The Colorado Court of Appeals issued its opinion in Oasis Legal Finance Group, LLC v. Suthers, Colorado Attorney General on Thursday, May 23, 2013.
Declaratory Judgment—Partial Summary Judgment—“Loans” Under the Colorado Uniform Consumer Credit Code.
In this declaratory judgment action, plaintiffs Oasis Legal Finance Group, LLC, Oasis Legal Finance, LLC, and Oasis Legal Finance Operating Company, LLC (collectively, Oasis), and plaintiff Funding Holding, Inc., doing business as LawCash, appealed the district court’s grant of partial summary judgment to defendants John W. Suthers, in his capacity as Attorney General of the State of Colorado, and Laura E. Udis, in her capacity as the Administrator of the Uniform Consumer Credit Code (collectively, Administrator). The Court of Appeals affirmed the judgment.
Oasis and LawCash contracted with people who had pending personal injury claims against third-parties (tort plaintiffs) to pay them money to assist them while their cases were pending. In exchange, the tort plaintiffs agreed that, once their personal injury claims resulted in a settlement or judgment, they would pay certain sums to Oasis or LawCash from the net litigation proceeds.
In the Oasis contractual payment schedule, the amount due increased over time. If the amount due couldn’t be covered from the net litigation proceeds, then the tort plaintiffs had to pay Oasis only the net proceeds received, if any. If nothing was recovered, then Oasis recovered nothing.
In the LawCash contracts, once the tort plaintiffs received the net litigation proceeds, they were required to repay LawCash the funded amount plus a “monthly user fee” of 3.5% of the funded amount, compounded monthly. LawCash also received a lien and security interest in the proceeds of their lawsuits. As with Oasis, the tort plaintiffs didn’t have to pay more than the net litigation proceeds and, if nothing was recovered, LawCash received nothing.
In 2010, the Administrator advised Oasis and LawCash that these types of transactions were loans made in violation of the Uniform Consumer Credit Code (UCCC). Oasis and LawCash filed this action, seeking 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 thus were not subject to the UCCC. The Administrator moved for and was granted partial summary judgment that the transactions were loans governed by the UCCC.
On appeal, Oasis and LawCash argued that the transactions were purchases of litigation proceeds and not loans under the UCCC. The Court was not persuaded. The UCCC definition of “loan” includes “[t]he creation of debt by the lender’s payment of or agreement to pay money to [a] consumer.” The Colorado Supreme Court has endorsed a broad reading of the UCCC’s definition of “loan.” A debt would include a contingent debt under such a broad reading. It was undisputed that the funds paid by Oasis and LawCash to tort plaintiffs created contingent debt. Therefore, they were loans within the meaning of the UCCC. The judgment was affirmed.
Summary and full case available here.