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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
AMENDED
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 funded consumer.
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.
7. Prohibits a litigation financier from providing funding to or in connection with a litigation financing agreement that is, directly or indirectly, financed by a foreign entity of concern.
Required Disclosures
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 an action, to disclose to each other party to the action and any known person, including an insurer, with a preexisting contractual obligation to indemnify or defend a party to the action:
a) whether the party or its counsel of record has entered into a litigation financing agreement; and
b) the name of the litigation financier.
9. States that the required disclosure obligations 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.
10. Allows any party to the action, on receipt of the required disclosures, to make application to the court overseeing the action for additional information concerning the litigation financing agreement if the party believes that the existence of the litigation financing agreement, the litigation financier or any owner or investor in the litigation financier may negatively impact:
a) the party's own rights or interests in the action; or
b) the party's proprietary information.
11. Allows a party to an action to seek discovery concerning and of the following:
a) whether any owner or investor in the litigation financier is a foreign country of concern or a foreign entity of concern;
b) whether the litigation financier is a hedge fund, any owner or investor in the litigation financier is a hedge fund or the litigation financing agreement is part of a portfolio or similar pooled financing arrangement; or
c) whether or not there are any provisions in the litigation financing agreement allowing for control, direction or influence over the action.
12. Applies the required disclosure requirements to all class actions and multidistrict litigation.
Enforcement
13. Deems voidable a litigation financing agreement that is entered in violation of the litigation financing requirements.
14. States that a violation of the litigation financing requirements commits an unlawful practice enforceable under the Arizona Consumer Fraud Act.
15. Requires the court to determine sanctions for any party that fails to make the required litigation financing agreement disclosures.
16. Requires an evasive or incomplete disclosure to be treated as a failure to make the required disclosure.
Miscellaneous
17. 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.
18. Defines terms.
19. Becomes effective on January 1, 2026.
Amendments Adopted by Committee
1. Specifies that a litigation financier may not, directly or indirectly, receive a larger share of the proceeds of an action than the funded consumer, rather than the named parties to the action that is subject to a litigation financing agreement.
2. Prohibits a litigation financier from providing funding to or in connection with a litigation financing agreement that is, directly or indirectly, financed by a foreign entity of concern.
3. Eliminates the prescribed disclosure requirements for a litigation financing agreement.
a) whether the party or its counsel of record has entered into a litigation financing agreement; and
b) the name of the litigation financier.
5. States that the required disclosure obligations 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.
6. Allows any party to the action, on receipt of the required disclosures, to make application to the court overseeing the action for additional information concerning the litigation financing agreement if the party believes that the existence of the litigation financing agreement, the litigation financier or any owner or investor in the litigation financier may negatively impact:
a) the party's own rights or interests in the action; or
b) the party's proprietary information.
7. Allows a party to an action to seek discovery concerning and of the following:
a) whether any owner or investor in the litigation financier is a foreign country of concern or a foreign entity of concern;
b) whether the litigation financier is a hedge fund, any owner or investor in the litigation financier is a hedge fund or the litigation financing agreement is part of a portfolio or similar pooled financing arrangement; or
c) whether or not there are any provisions in the litigation financing agreement allowing for control, direction or influence over the action.
8. Applies the required disclosure requirements to all class actions and multidistrict litigation.
9. Removes the requirement, in any litigation financing agreement, for a litigation financier to indemnify the funded consumers against any adverse costs, attorney fees, damages or sanctions that may be ordered or awarded in an y action for which the litigation financier is providing litigation financing.
10. Deems voidable, rather than void, a litigation financing agreement that is entered in violation of the litigation financing requirements.
11. Defines foreign country of concern to include:
a) a foreign government listed by the federal code of regulations as foreign adversaries;
b) a country designated as a threat to critical infrastructure by the federal government or the Governor;
c) is organized or incorporated in a foreign country of concern;
d) is owned or controlled by the government, a political subdivision or a political party of a foreign county of concern;
e) has a principal place of business in a foreign country of concern;
f) is owned, organized or controlled by or affiliated with a foreign organization that has either been placed on the federal Office of Foreign Assets Control Specially Designated Nationals and Blocked Persons List or designated by the U.S. Secretary of State as a foreign terrorist organization.
12. Refines litigation financing agreement or litigation financing as 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 involves the same counsel or affiliated council.
13. Removes the following redefined terms:
a) consumer or funded consumer;
b) foreign person;
c) foreign principal;
d) national security interests;
e) proprietary information; and
f) sovereign wealth fund; and
g) trade secrets.
14. Makes conforming changes.
Senate Action
JUDE 1/30/25 W/D
RAGE 2/20/25 DPA 4-2-1
Prepared by Senate Research
February 21, 2025
JT/ci