The New York Appellate Division, First Department (“New York Appellate Court”) determined in its decision filed on December 6, 2018 that a lawsuit funding company’s charge of an “Annual Percentage Rate” of 45.93%, in exchange for the inured party’s agreement that repayment would be made from the proceeds of his personal injury action, was neither usurious nor unconscionable.
The lawsuit funding agreement provided that repayment was contingent on the inured party’s “successful recovery of proceeds” from the action. Pursuant to the agreement, $60,000 of the advance was used to purchase and pay off an advance previously made to the injured party by another personal injury lawsuit funding entity.
The injured party settled his underlying personal injury claim, but after receiving the settlement proceeds, he refused to pay the lawsuit funding company the amount called for in the agreement, arguing that the interest rate was excessive and the agreement is usurious and unconscionable.
Not A Loan
The New York Appellate Court stated that the usury defense is applicable only where the underlying transaction constitutes a loan. To constitute a loan, the agreement must provide for repayment absolutely and at all events or that the principal in some way be secured as distinguished from being put in hazard. Assignment agreements, such as the agreement at issue in the present case, are not loans because the repayment of principal is entirely contingent on the success of the underlying lawsuit.
The New York Appellate Court further stated that the injured party failed to demonstrate that the agreement was unconscionable with a showing that he did not have a meaningful choice in entering into the agreement and that the terms of the agreement were unreasonably favorable to the funding company, finding that it is undisputed that the injured party sought a cash advance from the personal injury funding company, he was represented by counsel, and he acknowledged the terms of the agreement, which showed the impact of the interest rate in six-month increments, by initialing every page. Moreover, the injurty party received funds with no guaranteed obligation to repay, except from the proceeds, if any, recovered in his personal injury action. The New York Appellate Court stated that although the interest rate was high, given the contingent nature of the transaction, the agreement was not overly unfavorable to the injured party.
Source Cash4Cases, Inc. v. Brunetti, 2018 NY Slip Op 08360.
The lawsuit funding company states on its website, “Lawsuit funding levels the unfair playing field by giving plaintiffs the financial assistance to help plaintiffs survive financially while waiting for their case to resolve … After we inform you of the carrying charge and the legal funding amount you are approved for, Cash4Cases will send you a contract for your review. If for any reason you are not happy with the amount of the funding or the carrying charge you are approved for, there is no obligation to continue – absolutely free of charge! If you decide to continue, you sign the contract and we can send the funds the following day.”
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