Jessica M. Karmasek May 24, 2013, 3:00pm

DENVER (Legal Newsline) -- The Colorado Court of Appeals ruled Thursday that lawsuit lenders cannot duck the state's lending laws in one of the first cases nationally questioning whether such lending should be regulated.

Lawsuit lenders, such as plaintiffs Oasis Legal Finance Group LLC and Funding Holding Inc. d/b/a LawCash, typically seek out plaintiffs and offer them up-front money to cover immediate living or medical expenses while their cases are pending.

These loans are usually provided at high interest rates -- often more than 100 percent -- and then must be paid back to the lender once the plaintiff's claims result in a settlement or judgment.

Tort reform groups, including the U.S. Chamber's Institute for Legal Reform, argue that such lending is a serious problem: it increases litigation costs, crowds court dockets, diminishes recoveries for injured consumers and threatens to erode client control over lawsuits.

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In the case at issue, Oasis Legal and LawCash appealed a Denver District Court's grant of partial summary judgment to the defendants, Colorado Attorney General John Suthers and Laura Udis, administrator of the state's Uniform Consumer Credit Code, or UCCC.

In 2010, Suthers advised Oasis and LawCash that the financial transactions at issue were loans made in violation of the UCCC.

Oasis and LawCash then sued, seeking, among other things, a declaration that they had purchased contingent rights to receive a portion of the proceeds of personal injury lawsuits and did not make loans or create debt, and were therefore not subject to the UCCC.

The appeals court, in its 10-page ruling, concluded that the district court did not err in holding the financial transactions were loans under the UCCC.

"Here, the undisputed facts show that the funds paid by Oasis and LawCash to tort plaintiffs created contingent debt. Specifically, Oasis and LawCash paid money to tort plaintiffs in exchange for the right to receive a portion of the tort plaintiffs' litigation proceeds if the tort plaintiffs recovered sufficient funds in their lawsuits," Judge Richard Gabriel wrote for a three-member panel of the court. "Thus, at the time the tort plaintiffs signed their contracts with Oasis and LawCash, their debts were not fixed but could become fixed in the future depending on the results of the tort actions.

"Accordingly, we conclude that the transactions at issue constituted 'loans' within the meaning of the UCCC."

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