Colo. case ready for next step toward regulating lawsuit financing industry

By John O'Brien and Sarah Zavala | Mar 22, 2012


DENVER (Legal Newsline) - In 44 states, Oasis Legal Finance and LawCash say they provide funding for plaintiffs with pending lawsuits. In Colorado, however, a judge says they are handing out loans and should be regulated as such.

While other states struggle to find legislation that satisfies both sides of the lawsuit funding debate, a lawsuit brought by the two companies against Colorado Attorney General John Suthers is carving out what the companies can and can't do in the state.

It also created a bitter dispute and split between the Better Business Bureau and Oasis, as well as possible financial penalties and an injunction in Colorado.

The industry has argued that its agreements, which usually give $500 to $5,000 to a plaintiff in a lawsuit with the company to receive a percentage of any settlement or jury award, can't be classified as loans because the company receives nothing if the lawsuit fails.

"(Oasis' and LawCash's) transactions advance money to plaintiffs with an expectation of repayment upon collection or judgment in the plaintiffs' favor in the future," Denver District Court Judge Brian Whitney wrote in September.

"While (the companies') transactions have a quantity of recourse provisions, or may be contingent upon receipt of proceeds by the plaintiff funded, or may never be collected due to abandonment of otherwise, the transactions create debt under the plaint language of the (Colorado Uniform Consumer Credit Code and the definitions observed by the court.

"As such... the transactions are 'loans' governed by the UCCC."

The ruling is more than most state legislatures have accomplished. Nine states failed to pass Oasis' proposed bill last year, and only three states in which the industry operates have any law on their books relating directly to it -- though some are hoping that Oklahoma soon becomes the fourth.

Three states -- Nebraska, Ohio and Maine -- have passed bills that have certain consumer protection safeguards like clear language on contracts and review of the agreement by the customer's attorney.

The Colorado lawsuit began in October 2010, six months after Suthers' office issued an opinion that said lawsuit finance companies like Oasis were providing loans and must comply with the UCCC, which requires lenders that charge APRs of more than 12 percent to register with the State.

Suthers says Oasis charged APRs ranging from 60 percent to 125 percent, while LawCash's APRs went from 65 percent to 215 percent. The opinion compared the agreements, and their non-recourse nature, to loans given by pawn shops. In response to the lawsuit filed against him, Suthers filed counterclaims against the companies.

On April 2, the Denver court will hear arguments for a preliminary injunction. It would prevent the companies from engaging in any lending activities without a license.

While Whitney ruled Oasis and LawCash were acting as lenders, he said the pleadings were insufficient to make a ruling on Suthers' request for a preliminary injunction.

The hearings are scheduled for April 2-4. Suthers will appear as a witness, according to his communications director Mike Saccone.

"Generally speaking, if it looks like a loan and smells like a loan, it is a loan," Saccone said. "The Office of the Attorney General looked at these lending products and determined that they fall under our office's purview to regulate subprime loans in Colorado.

Eric Schuller, the director of government and community affairs at Oasis Legal Finance, said he would not comment on pending litigation.

"The legal funding transactions of Oasis and LawCash are not loans," the company's complaint against Suthers says. "The transactions constitute a non-recourse purchase of a right to a portion of the proceeds of a potential future case award or settlement."

The complaint added that Oasis and LawCash conduct business in 45 states and Washington, D.C., but in January 2010 they both stopped entering into funding transactions in Colorado.

Suthers says the case is continuing to determine the companies' potential liabilities. Among his counterclaims are requests for refunds and civil penalties.

The litigation with Suthers has already resulted in a dramatic downgrade by the Better Business Bureau of Chicago and Northern Illinois.

In May 2011, Oasis filed a lawsuit in Cook County, Ill., because the Better Business Bureau was going to lower the company's accreditation grade from an A+ to a D.

The issue between Oasis Legal Finance and the BBB sparked from Suthers' lawsuit in Colorado. In January 2011, the BBB told Oasis Legal Finance that they planned to lower the company's rating because of the counterclaims Suthers filed against the company.

"To be free from government action that demonstrates a significant failure to support BBB ethical principles in marketplace transactions," the BBB said in a letter addressed to Oasis Legal Finance. "Your organization no longer meets our Accreditation Standards."

The letter also stated that the BBB wanted Oasis Legal Finance to resign from accreditation in the BBB.

"Unfortunately if you fail to resign by Jan. 31, 2011, we will have no other alternative except to suspend your organization from the accreditation in the BBB," the letter said, adding that suspension can be appealed.

According to the complaint filed by Oasis Legal Finance, the BBB began the process of revoking the company's accreditation and violated its own code of business practice and accreditations.

"The conduct of the BBB is not warranted, is baseless and will have a disastrous effect on the Oasis business," the complaint said. "The BBB's unwarranted actions will likely ruin Oasis's business."

Oasis sought a court order keeping the BBB from using Colorado's suit as a reason to lower the grade.

Ultimately, Oasis dropped its lawsuit and its accreditation with the BBB. Instead of the original D grade, the BBB now gives Oasis an F.

"Our philosophy behind our judicial system is innocent until proven guilty," Schuller said. "The claim brought by Oasis was first against the Attorney General's Office and not the other way around. (Suthers') is a counterclaim, not a claim."

Schuller said the company decided the BBB can have its own opinion.

"Prior to that happening, we had an A+ rating," he said. "It was one action that has not been adjudicated fully; it hasn't been vetted through the court system. We think it's unfair to be treated in such a harsh manner."

Schuller added that a business does not have to be accredited with the BBB to receive a rating from it. Conversely, LawCash is still accredited, but has no rating listed on its page.

"We don't control the Better Business Burea," he said. "It's their option, their way of rating. We disagree with them."

Editor's note: This article previously incorrectly stated that no state had passed a bill relating directly the lawsuit financing industry.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.

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