Indiana Passes New TPLF Law Regulating commercial Litigation Financing

March 20, 2024 / 12 min read

On March 13, 2024, Indiana Governor Eric J. Holcomb (R) signed House Bill 1160 (H.B. 1160) into law which contains several new provisions regulating commercial litigation funding. This new law amends Indiana’s existing third-party litigation funding (TPLF) statutes which are codified at Title 24 (Trade Regulation), Article 12 (Civil Proceeding Advance Payments), Indiana Code (IC) § 24-12-1.05, et. seq.¹ To these existing statutes, H.B. 1160 now adds a new chapter (Chapter 11 – Commercial Litigation Financing) codified at IC § 24-12-11.

Generally, H.B. 1160, in main part, bans funding by certain foreign parties, bars commercial litigation financiers from making litigation and settlement decisions, and makes the “contents” of commercial litigation financing agreements subject to discovery under the Indiana Rules of Trial Procedure. In addition, the new law amends an existing statutory provision. H.B. 1160 becomes effective July 1, 2024.²

As noted, the new provisions contained in H.B. 1160 are being added to Indiana’s existing TPLF statutes which, up until H.B. 1160’s passage, have focused on regulating litigation funding for claims involving “consumer claimants.”³ In this regard, many may recall that last year Indiana added a TPLF discovery provision for claims regarding litigation funding provided to consumer claimants.

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The below provides a general overview of Indiana’s new TPLF law (H.B. 1160) as follows:

Key definitions

Under H.B. 1160, the term “commercial litigation financier” is defined as “a person that enters into, or offers to enter into, a commercial litigation financing agreement with a plaintiff in a civil proceeding. The term does not include a nonprofit organization.”⁴

The term “commercial litigation financing agreement" is defined as “a nonrecourse agreement that a commercial litigation financier enters into, or offers to enter into, to provide funding to support a plaintiff or the plaintiff's attorney in prosecuting the civil proceeding, if the repayment of the funded amount is: (A) required only if the plaintiff prevails in the civil proceeding; and (B) sourced entirely from the proceeds of the civil proceeding, whether the proceeds result from a judgment, a settlement, or some other resolution.”⁵This term does not include a “[CPAP] transaction, an agreement between an attorney and a client for the attorney to provide legal services on a contingency fee basis or to advance the client's legal costs, a health insurance HEA 1160 plan or agreement, a repayment agreement of a financial institution if repayment is not contingent upon the outcome of the civil proceeding, a funding agreement to a nonprofit organization that represents a client on a pro bono basis, or an agreement of an assigned claim to prosecute an environmental contamination matter.”⁶

Funding by a “foreign entity of concern” is prohibited

Under H.B. 1160, a commercial litigation financier is barred from “provid[ing] funding to a commercial litigation financing agreement that is directly or indirectly financed by a foreign entity of concern.”⁷ As referenced above, the term “foreign entity of concern” is defined as “a partnership, association, corporation, organization, or other combination of persons: (A) organized or incorporated in a foreign country of concern; (B) owned or controlled by the government, a political subdivision, or a political party of a foreign country of concern; (C) that has a principal place of business in a foreign country of concern; or (D) that is owned, organized, or controlled by or affiliated with a foreign organization that has been: (i) placed on the federal Office of Foreign Assets Control specially designated nationals and blocked persons list ("SDN List"); or (ii) designated by the United States Secretary of State as a foreign terrorist organization.”⁸The term “foreign country of concern” as noted above is defined to include “(A) a foreign government listed in 15 CFR 7.4. (B) A country designated as a threat to critical infrastructure by the governor under IC 1-1-16-8.”⁹

Certain information may not be disclosed to a commercial litigation financier

H.B. 1160 states that “[a] party may not disclose or share any documents or information subject to a court order to seal or protect that is received in the course of the civil proceeding with a commercial litigation financier.”¹⁰

Commercial litigation financiers cannot make litigation or settlement decisions

Under H.B. 1160, a funder is barred from making, or influencing, litigation or settlement decisions. On this point, the new law states, in full, that “[a] commercial litigation financier may not make any decision, have any influence, or direct the plaintiff or the plaintiff's attorney with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding, or make any decision with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding. The right to make these decisions remains solely with the plaintiff and the plaintiff's attorney in the civil proceeding.”¹¹

