Litigation Financing Agreements Affirmed By NY Appellate Court

Author:Mr John Bessonette, Alexis Wanzenberg and Laurence Pettit
Profession:Kramer Levin Naftalis & Frankel LLP

The New York Appellate Division of the Supreme Court, First Department recently confirmed the legality of properly structured litigation financing agreements. In Cash4Cases, Inc. v. Brunetti, 90 N.Y.S.3d 154, 155 (1st Dep't 2018), the defendant, appealing from the grant of summary judgment in favor of plaintiff Cash4Cases, Inc., which was seeking to enforce the agreement pursuant to which it purchased an interest in the defendant's personal injury litigation, argued that the agreement was usurious and unconscionable given the excessive interest rate. However, the appellate court unanimously affirmed the Supreme Court's judgment in favor of the litigation funder, rejecting both arguments.

The plaintiff purchased an interest in the defendant's claim by advancing a total of $76,930 at a “compounded monthly carrying charge” of 3.2 percent and an annual percentage rate of 45.93 percent. Repayment of the advance, the significant majority of which was used to pay off an advance previously made by a different funder, was contingent upon the defendant's successful recovery in the personal injury litigation.

The court followed several prior decisions in holding that the defendant could not claim the defense of usury, on the basis that the underlying transaction was not a loan, in which repayment is an absolute requirement or secured with collateral, but rather an assignment in which repayment was entirely contingent upon the outcome of the trial. Lynx Strategies, LLC v. Ferreira, 2010 WL 2674144, at *2, 957 N.Y.S.2d 636 (Sup. Ct. N.Y. Cnty. 2010); Kelly, Grossman & Flanagan, LLP v. Quick Cash, Inc., 2012 WL 1087341, at *3, 950 N.Y.S.2d 723 (Sup. Ct. N.Y...

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