Georgia Supreme Court Rules Lawsuit Financing Agreements Are Not Loans
ATLANTA, GA. – November 6, 2018 - In an opinion issued October 22, 2018 the Georgia Supreme Court ruled that lawsuit financing agreements were not loans under the Industrial Loan Act (ILA) or the Payday Lending Act (PLA). Details of the opinion are reported online by natlawreview.com.*
In the case Ruth v. Cherokee Funding, LLC, two plaintiffs were injured in a car accident, and both entered into agreements with lawsuit funding company Cherokee Funding, LLC. Under the agreements, the plaintiffs received funds for personal expenses in exchange for promises to repay the funds, along with certain fees, if they were successful in litigating their lawsuits. If they were not successful, meaning they received no awards or settlements for their lawsuits, the plaintiffs had no obligation to repay the company.
Both plaintiffs received settlements for their lawsuits, then sued Cherokee Funding, alleging the company’s agreements violated the ILA and PLA. The district court dismissed the claims as to the ILA, and Cherokee Funding requested interlocutory appeal on the decision regarding application of the PLA. The appeals court found that neither the ILA nor the PLA applied because the agreements were not “loans” per the statutory definitions. The plaintiffs then requested review from the Georgia Supreme Court.
On October 22, the Georgia Supreme Court ruled that Cherokee Funding’s agreements with the two plaintiffs were not disguised loans because they included “contingent and limited obligation[s] of repayment.” In other words, the Court said the agreements were investment contracts, not loans that had to be repaid. The decision will likely set beneficial precedent for lawsuit financing companies around the country, as well as companies providing merchant cash advances.
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