The contents of financing agreements are subject to discovery

H.B. 1160 makes the “contents” of a commercial litigation financing agreement subject to discovery under the Indiana Rules of Trial Procedure. In addition, the plaintiff is required to provide notice of third-party financing in situations where the funding is being provided either directly or indirectly by a foreign person.¹²

On these points, H.B. 1160 states, in full, as follows: “(a) In a civil proceeding in which a plaintiff enters into a commercial litigation financing agreement, the contents of the commercial litigation financing agreement are subject to discovery under the Indiana Rules of Trial Procedure by: (1) a party other than the plaintiff; or (2) an insurer that has a duty to defend another party in the civil proceeding. (b) In a civil proceeding in which a plaintiff enters into a commercial litigation financing agreement that is directly or indirectly financed by a foreign person, the plaintiff or the plaintiff's attorney shall provide to: (1) each of the other parties in the civil proceeding; and (2) each insurer that has a duty to defend another party in the civil proceeding; written notice that the plaintiff has entered into a commercial litigation financing agreement. (c) A plaintiff or the plaintiff's attorney shall provide the written notice required by subsection (b) within a reasonable time after the date on which the commercial litigation financing agreement was executed.”¹³

H.B. 1160 also amends an existing TPLF statutory provision

While H.B. 1160 in major part adds new statutory provisions regarding commercial litigation financing, the new law also amends an existing provision contained in IC § 24-12-3-1 (CPAP provider prohibitions).

Specifically, H.B. 1160 amends existing IC § 24-12-3-1 (6) which prohibits a funder from making litigation or settlement decisions. As amended by H.B. 1160, under subsection (6), a CPAP provider may not:

~~“Receive any right to~~ Make any decision, have any influence, or direct the consumer claimant or the consumer claimant's attorney with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding, or make any decision with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding. The right to make these decisions remains solely with the consumer claimant and the attorney in the civil proceeding.” H.B. 1160, Section 1, amending IC § 24-12-3-1 (6) (the noted strikeout and bolding above is as contained in H.B. 1160’s text and included above to show the specific changes being made by H.B. 1160).¹⁴

Effective Date

H.B. 1160’s provisions become effective July 1, 2024.¹⁵

Claims Considerations

Indiana’s passage of H.B. 1160 is significant as it demonstrates the growing focus on TPLF practices, especially in the commercial claims context, as well as increasing concerns regarding funding from foreign sources. On this latter point, in September 2023 the Protecting Our Courts from Foreign Manipulation Act of 2023 was introduced in Congress which targets TPLF by foreign persons, states, and sovereign wealth funds. Back to the state level, going forward it will be interesting to see if other states pass TPLF bills during the current state legislative sessions. From the author’s research, a non-exhaustive list of other states that have introduced TPLF bills as of the date of this article include: Arizona, Florida, Illinois, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Rhode Island, and West Virginia.¹⁶

Questions?

Please feel free to contact the author if you have any questions regarding Indiana’s new TPLF law as outlined above. Also, be sure to review the author’s other TPLF articles and resources for additional TPLF updates.

[1] The term “civil proceeding advance payment transaction,” or “CPAP transaction” is defined as follows: “Sec. 0.5. (a) As used in this article and subject to IC 24-12-6-2, “civil proceeding advance payment transaction”, or “CPAP transaction”, means a nonrecourse transaction in which a CPAP provider provides a funded amount to a consumer claimant to use for any purpose other than prosecuting the consumer claimant's civil proceeding, if the repayment of the funded amount is: (1) required only if the consumer claimant prevails in the civil proceeding; and (2) sourced from the proceeds of the civil proceeding, whether the proceeds result from a judgment, a settlement, or some other resolution. (b) The term includes a transaction: (1) that is termed or described as: (A) a purchase; or (B) an assignment of an interest in a consumer claimant's civil proceeding, or in the proceeds of a consumer claimant's civil proceeding; by the CPAP provider; or (2) with respect to which the CPAP provider sets forth in a CPAP contract, an agreement by: (A) the CPAP provider to purchase from the consumer claimant; or (B) the consumer claimant to assign to the CPAP provider; a contingent right to receive a share of the potential proceeds of the consumer claimant's civil proceeding, whether the proceeds result from a judgment, a settlement, or some other resolution.” IC § 24-12-1.05

[2] H.B. 1160, Section 1.

