Thursday, December 6, 2018

Litigation Advance Not Usurious Loan

The New York Appellate Division for the First Judicial Department rejected an effort to avoid repayment of an advance against litigation proceeds

Pursuant to an "Agreement for Purchase of Claim," plaintiff, as purchaser of an interest in defendant's pending personal injury litigation, agreed to "advance" to defendant, as seller, $76,930 at a "Compounded Monthly Carrying Charge" of 3.2% and an "Annual Percentage Rate" of 45.93%, in exchange for defendant's agreement that repayment would be made from the proceeds of the personal injury action. The agreement provided that repayment was contingent on defendant's "successful recovery of proceeds" from the action. Pursuant to the agreement, $60,000 of the advance was used to purchase and pay off an advance previously made to defendant by an entity called Fast Trak Legal.

After receiving settlement proceeds, defendant refused to pay plaintiff the amount called for in the agreement. He argues that, given the excessive interest rate, the agreement is usurious and unconscionable. We conclude that the agreement is neither usurious nor unconscionable.

This was not a "loan" to which usury laws applies

Assignment agreements such as the agreement at issue here are not loans, because the repayment of principal is entirely contingent on the success of the underlying lawsuit.

Bottom line

Contrary to defendant's argument, there are no issues of fact as to the amount that plaintiff overpaid to Fast Trak. Based on the clear terms of the Fast Trak agreement, the court correctly found that the overpayment was only $100, not $5,600, as defendant claimed, and adjusted the amount awarded to plaintiff accordingly. This insubstantial discrepancy does not render the agreement void based on mutual mistake.

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2018/12/the-new-york-appellate-division-for-the-first-judicial-department-rejected-pursuant-to-an-agreement-for-purchase-of-claim-p.html

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