Gregoire files bill to regulate litigation financing, bar certain foreign funders

Rep. Danielle W. Gregoire filed a bill on Jan. 17, 2025, to create Chapter 167K of the Massachusetts General Laws, which would regulate commercial litigation financing in the Commonwealth by requiring financiers to register with the Division of Banks and by imposing disclosure, reporting and consumer-protection requirements. The bill was submitted as House No. 1182 and is titled “An Act relative to litigation financing.”

Under the bill, a “commercial litigation financier” would be any entity that enters into written financing agreements that create a direct or collateralized interest in the proceeds of civil actions and that fund claimants or counsel. The bill would require such financiers to register with the Division of Banks before entering into agreements in or concerning litigation in Massachusetts, although companies that file for registration within 180 days of the law’s effective date (or when applications are first available) may operate while their registration is pending.

The measure would give the Commissioner of the Division of Banks authority to set registration requirements, including background checks for character and fitness, and to require a bond or an irrevocable letter of credit in an amount the commissioner sets. Registrations would expire on Dec. 31 and must be renewed every two years.

The bill imposes several consumer-protection and transparency rules. It would prohibit financiers from directing litigation decisions, including counsel selection, use of experts, litigation strategy or settlement choices, and would state that those decisions remain with the claimant and the claimant’s attorney or law firm. The draft also says financiers would owe a fiduciary duty to claimants whose claims they finance. Counsel who represent a claimant would have to disclose the existence of any commercial litigation finance agreement before taking the case and must provide the claimant a copy of the agreement; counsel must obtain written approval from the claimant before entering into a new financing arrangement that creates a contingent interest in a claim.

On discovery and court process, the bill would make commercial litigation financing agreements and parties to those agreements permissible subjects of discovery, and it would require a claimant or the claimant’s attorney to provide all parties with any financing agreement at the time a legal claim is asserted and any time an agreement is executed or amended. The bill also says an insurer that may have a duty to defend or indemnify a party must be provided with any financing agreement and its modifications. Communications between a party or counsel and a financier would not be considered attorney-client communications or attorney work product, except communications solely concerning the status of a legal claim or its expected value, which the bill says would not be discoverable by the defendant.

The bill includes a prohibition on financiers that are or are financed by “foreign entities of concern” or “foreign countries or persons of concern.” It defines those terms by reference to 15 C.F.R. 791.4 and to sanctions lists maintained by the federal Office of Foreign Assets Control, listing examples such as the Specially Designated Nationals (SDN) List and related OFAC lists. The bill also references entities designated by the U.S. Secretary of State as foreign terrorist organizations and a governor’s designation of countries that threaten critical infrastructure.

Reporting requirements in the draft would require each financier doing business in the state to submit an annual report on Dec. 31 specifying (a) the number of fundings that year, (b) the total sum of funded amounts, and (c) the annual percentage charged to each funding recipient where repayment occurred. The bill says the division shall make that information available to the public no later than 30 days after reports are submitted while maintaining the confidentiality of the name of each company and consumer.

The draft also authorizes the Division of Banks to adopt rules and regulations necessary to implement the chapter and says the act would apply to any financing agreement effectuated on or after the act’s effective date.

The bill text contains one internal inconsistency: it defines “Division” to mean the Division of Banks but in Section 3 refers to submitting the annual report “to the division of consumer affairs.” The bill also states that the Division of Banks is authorized to adopt necessary rules. The text as filed does not resolve which entity is intended to receive and publish the annual reports; the bill itself is the source of that discrepancy and the article does not assume a correction or change beyond the filed language.

No votes, committee referrals or amendments appear in the filing text. The filing identifies Representative Danielle W. Gregoire, 4th Middlesex, as the sponsor; the House docket number is 3982 and the bill is House No. 1182.