House Industry, Business and Labor committee rejects litigation-financing licensing bill after debate on disclosures and criminal penalties

The House Industry, Business and Labor Committee voted to recommend a “do not pass” on House Bill 1372, a proposal to license and regulate litigation financers, after lawmakers and witnesses clashed over criminal penalties and contract-disclosure requirements.

The committee rejected the bill after members said they did not have a workable compromise on key provisions, including whether the financing agreements should be treated as loans and whether full litigation-financing contracts should be discoverable in civil cases.

The bill’s supporters and the Department of Financial Institutions told the committee the department’s existing regulatory tools — licensure, examinations and civil penalties — would be used to police financers. “We would establish a license in the process to grant, revoke, deny a license, and the appeals process. [The department] would also have the ability to go in and examine the financing company,” said Ms. Krebs of the department. She told the committee standard regulatory provisions were added back into the draft, including reporting, civil money penalties and confidentiality rules.

Opponents disputed other parts of the bill. “The problem is this bill itself calls it a loan half a dozen times, so it kind of conflicts with itself,” said Ms. Krebs, referencing language in the draft that at times describes litigation-financing contracts as loans. Several lawmakers pressed for clearer language to avoid triggering consumer-loan statutes or APR disclosure rules.

Attorneys who represent plaintiffs said they feared mandatory disclosure of financing contracts would upend civil-procedure norms and could prejudice juries. “This actually changes what we call the rules of civil procedure, and it would then require this component,” said Jackie Hall, executive director of the North Dakota Association for Justice, arguing the bill’s disclosure requirement would make financing contracts discoverable and potentially usable at trial. Hall suggested the committee allow an acknowledgement that financing exists but keep the contract itself protected from ordinary discovery and evidence rules.

Industry representatives urged narrower distinctions between commercial and consumer legal funding. “We have proposed an additional language…that would clarify once again the areas between those two types of financing,” said Blair Thorson of the Alliance for Responsible Consumer Legal Funding, offering model text used in other states.

Committee members also debated criminal exposure for attorneys and whether the bill might inadvertently criminalize conduct by lawyers. Ms. Krebs said the department intended civil enforcement of licensees, not prosecution of attorneys, and that legislative intent could clarify that criminal penalties apply only to licensees and their associates.

After discussion the committee voted on a motion for a “do not pass” recommendation. The roll call recorded the following votes in favor of the do-not-pass motion: Chairman Mori (yes); Vice Chairman Aussley (yes); Vice Chairman Johnson (yes); Representative Bail (yes); Representative Brown (yes); Representative Finley Deville (yes); Representative Grinberg (yes); Representative Casper (yes); Representative Koppelman (yes); Representative Ruby (yes); Representative Shots (yes); Representative Shower (yes); Representative Ulmer (yes). The motion carried.

Committee members said they wanted to give parties more time to work through competing drafting and policy concerns. Lawmakers invited department staff, trial attorneys and industry groups to continue negotiations and promised to revisit the issue when the committee has a refined draft.

Votes at a glance

• House Bill 1372 — Licensing and regulation of litigation financers — Committee recommendation: Do not pass (roll call recorded above).

The committee did not advance the bill; sponsors and stakeholders were encouraged to negotiate changes and return with a clarified draft.