SB 10: Litigation Funding Regulations

Ohio Senate Bill 10 – Regulation of Litigation Funding Agreements

Subject: Analysis of Ohio Senate Bill 10, aimed at regulating non-recourse litigation funding agreements.

Source: As Introduced version of Senate Bill No. 10, 136th General Assembly of Ohio (2025-2026). Accessed via Ohio Legislative Service Commission website.

Summary:

Ohio Senate Bill 10 seeks to enact new sections (1357.01-1357.08) of the Revised Code to regulate both consumer and commercial litigation financing agreements within the state. The bill defines key terms, sets forth requirements for consumer litigation funding agreements, prohibits certain practices, mandates disclosures, addresses liens, restricts agreements with foreign entities, and grants enforcement power to the Attorney General. It also explicitly repeals existing section 1349.55 of the Revised Code. The bill’s stated intent is to address concerns related to champerty and maintenance and to protect due process rights within Ohio courts.

Key Themes and Provisions:

1. Definitions (Sec. 1357.01): The bill provides detailed definitions for key terms, distinguishing between consumer and commercial litigation financing.

• “Consumer litigation funding agreement”: Defined as a “nonrecourse agreement in which a consumer litigation funding company purchases, and a consumer assigns to the company, a contingent right to receive an amount of the potential proceeds of any settlement, judgment, award, or verdict obtained in the consumer’s legal claim.” This excludes agreements involving cash payments of $400,000 or more.
• “Commercial litigation financing agreement”: Defined as a written agreement where “A third party agrees to provide funds to a named party or a law firm that represents a named party in the civil action or group of civil actions” and “The agreement creates a direct or collateralized interest in the proceeds of a civil action… by settlement, verdict, judgment, or otherwise.”
• “Charges”: Broadly defined as “the amount of money to be paid to the consumer litigation funding company by or on behalf of a consumer in excess of the funded amount,” including “interest and all administrative, origination, underwriting, and other fees, no matter how denominated.”

1. Consumer Litigation Funding Agreement Requirements (Sec. 1357.02): The bill lays out specific requirements for consumer litigation funding agreements, focusing on transparency and consumer protection.

• Clarity and Completeness: Agreements must be “written in a clear and coherent manner using common language” and be “completely filled-in when presented to the consumer for signature.”
• Disclosures: The front page must include disclosures in at least 12-point bold type, including:
• The funded amount.
• An itemized list of all charges.
• The maximum amount that may be assigned.
• If applicable, the cumulative amount assigned across multiple agreements.
• Cancellation Right: Consumers have the right to cancel the agreement within ten business days of the funding date by returning the full amount of disbursed funds. Specific methods for cancellation are outlined.
• Mandatory Statements: The agreement must include specific statements in 12-point boldface type, including:
• “CONSUMER’S RIGHT TO CANCELLATION: YOU MAY CANCEL THIS AGREEMENT WITHOUT PENALTY OR FURTHER OBLIGATION WITHIN TEN BUSINESS DAYS AFTER THE FUNDING DATE IF YOU RETURN THE FULL AMOUNT OF THE DISBURSED FUNDS…”
• A statement clarifying the company’s lack of control over the legal claim and settlement, but requiring notification of the outcome.
• A statement clarifying that repayment is contingent on proceeds from the legal claim, unless the consumer breaches the agreement or commits fraud.
• A warning to read the agreement completely and seek legal advice before signing.
• Attorney Acknowledgment: The agreement requires a written acknowledgment from the consumer’s attorney attesting to the attorney’s review of the agreement with the consumer, confirmation of a contingency fee agreement, agreement to disburse funds through the attorney’s trust account, and that no referral fee was received, and that no tax, public, or private benefit planning, or financial advice was provided regarding the agreement.

1. Prohibited Practices for Consumer Litigation Funding Companies (Sec. 1357.03): The bill prohibits several practices by consumer litigation funding companies.

• Paying or accepting referral fees from attorneys, healthcare providers, etc.
• Advertising false or misleading information.
• Referring consumers to specific attorneys or medical providers (with a limited exception for referrals to bar association referral services or legal aid societies).
• Failing to provide copies of agreements.
• Entering into agreements on claims that have already been assigned, unless the prior agreement is extinguished.
• Influencing the conduct of the legal claim or settlement decisions.
• Attempting to obtain waivers of remedies.
• Paying for court costs or attorney’s fees.
• Charging prepayment penalties or charges exceeding 10% of the funded amount per year.
• Entering into an agreement if the consumer’s attorney has a financial interest in the funding company.

1. Attorney Responsibilities and Disclosure (Sec. 1357.04): The bill addresses the role of attorneys and disclosure requirements.

• Confidentiality: Attorneys cannot disclose confidential information to funding companies without written consent from the consumer.
• Disclosure: Consumers must disclose the existence of a funding agreement to opposing parties or insurers upon request and within 30 days of entering into the agreement.
• Discovery and Admissibility: Funding agreements are presumed to be subject to discovery but inadmissible as evidence. Communications regarding the status of a claim are not subject to discovery.

1. Lien Priority (Sec. 1357.05): Consumer litigation funding agreements create a lien on the proceeds of the legal claim that “supersedes all subsequently perfected liens on such proceeds other than liens directly related to the legal claim and expressly authorized by state or federal law,” such as attorney’s fees, Medicaid, Medicare, or workers’ compensation liens.
2. Restrictions on Foreign Involvement (Sec. 1357.06): Prohibits consumer and commercial litigation financing agreements with persons or entities not domiciled in the United States, or concerning legal claims financed by such entities. The bill states this provision is intended to protect due process rights and address risks posed by foreign actors.
3. Commercial Litigation Financing Regulations (Sec. 1357.07):

• Prohibits disclosure of documents subject to protective orders.
• Restricts commercial litigation financiers from making or influencing decisions regarding the legal claim.
• Mandates disclosure of commercial litigation financing agreements to all named parties and insurers at the time the legal claim is asserted or commenced, and whenever the agreement is executed or amended.

1. Enforcement (Sec. 1357.08): The Attorney General is authorized to file complaints seeking equitable remedies, including barring commercial litigation financiers from doing business in Ohio, for violations of the chapter.
2. Legislative Intent (Sec. 1357.011): “The general assembly, in enacting sections 1357.01 to 1357.08 of the Revised Code pursuant to this act, hereby declares its intent to adopt regulations concerning a narrow range of consumer and commercial litigation financing agreements as contemplated in the holding of the Ohio Supreme Court in Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121 (2003). The general assembly intends to preserve and reinforce the general public policy expressed in that holding against champerty and maintenance.”

Implications:

Senate Bill 10 represents a significant effort to regulate the rapidly growing litigation finance industry in Ohio. By establishing clear definitions, mandating disclosures, and prohibiting certain practices, the bill seeks to protect consumers from potentially predatory lending practices while also addressing concerns about the influence of litigation funding on the legal system, particularly in the commercial context and related to foreign involvement. The bill’s success will depend on effective enforcement by the Attorney General and the courts’ interpretation of its provisions. The impact on access to justice for plaintiffs, as well as the availability of capital for businesses pursuing legal claims, remains to be seen. The emphasis on restricting foreign involvement highlights a growing national security concern related to litigation funding.