BROOKLYN, N.Y. (Legal Newsline) – A new lawsuit in New York shows what happens when a litigation funder’s client hits a jackpot – and also what happens when he decides not to pay.
LawCash sued Jinsoo Nho and the Law Offices of Choi & Park on June 23, seeking payment of $2 million from Nho’s nearly $7 million settlement.
Litigation funders provide cash to plaintiffs while their lawsuits are pending in exchange for a portion of whatever is recovered. While the interest on Nho's agreement would ordinarily violate usury laws, litigation funders argue their agreements are not traditional loans and therefore not subject to those laws.
They argue this because if the plaintiff recovers nothing, the funder also recovers nothing.
LawCash had only to provide $100,000 under the agreement with Nho, who was pursuing an automobile accident lawsuit at the time. In 2011, Nho repaid half of it.
LawCash was first unaware that the litigation settled for $6.9 million. It says a $2 million check it ultimately received from lawyer Yohan Choi was no good.
“Choi informed LawCash for the first time that although he had received proceeds from the underlying settlement that were subject to the funding agreement, he had distributed those proceeds to defendant Nho, instead of to LawCash as he was obligated to do,” the lawsuit says.
“He also acknowledged that money was not available to cover the check he had presented to LawCash.”
Legal finance companies have found success in courts recently when their clients ended up challenging how much they had to pay. The industry has fended off class actions in several states.
In Missouri, Judge Judge Rodney Sippel recently wrote that plaintiffs knew exactly what they were signing up for.
The interest rate of plaintiff Ronald Wright’s loan was clearly printed on the second page of his agreement with Oasis Legal Finance, Sippel ruled.
The agreement in question stipulated for an annual interest rate of 72%.
Oasis cited the part of the state usury law that limits interest rates to 10% unless the loans are “permitted by other laws of the state.” As a provider of consumer credit loans, Sippel found that to be the case.
That reasoning is similar to what the Georgia Supreme Court ruled years ago in perhaps the biggest win for the industry.
It didn’t stop a Georgia plaintiff from pursuing a federal lawsuit against Oasis Legal Finance that was first filed in 2017, though it was dismissed earlier this year.
The federal judge rejected an argument that the contingent nature of the agreements is illusory because there was virtually never a scenario in which Oasis would not be paid.
The plaintiffs even offered testimony from a mathematician who said Oasis’ “risk of losing money on them in the aggregate is infinitesimally small.”
Not long after the Georgia decision, a federal judge in Kentucky also ruled for Oasis in another class action. This time, the judge decided Jan. 31 that a forum selection clause in the agreement required the plaintiffs to bring their case in Chicago.