Litigation Financiers Now Must Register with TN SOS
July 8, 2014
Beginning July 1st, all litigation financiers in the State of Tennessee are required to register with the TN Secretary of State’s office. But who is a litigation financier? Any person, entity (including LLCs, corporations, etc.), or partnership that is engaged in the business of financing litigation is a litigation financier.
Litigation financing is any activity that consists of making non-recourse transactions in which financing is provided to a consumer in return for a consumer assigning to the litigation financier a contingent right to receive an amount of the potential proceeds of the consumer’s judgment, award, settlement or verdict obtained with respect to the consumer’s legal claim. An exemption exists, however, for legal services provided on a contingency fee basis or advanced legal costs where such services or costs are provided to or on behalf of a consumer by an attorney representing the consumer in the dispute and in accordance with the Tennessee Rules of Professional Conduct, commercial tort claims as defined by Tenn. Code Ann. § 47-9-102, and claims under the Worker’s Compensation Law.
Tennessee’s new law requiring registration of litigation financiers outlines three things which must occur for an entity, or partnership to register as a litigation financier. First, its founding documents or certificate of authority must contain a statement that the entity or partnership shall be designated a “litigation financier,” pursuant to the Tennessee Litigation Financing Consumer Protection Act. Second, the entity, or partnership must have a status of active and in good standing as reflected in the records of the Secretary of State. Third, the entity must file with and have approved by the Secretary of State a surety bond in the amount of not less than $50,000. This bond must be made payable to the State of Tennessee for the use of the attorney general and reporter and any other person who may have a cause of action against the obligor of the bond for any violation of the new law. The bond must remain active and be continued from time to time as necessary.
An entity or partnership already existing on the records of the Secretary of State’s office must file an amendment to its founding organization documents or certificate of authority and reflect in the “other changes” field of the amendment form that the entity or partnership is henceforth to be designated as a “litigation financier,” pursuant to the Tennessee Litigation Financing Consumer Protection Act. Along with the amendment, the entity, or partnership should submit the bond. When the amendment and bond are submitted, an additional filing fee of $20 for the amendment must also be included.
An individual person or sole proprietor may also register with the Secretary of State as a litigation financier by doing the following 2 things:
- Filing a litigation financier sole proprietor registration form and the $100 filing fee with the Secretary of State.
- Filing with the Secretary of State an approved surety bond in the amount of $50,000. This bond shall be payable to the State of Tennessee for the use of the attorney general and reporter and any other person who may have a cause of action against the obligor of the bond for any violation of the new law. The bond must remain active and be continued from time to time as necessary.
If you have other questions about registration requirements or need additional information regarding the Litigation Financier Registration process, you should contact the Business Services Division of the Tennessee Secretary of State’s office by email at Business.Services@tn.gov or by telephone at (615) 741-2286. Of course, if you need assistance with this or any other business legal services, you can also call Executive Legal Professionals at (615) 669-6566 or just drop us a line.
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