If anyone ever tries to sell you oceanfront property in Vermont, you're being gypped. Vermont is the only New England state that does not border the Atlantic. Vermont is also the one New England state (and one of only a handful of all states) to regulate the litigation financing industry. Tortured comparisons notwithstanding, litigation financiers who wish to do business in the Green Mountain State must comply with certain requirements as of July 1, 2016.
By reading and following the rules below, you should be able to engage in compliant funding in Vermont. Still, funders should always read the full text for any new regulations before funding in order to contextualize as well as ensure they are aware of the fine details.
Although this bill was signed into law over a year ago (May 24, 2016) we have received an increasing number of questions from funders in recent months about Vermont funding requirements, and we are going to provide breakdowns like this of other regulated states.
In a phrase that only a lawyer could love, Vermont House Bill 84 defines Consumer Litigation Funding as "a nonrecourse transaction in which a company purchases and a consumer assigns to the company a contingent right to receive an amount of the potential net proceeds of a settlement or judgment obtained from the consumer's legal claim." Confused? Don't be. What you just read is basically a standard definition of litigation financing. Importantly, though, the statute defines funding as a "nonrecourse transaction," meaning it is not a loan.
Unlike Indiana's Regulation, whereby litigation financing companies need only register for a license if they fund 25 or more transactions per year, Vermont requires registration with its Department of Financial regulation irrespective of how much business the company conducts in the state.
Licenses are issued by the Commissioner of the Department of Financial Regulation (Commissioner) and obtained through the Nationwide Multistate Licensing System & Registry. Vermont requires a $600 annual registration fee as well as a surety bond or guaranteed letter of credit for the larger of $50,000 (or double the highest amount the company has funded in the state during the previous three years-whichever quantity is greater).
Also, it's important to note that the statute defines a "consumer" as a "natural person who is seeking or has obtained consumer litigation funding for a pending legal claim," provided:
Thus, legal funders must be licensed in Vermont to fund any single case in which the plaintiff is either a Vermont resident, irrespective of the jurisdiction, or the lawsuit is filed in Vermont.
The Vermont statute Section 2253 requires the following disclosures on the front page of the funding agreement:
For the most part, this is boilerplate language most funders should already have in their standard agreements. The only thing to watch for in these disclosures is the final item. The statute affords the Commissioner the choice to require more disclosure as he or she sees fit. With this in mind, it's a good idea to periodically check the Commissioner's website for any new orders or regulations.
The statute also requires certain provisions within the contract itself. As a threshold matter, the contract"shall be written in a clear and coherent manner using words with common, everyday meanings to enable the average consumer who makes a reasonable effort under ordinary circumstances to read and understand the terms of the contract without having to obtain the assistance of a professional." In other words, no complicated legalese.
The following provisions must also be in every contract:
Again, these are all fairly standard contract provisions for a consumer agreement. Just be aware of the requirement that it be written in plain English. There can be some subjectivity in interpreting what can and cannot be easily comprehended by a layperson.
As of now, the statute places no limits on the fees a litigation financing company can charge. However, the statute does state that "beginning on or before October 1, 2017, the Commissioner and Attorney General shall report jointly to the General Assembly on the status of consumer litigation funding in Vermont and make any recommendations they deem necessary to improve the regulatory framework of consumer litigation funding, including a recommendation on whether Vermont should limit charges imposed under a consumer litigation funding contract."
That language suggests there may be a limit to charges at some point. Also, within contract law, excessive fees can be considered unconscionable. Basically, keep your fees reasonable and consistent across state lines, and you should be fine. However, the Commissioner's website should be monitored to determine whether a fee limit has been imposed.
The final detail litigation financiers should be aware of is the requirement to file an annual report. It's worth repeating that funders who invest in lawsuits with jurisdiction in Vermont and funders who fund plaintiffs with Vermont residency must file this report. This report needs to be filed with the Commissioner's office by April 1st and should contain the following information:
The statute requires this report to be filed "under oath," meaning it needs to be notarized.
This guide should give you everything you need in order to prepare for compliant legal funding in Vermont. As always, be sure to read the relevant statutes for more information before funding.
Have any questions, thoughts, or think we missed anything? Let us know in the comments below.