This week, legislation was introduced in the Ohio Senate that will stop Ohio’s courts from turning into lottery tickets for institutional investors seeking to beat the rate of return provided by the stock market. In a growing industry known as third party litigation funding, finance companies including hedge funds will provide cash up front to a consumer in return for a portion of any settlement, judgment, or jury award.
While this practice may sound troubling enough already, on top of it all, these financing agreements are done in secret without any requirement to inform other parties in a lawsuit. This non-disclosure stands in stark contrast to the mandatory disclosure of insurance contracts which often times are a key indicator of a claim’s ultimate value.
Thankfully, the enactment of the Senate bill 322 – SB 322 – sponsored by Senator Steve Wilson, will reign in this troubling practice and bring it into the light.
Under SB 322, third party litigation funders must register with the Superintendent of the Division of Financial Institutions and maintain a corporate surety bond. The funders are also prohibited from:
- Paying referral fees or commissions to an attorney or medical provider for referring clients to the company
- Assigning or securitizing their advance to the consumer
- Charging an annual fee greater than 10% of the financing agreement’s value
- Entering into a financing agreement that is longer than three years
- Charging an interest rate more than three points higher than the federal short term interest rate.
Additionally, the consumer who is often the plaintiff in a lawsuit is required to disclose to the court and opposing parties a copy of the financial agreement.
The enactment of SB 322 will benefit Ohio’s legal and business legal climate by stopping frivolous lawsuits and preventing Ohio courts from being a part of a hedge fund’s investment strategy. It will also make it easier to reach settlement agreements and assure there are no secretive parties with an interest in the outcome of litigation.
This legislation is needed in Ohio because a recent survey conducted by the US Chamber of Commerce has Ohio ranked as one of the bottom 15 states for lawsuit abuse. Lawsuit abuse must be stopped – especially following the coronavirus – because challenging frivolous lawsuits cuts into a company’s bottom line which prevents employers from hiring employees, making capital investments, or expanding their business.
The Ohio Chamber supports the enactment of SB 322 and will be advocating at the Statehouse for its passage because lawsuits should not be turned into commodities that become part of a hedge fund’s investment strategy.