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Minutes for HB2694 - Committee on Judiciary
Short Title
Enacting the third party litigation financing consumer protection act to require regulation of litigation financing.
Minutes Content for Tue, Feb 15, 2022
Chairperson Patton opened the hearing on HB2694. Natalie Scott provided an overview of the bill. She stood for questions. (Attachment 6)
Proponent
Eric Stafford shared according to a 2020 publication from the Institute for Legal Reform, some estimate stated “that litigation finance is at least a $10 billion industry.” This new industry has been called “thriving” due to the expansive growth of the practice of litigation financing. The Kansas Chamber of Commerce's goal is to address this type of practice. They are concerned it opens the door to opportunities for frivolous litigation. In short, these companies are acting as investors and base their decisions on their expected return on investment. There are ethical questions that arise from this practice. Mr. Stafford and the Kansas Chamber of Commerce ask for the committee's support of HB2694 to help protect against abuses in our state’s legal system. Mr. Stafford stood for questions. (Attachment 7)
Eric Wareham explained at its core, HB2694 is legislation promoting transparency in our legal system. The primary purpose of the bill is to allow disclosure of financial interests in litigation during discovery. This is surprisingly necessary because litigation as an investment has become a business model invading our judicial system. Lawsuit investors are a real thing. Entities engaged in this practice range from private equity companies to foreign sovereign wealth funds. The money being funneled into our courts skews the incentives of litigation beyond finding equitable outcomes for parties involved in the actual controversy. The pursuit of justice is being replaced with investors who are dictating outcomes for high yield returns. Mr. Wareham stood for questions. (Attachment 8)
Proponent Written
Hilary Segura, American Property Casualty Insurance Association (Attachment 9)
Becky Schwartz, Executive Director, Fuel True: Independent Energy and Convenience (Attachment 10)
Kevin D. Case, Esq., Chairman, Case Liden PC (Attachment 11)
Neutral Written
Jenifer Cook, Assistant Secretary of State, Kansas Secretary of State (Attachment 12)
Opponent
Eric Schuller explained the Alliance for Responsible Consumer Legal Funding (ARC) is a trade association that represents companies that provide financial assistance to consumers who have a pending legal claim, such as a car accident. The money that is provided to them is to be used solely for household needs, such as making the mortgage, car payments, and keeping the lights on, while the individual's claim is making its way through the legal process. The average amount that ARC provides a consumer is $2,000. None of the money ARC provides to a consumer is used to pay for the litigation. In fact, in other states where ARC has passed legislation, they specifically state that the funds cannot be used for that purpose. Mr. Schuller said he did not believe this legislation was intended to encompass their industry because there is no intent for them to pay for litigation. He suggested adding the following line to the bill: “Litigation financing” does not include funds provided to a consumer for individual or household expenses or any purpose other than funding the litigation or related claims. He has additional changes that are spelled out in his attached testimony. Mr. Schuller offered the ARC's assistance to work with the members of the committee in either amending entities like them out of the bill and to make it clear that the bill is intended for those companies that fund the litigation. Mr. Schuller stood for questions. (Attachment 13)
David Morantz stated HB2694 is a new regulatory framework for businesses that provide financing for litigants during the pendency of their lawsuits. Litigation funding may be relevant to consumers waiting for the resolution of a personal injury claim when they are unable to work or have limited or no income, but must continue to pay household bills. Consumer litigation funding operates differently than a traditional loan and may be a better option for plaintiffs than a traditional lender or a pay day lender; however, due to Kansas regulations, such litigation funding is not available in Kansas. Lack of money may force a plaintiff to settle a claim out of financial necessity. HB2694 goes beyond protecting consumers and contains provisions that will do harm and that are unnecessary to the bill. Kansas Trial Lawyers Association is willing to work with the committee and stakeholders in the event there is interest in considering a new statutory framework for regulating litigation funding companies. Mr. Morantz stood for questions. (Attachment14)
Opponent Written
Joe Molina, Kansas Bar Association (Attachment 15)
Jack Kelly, American Legal Finance Association (Attachment 16)
Chairperson Patton closed the hearing on HB2694.
