Court Rules Litigation Financing an Investment, Not a Loan

One of the current legal issues confronting the alternative litigation financing (“ALF”) industry is whether ALF qualifies as a loan – subject to statutes and regulations governing lending activities – or an investment.  Precedent is not uniform, but the most recent decision by the Georgia Court of Appeals in 2017 holds that ALF does not come within the state’s statutes governing loans.

In Cherokee Funding, LLC v. Ruth, 342 Ga. App. 404 (2017), the plaintiffs made separate litigation funding arrangements to receive several thousand dollars in exchange for agreeing to share any recovery they might receive in their lawsuits. When the plaintiffs settled their lawsuits, they claimed that the arrangements violated two state statutes regulating loans.  The court of appeals disagreed, holding that a loan was an agreement to advance money that required repayment.  Because the funding agreements at issue required repayment only if the plaintiffs achieved a recovery, the court concluded that the agreements were investment contracts that fell outside the scope of the statutes.

Cherokee Funding, LLC v. Ruth is pending before the Georgia Supreme Court. 

State courts are not uniform on this issue, however.  The Colorado Supreme Court in Oasis Legal Finance Group, LLC v Coffman, 361 P.3d 400 (Colo. 2015), held that that lawsuit funding agreements created loans that are subject to Colorado’s consumer finance statute.

Given the conflicting authority, careful attention should be paid to which jurisdiction’s law applies.  A choice of law provision in the funding agreement – an issue addressed in another blog on this site – is one potential method to address and resolve this issue.

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.

Topics:  Litigation finance, litigation finance market, third-party funding, alternative litigation finance, investment, loan, “Cherokee Funding”, “Oasis Legal Finance Group, LLC”.

TownCenter Partner Team

TownCenter Partners, LLC lead Asset Manager is Mr. Roni A. Elias. From modest beginnings, and with the help of a hand-picked dream team of professionals we have built one of the most dynamic and fastest growing companies in the country. TownCenter Partners LLC(TCP) is a real estate partner and master-planner providing development, leasing, management, and third party services. The company’s demonstrated ability to apply big ideas in creative and innovative ways has played a defining role in the firm’s success. Yet, TCP's most important insight has been the core understanding that it is not sight lines or site plans, but human activity, that defines a space and creates a place.