Litigation Financiers Now Required to Register with Secretary of State’s Office

Starting July 1, litigation financiers operating in this state are required to register with the Secretary of State’s office.

A litigation financier is a person, entity or partnership engaged in the business of litigation financing. The new law defines litigation financing as making non-recourse transactions in which financing is provided to a consumer in return for a consumer assigning to the litigation financier a contingent right to receive an amount of the potential proceeds of the consumer’s judgment, award, settlement or verdict obtained with respect to the consumer’s legal claim. However, not included in the definition of litigation financing are legal services provided on a contingency fee basis or advanced legal costs where such services or costs are provided to or on behalf of a consumer by an attorney representing the consumer in the dispute and in accordance with the Tennessee Rules of Professional Conduct, commercial tort claims as defined by T.C.A. § 47-9-102, and claims under the Worker’s Compensation Law.

Three things must occur for an entity or partnership to register as a litigation financier:

1. Its founding organization document (domestic) or certificate of authority (foreign) must contain a statement that the entity or partnership shall be designated a litigation financier pursuant to the Tennessee Litigation Financing Consumer Protection Act.

2. The entity or partnership must have a status of active and in good standing as reflected in the records of the Secretary of State.

3. The entity must file with and have approved by the Secretary of State a surety bond in the amount of $50,000. This bond shall be payable to the State of Tennessee for the use of the attorney general and reporter and any other person who may have a cause of action against the obligor of the bond for any violation of the new law. The bond must remain active and be continued from time to time as necessary.

An entity or partnership that already exists on the records of the Secretary of State’s office must file an amendment to its founding organization document (domestic) or certificate of authority (foreign) and reflect in the “other changes” field of the amendment form that the entity or partnership shall be designated as a litigation financier pursuant to the Tennessee Litigation Financing Consumer Protection Act. The entity or partnership should submit the bond with the amendment. In addition, the filing fee of $20 for the amendment must also be included when the amendment and bond are submitted.

An individual person or sole proprietor may also register with the Secretary of State as a litigation financier by:

1. Filing a litigation financier sole proprietor registration form and the $100 filing fee with the Secretary of State.

2. Filing with the Secretary of State an approved surety bond in the amount of $50,000. This bond shall be payable to the State of Tennessee for the use of the attorney general and reporter and any other person who may have a cause of action against the obligor of the bond for any violation of the new law. The bond must remain active and be continued from time to time as necessary.

Please contact the Business Services Division by email at Business.Services@tn.gov or by telephone at (615) 741-2286 if you have any questions or need additional information regarding the Litigation Financier Registration process.