[3] IC § 24-12 -1-1 (7) defines the term “consumer claimant” as follows: “’Consumer claimant’ with respect to a CPAP transaction, means an individual: (A) who is or may become a plaintiff, a claimant, or a demandant in a civil proceeding; and (B) who: (i) is offered a CPAP transaction by a CPAP provider; or (ii) enters into a CPAP transaction with a CPAP provider.” Id.

[4] H.B. 1160, Section 2, Chapter 11, Sec. 1 (1).

[5] H.B. 1160, Section 2, Chapter 11, Sec. 1 (2).

[6] Id.

[7] H.B. 1160, Section 2, Chapter 11, Sec. 2.

[8] H.B. 1160, Section 2, Chapter 11, Sec. 1 (4).

[9] H.B. 1160, Section 2, Chapter 11, Sec. 1 (3).

[10] H.B. 1160, Section 2, Chapter 11, Sec. 3.

[11] H.B. 1160, Section 2, Chapter 11, Sec. 4.

[12] The term “foreign person” is defined to mean “(A) an individual who is not a citizen of the United States or an alien lawfully admitted for permanent residence in the United States; (B) an unincorporated association, of which a majority of members are not citizens of the United States or aliens lawfully admitted for permanent residence in the United States; (C) a corporation that is not incorporated in the United States; (D) the government, a political subdivision, or a political party of a country other than the United States; (E) an entity that is organized under the laws of a country other than the United States; (F) an entity that has a principal place of business in a HEA 1160 country other than the United States and that has shares or other ownership interest held by the government or a government official of a country other than that of the United States; and (G) an employee, official, or member of any entity described in clauses (B) through (F).” H.B. 1160, Section 2, Chapter 11, Sec. 1 (5).

[13] H.B. 1160, Section 2, Chapter 11, Sec 5.

[14] For the reader’s convenience, IC § 24-12-3-1 states, in full, as follows, with the noted amendments to subsection 6 as reflected in H.B. 1160 noted:

Sec. 1. A CPAP provider may not do any of the following:

(1) Pay or offer to pay a commission, referral fee, or other form of consideration to any attorney, law firm, medical provider, chiropractor, or physical therapist, or any of their employees for referring a consumer claimant to the provider.

(2) Accept a commission, referral fee, rebate, or other form of consideration from an attorney, law firm, medical provider, chiropractor, or physical therapist, or any of their employees.

(3) Intentionally advertise materially false or misleading information regarding the CPAP provider's products or services.

(4) Refer, in furtherance of an initial CPAP transaction, a consumer claimant or potential consumer claimant to a specific attorney, law firm, medical provider, chiropractor, or physical therapist, or any of their employees. However, if a consumer claimant needs legal representation, the CPAP provider may refer the person to a local or state bar association referral service.

(5) Knowingly provide funding to a consumer claimant who has previously assigned or sold a part of the consumer claimant's right to proceeds from the consumer claimant's civil proceeding without first making payment to or purchasing a prior unsatisfied CPAP provider's entire funded amount and contracted charges, unless a lesser amount is otherwise agreed to in writing by the prior CPAP provider. However, multiple CPAP providers may agree to provide a CPAP transaction to a consumer claimant simultaneously if the consumer claimant and the consumer claimant's attorney consent to the arrangement in writing.

(6) ~~Receive any right to~~ Make any decision, have any influence, or direct the consumer claimant or the consumer claimant's attorney with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding, or make any decision with respect to the conduct of the underlying civil proceeding or any settlement or resolution of the civil proceeding. The right to make these decisions remains solely with the consumer claimant and the attorney in the civil proceeding.”

(7) Knowingly pay or offer to pay for court costs, filing fees, or attorney's fees either during or after the resolution of the civil proceeding, using funds from the CPAP transaction.

IC § 24-12-3-1(1)-(7). As noted, subsection (6) as stated above reflects the amendments being made by H.B. 1160 with author retaining the strikethroughs and bolding as presented in H.B. 1160 to help the reader note the applicable amendments.

[15] H.B. 1160, Section 1.

[16] The following provides the bill numbers for those who may be interested: Arizona (HB 2638); Florida (H.B. 1179 and S.B. 1276); Illinois (H.B. 4614 and S.B. 3314); Iowa (H.F. 2348 and S.F. 3150); Kansas (H.B. 2510); Louisiana (S.B. 355);Minnesota (MN S.F. 4967); Mississippi (H.B. 146); Rhode Island (H.B. 7574); and West Virginia (S.B. 850).