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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
litigation; financing; consumer protection; enforcement
Purpose
Effective January 1, 2026, prescribes consumer protection and disclosure requirements for litigation financing agreements.
Background
According to the American Bar Association, litigation finance is the practice of an unrelated third party, known as a litigation funder, providing capital to a plaintiff to fund litigation in return for a portion of any monetary recovery (ABA).
The Consumer Fraud Act protects consumers from unlawful practices in merchant-consumer transactions and is enforced by the Attorney General (AG) and by county attorneys with enforcement authority granted by the AG.
The act, use or employment by any person of any deception, deceptive or unfair act or practice, fraud, false pretense, false promise, misrepresentation, concealment, suppression or omission of any material fact with intent that others rely on such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived or damaged is declared to be an unlawful practice under the Consumer Fraud Act. Enforcement of the Consumer Fraud Act is accomplished through the investigation of complaints filed by consumers, enforcement actions against persons who have violated the Consumer Fraud Act and public education. If a court finds that a person has willfully violated consumer protection laws, the AG, upon petition to the court, may recover up to $10,000 in civil penalties for each violation (A.R.S. Title 44, Chapter 10, Article 7).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Consumer Controls and Recoveries
1. Prohibits a litigation financier from directing or making any decision with respect to the course of any action that is subject to a litigation financing agreement or any settlement or other disposition, including the following:
a) appointing or changing counsel;
b) choice of or use of expert witnesses; and
c) litigation strategy.
2.
Requires the named party and counsel of record to retain all rights to
control and
decision-making regarding the action.
3. Prohibits a litigation financier, directly or indirectly, from receiving a larger share of the proceeds of an action than the named parties to the action that is subject to the litigation finance agreement.
4. Requires the court, in a class action litigation, to consider the existence of litigation financing and any related conflicts of interest when determining whether a class representative or class council would adequately and fairly represent the interests of the class.
5. Requires the court, in multidistrict litigation, to consider the existence of litigation financing and any related conflicts of interest when approving or appointing counsel to leadership positions.
Prohibited Conduct
6. Prohibits a litigation financier from doing any of the following:
a) paying or offering 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 financer;
b) assigning, including securitizing, a litigation financing agreement in whole or in part; or
c) being assigned rights to an action that is subject to a litigation financing agreement to which that litigation financier is a party.
Required Disclosures
7. Requires a legal counsel that enters into a litigation financing agreement to deliver a copy of the litigation financing agreement to all persons the legal counsel is representing in the subject action within 30 days after the earlier of being retained as legal counsel or entering into the litigation financing agreement.
8. Requires a party to an action or the party’s counsel of record, except as otherwise stipulated or ordered by a court of competent jurisdiction and made without awaiting a discovery request within 30 days after commencement of the action, to deliver a copy of the litigation financing agreement to the following parties:
a) all parties to the action or to the parties’ counsels of record;
b) the court, agency or tribunal in which the action is pending;
c) 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;
d) all members of the class on request for class actions; and
e) all legal counsel approved or appointed to a leadership position for multidistrict litigation consolidated in Arizona.
9. Requires a party to an action or the party’s counsel of record, except as otherwise stipulated or ordered by a court of competent jurisdiction and made without awaiting a discovery request within 30 days after commencement of the action, to 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 following parties:
a) all parties to the action or to the parties’ counsels of record;
b) the court, agency or tribunal in which the action is pending; and
c) 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.
10. Requires a party to an action or the party’s legal counsel of record, except as stipulated or ordered by a court of competent jurisdiction and made without awaiting a discovery request within 30 days after commencement of the action, to make an additional disclosure in writing to:
a) all parties to the action or to the parties’ counsels of record;
b) the court, agency or tribunal in which the action is pending; and
c) 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;
d) the U.S. Department of State; and
e) the U.S. Office of the Attorney General.
11. Requires the additional disclosure to include 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:
a) that has a right to receive any payment that is contingent in any respect on the outcome of the action by settlement, judgement or otherwise, or on the outcome of any matter within a portfolio that includes actions and involves the same or affiliated legal counsel;
b) 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; and
c) that has received or is entitled to receive proprietary information or information affecting national security interests obtained as a result of action.
12. Requires the required disclosures to be continuing obligations and 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.
13. Allows a party, prior to production of a litigation financing agreement in response to a discovery request, to request a court to conduct an in-camera review of any third-party payor agreement to ascertain whether it is a litigation request.
14. Requires the court to conduct the review upon a party’s request.
15. Allows a party to redact any information that may identify the third-party payor before submitting the agreement for camera review.
16. Allows a party to seek discovery of the litigation finance agreement and all parties to the agreement if the court concludes that it is a litigation finance agreement.
17. Applies required disclosure requirements to all class actions and multidistrict litigation.
Consumer Protections
18. Requires a litigation financier, in any litigation financing agreement, to 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.
19. States that indemnification is not required for any adverse costs, attorney fees, damages or sanctions that result from the consumer’s intentionally wrongful conduct.
Enforcement
20. Deems void a litigation financing agreement that is entered in violation litigation financing requirements.
21. States that a violation of the litigation financing requirements commits an unlawful practice enforceable under the Arizona Consumer Fraud Act.
22. Requires the court to determine sanctions for any party that fails to make the required litigation financing agreement disclosures.
23. Requires an evasive or incomplete disclosure to be treated as a failure to make the required disclosure.
Miscellaneous
24. Applies the litigation financing requirements to any civil action, administrative proceeding, claim or cause of action that is pending or commenced on or after the effective date.
25. Defines terms.
26. Becomes effective on January 1, 2026.
Prepared by Senate Research
February 14, 2025
JT/ci