AN ACT to amend Tennessee Code Annotated, Title 47, relative to litigation financing.
HB2108 creates a new regulatory framework in Tennessee for litigation financing, distinguishing between “litigation financing” for consumer claims and “commercial litigation financing” for business or other non-consumer legal disputes. The bill defines both terms, excludes contingency-fee legal representation and certain other claims from coverage, and requires litigation financiers and commercial litigation financiers to register with the secretary of state before doing business in the state.
The measure imposes several operational requirements on financiers, including a $50,000 surety bond, public filing of registration documents, update obligations when information changes, and a ban on registration or operation by entities affiliated with foreign adversaries, foreign principals, or certain sovereign wealth funds. For commercial litigation financing, the bill also prohibits financiers from controlling litigation strategy or settlement decisions, limits their recovery to a share of proceeds after attorney fees and costs, requires disclosure and court filing of financing contracts in pending cases, and makes financiers jointly and severally liable for certain costs or sanctions. It also caps annual fees at 10% of the original amount funded.
In practical terms, the bill amends Tennessee Code Annotated Title 47, Chapter 16, and affects litigation funding companies, parties seeking financing for lawsuits, attorneys, and courts handling financed cases. It also creates new compliance and enforcement obligations for the secretary of state and gives the attorney general and affected persons access to the bond for violations. The act applies prospectively to contracts entered into, amended, or renewed after the effective date.
The overall sentiment reflected in the voting history is strongly favorable, with unanimous or near-unanimous committee and floor support at earlier stages and final passage by a wide margin. That suggests broad agreement that the bill addresses transparency, consumer protection, and litigation-control concerns in the litigation-finance market. The main points of contention implied by the structure of the bill are the restrictions on foreign-linked financiers, the mandatory disclosure of financing contracts, the liability and indemnification provisions, and the fee cap, all of which impose significant limits on the industry’s business model and may have been intended to curb perceived abuses or outside influence in litigation.
HB2108 amends Tennessee Code Annotated Title 47, Chapter 16 to regulate litigation financing and commercial litigation financing, adding registration, bonding, disclosure, fee, and conduct restrictions. It creates new statutory definitions, requires registration with the secretary of state, mandates a $50,000 surety bond, makes filings public records, bars certain foreign-affiliated entities from participating, and limits commercial litigation financiers’ control over litigation and their compensation. It also requires filing of commercial litigation financing contracts in pending cases and imposes joint and several liability and indemnification obligations for certain costs, fees, damages, and sanctions.
The bill appears to have received broadly positive treatment throughout the legislative process. Committee recommendations and floor votes were overwhelmingly favorable, including unanimous committee votes and strong floor passage, indicating little visible opposition in the recorded voting history. The pattern suggests lawmakers generally viewed the measure as a needed consumer-protection and transparency bill for the litigation-finance industry.
The bill’s most notable points of contention are the extent of regulation imposed on litigation financiers and commercial litigation financiers. Industry-facing provisions such as mandatory registration, public filings, a substantial surety bond, a 10% annual fee cap, and liability for sanctions and adverse awards could be viewed as burdensome. The foreign-affiliation prohibition is also significant, as it excludes entities tied to foreign principals, foreign adversaries, or certain sovereign wealth funds. Another likely area of concern is the requirement to file financing contracts with the court and disclose them to other parties, which may raise confidentiality and strategic litigation concerns for funded parties and their counsel.