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LawFunds, LLC
For Immediate Release
Page 1 of 2
Contact: Andrew T. Savage, Esq.
(978) 744-9022
asavage@lawfunds.com
STATEMENT BY LAWFUNDS, LLC C.E.O. AND GENERAL COUNSEL ANDREW T. SAVAGE, ESQ. REGARDING THE OHIO COURT OF APPEALS DECISION IN RANCMAN V. INTERIM SETTLEMENT FUNDING CORP. ET AL.
SALEM, MASSACHUSETTS
(November 20, 2001) –
On October 31, 2001, the Ohio Court of Appeals, Ninth Judicial District, ruled that two non-recourse litigation funding transactions, wherein payment was contingent on the successful resolution of the plaintiff’s lawsuit, constituted usurious loans under Ohio law. Rancman v. Interim Settlement Funding Corp. et al., C.A. No. 20523. While I was both surprised and disappointed with this ruling, at LawFunds, our research indicates that the ruling is clearly at odds with more reasoned decisions from other jurisdictions and represents a minority view of this issue. As a result, we expect that the ruling, if appealed, will likely be reversed. Moreover, the Rancman ruling is highly fact specific and should not have a significant impact on the general enforceability of non-recourse litigation funding transactions.
It is basic hornbook law that “to constitute usury it is essential that the sum loaned be repayable absolutely; if it is payable only upon some contingency, then the transaction is not usurious.” 45 Am Jur 2d, §132. Whether principle and interest are “repayable absolutely” is a question of fact which generally turns on a determination of whether or not the contingency was a “real hazard.” See 61 Ohio Jurisprudence 3d (1958), Interest and Usury, § 58. The Ohio ruling concluded that, based solely on the evidence presented at trial, there was no real hazard and therefore, the transaction was repayable absolutely. This ruling stands in stark contrast to more reasoned rulings from other jurisdictions, not to mention common sense.
I believe that this is the first time that any court has concluded that a contingent advance, secured only by a speculative recovery from a lawsuit, is a usurious loan. In comparison, in 1996, two separate courts concluded the exact opposite. In Dopp v. Yari, the United States District Court for the District of New Jersey found, on summary judgment, that an investment in a pending lawsuit was not usurious because of the fact that repayment was contingent on the plaintiff’s recovery of proceeds from the lawsuit. 927 F.Supp. 814, 822-24 (1996). Similarly, in Kraft v. Mason, the District Court of Appeal of Florida upheld the enforceability of a non-recourse litigation funding transaction. 668 So.2d 679 (Fla. Dist. Ct. App. 1996). In Kraft, the court noted, “when the loan was given, any talk of recovery was pure speculation. Quite possibly, there would be no successful recovery from the … litigation…” Id. at 684. This situation presents itself whenever a litigation funding company enters into a transaction with a client.
Moreover, in my opinion, it is common sense that a risk or “real hazard” is inherent in all lawsuits prior to settlement or final, non-reviewable judgment. Therefore, it is reasonable and logical to conclude that non-recourse litigation funding transactions, wherein any repayment is contingent on a successful and financially sufficient settlement or judgment in the underlying lawsuit, are similarly fraught with real hazards. No trial lawyer I know would ever absolutely guarantee to a client the successful resolution of his/her claim. Therefore, how can it be reasonably concluded that a litigation funding company, which generally knows much less about the merits of a client’s claim than does the trial attorney, can so accurately underwrite the risks of a funding transaction as to make it devoid of a real risk?
As a result, I expect that, if appealed, the ruling of the Ohio Court of Appeals will be reversed. Nevertheless, even if an appeal is not undertaken, I do not expect that this ruling will have any adverse, long-term ramifications for the litigation funding business. This decision is limited to the facts presented in the underlying declaratory judgment action and does not support an argument that all non-recourse litigation funding transactions are usurious. In all likelihood, the Ohio ruling will have little future impact and future rulings in Ohio and throughout the country will follow the more reasoned opinions set forth in the Dopp and Kraft decisions.
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