client or member of the organization, and irrespective of whether the nonprofit organization seeks an award of costs or attorney fees in providing pro bono representation.

(f) funding provided by a nonprofit organization that is exempt from taxation under 501(c)(3) of the United States internal revenue code, by grant or otherwise, to support the pursuit of litigation.

(g) a person providing funding to a medical practice or facility solely for its receivables. END_STATUTE

START_STATUTE12-3452. 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. 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.

C. 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_STATUTE12-3453. Prohibited conduct

a. A litigation financier may not Pay or offer to pay a commission, referral fee or other consideration to legal counsel, a law firm or a licensed health care provider, for referring a person to the litigation financier.

B. A LITIGATION FINANCIER MAY NOT PROVIDE FUNDING TO OR IN CONNECTION WITH A LITIGATION FINANCING AGREEMENT THAT IS DIRECTLY OR INDIRECTLY FINANCED BY A FOREIGN ENTITY OF CONCERN. END_STATUTE

START_STATUTE12-3454. Required disclosures

A. 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 TO EACH OTHER PARTY TO THE ACTION AND TO ANY KNOWN PERSON, INCLUDING AN INSURER, WITH A PREEXISTING CONTRACTUAL OBLIGATION TO INDEMNIFY OR DEFEND A PARTY TO THE ACTION THE FOLLOWING INFORMATION:

1. WHETHER THE PARTY OR ITS COUNSEL OF RECORD HAS ENTERED INTO A LITIGATION FINANCING AGREEMENT.

2. THE NAME OF THE LITIGATION FINANCIER.

B. 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.

C. ON RECEIPT OF THE DISCLOSURES REQUIRED BY SUBSECTION A OF THIS SECTION, ANY PARTY TO THE ACTION MAY MAKE APPLICATION TO THE COURT OVERSEEING THE ACTION FOR ADDITIONAL INFORMATION CONCERNING THE LITIGATION FINANCING AGREEMENT, INCLUDING REQUESTING AN IN CAMERA REVIEW OF THE LITIGATION FINANCING AGREEMENT, IF the PARTY has a belief that is either reasonable or supported with a factual basis THAT THE EXISTENCE OF THE LITIGATION FINANCING AGREEMENT, THE LITIGATION FINANCIER OR ANY OWNER OR INVESTOR IN THE LITIGATION FINANCIER MAY NEGATIVELY IMPACT the PARTY'S RIGHTS OR INTERESTS IN THE ACTION OR the PARTY'S PROPRIETARY INFORMATION. A PARTY TO AN ACTION MAY SEEK DISCOVERY CONCERNING any of the following:

1. WHETHER ANY OWNER OR INVESTOR IN THE LITIGATION FINANCIER IS A FOREIGN COUNTRY OF CONCERN OR A FOREIGN ENTITY OF CONCERN.

2. WHETHER THE LITIGATION FINANCIER IS A HEDGE FUND OR WHETHER ANY OWNER OR INVESTOR IN THE LITIGATION FINANCIER IS A HEDGE FUND OR WHETHER THE LITIGATION FINANCING AGREEMENT IS PART OF A PORTFOLIO OR SIMILAR POOLED FINANCING ARRANGEMENT.

3. WHETHER THERE ARE ANY PROVISIONS IN THE LITIGATION FINANCING AGREEMENT ALLOWING FOR CONTROL, DIRECTION OR INFLUENCE OVER THE ACTION.

D. ALL OF THE DISCLOSURE OBLIGATIONS REQUIRED BY THIS SECTION APPLY TO CLASS ACTIONS AND MULTIDISTRICT LITIGATION. END_STATUTE

START_STATUTE12-3455. Violations; enforcement

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

B. A litigation financier who violates section 12-3452 or 12-3453 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 12-3454. 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, 2025.