Oasis Legal Fin. Grp., LLC v. Coffman

• Decision Date: 16 November 2015
• Docket Number: Supreme Court Case No. 13SC497
• Citation: 361 P.3d 400,2015 CO 63
• Parties: OASIS LEGAL FINANCE GROUP, LLC; Oasis Legal Finance, LLC; Oasis Legal Finance Operating Company, LLC; and Plaintiff Funding Holding, Inc., d/b/a LawCash, Petitioners, v. Cynthia H. COFFMAN, in her capacity as Attorney General of the State of Colorado; and Julie Ann Meade, in her capacity as the Administrator, Uniform Consumer Credit Code, Respondents.
• Court: Colorado Supreme Court

361 P.3d 400

2015 CO 63

OASIS LEGAL FINANCE GROUP, LLC; Oasis Legal Finance, LLC; Oasis Legal Finance Operating Company, LLC; and Plaintiff Funding Holding, Inc., d/b/a LawCash, Petitioners,

v.Cynthia H. COFFMAN, in her capacity as Attorney General of the State of Colorado; and Julie Ann Meade, in her capacity as the Administrator, Uniform Consumer Credit Code, Respondents.

Supreme Court Case No. 13SC497

Supreme Court of Colorado.

November 16, 2015

Attorneys for Petitioners: Brownstein Hyatt, Farber Schreck, LLP, Jason R. Dunn, Denver, Colorado

Attorneys for Respondents: Cynthia H. Coffman, Attorney General, Frederick R. Yarger, Assistant Solicitor General, Paul Chessin, Senior Assistant Attorney General, Denver, Colorado

Attorneys for Amici Curiae Chamber of Commerce of the United States of America and Denver Metro Chamber of Commerce: McKenna Long & Aldridge LLP, David R. Fine, Denver, Colorado

Attorneys for Amici Curiae Colorado Civil Justice League, Colorado Defense Lawyers Association, and Property Casualty Insurers Association of America: Ruebel & Quillen, LLC, Jeffrey Clay Ruebel, Casey Ann Quillen, Westminster, Colorado

Attorneys for Amicus Curiae Colorado Trial Lawyers Association: Ogborn Mihm, LLC, Anna N. Martinez, Thomas D. Neville, Denver, Colorado

Attorneys for Amici Curiae National Association of Consumer Advocates, Center for Responsible Lending, Consumer Federation of America, and National Consumer Law Center: The Sturdevant Law Firm, APC, James C. Sturdevant, San Francisco, California, Wynkoop Law Office, PLLC, Rick Wynkoop, Wheat Ridge, Colorado

Amici Curiae, appearing pro se: Michael B. Abramowicz, Stephen Gillers, Myriam Gilles, Keith N. Hylton, Anthony J. Sebok, Victoria A. Shannon, Charles M. Silver, Spencer Weber Waller, and W. Bradley Wendel.

Opinion

JUSTICE HOODdelivered the Opinion of the Court.

¶ 1 Petitioners are national litigation finance companies. They buy interests in the potential proceeds of personal injury cases by executing agreements with tort plaintiffs to whom the companies provide money while the cases are pending (typically, less than $1,500). By the terms of the agreements, the money cannot be used to prosecute the legal claims. Instead, the plaintiffs are supposed to use the funds to pay personal expenses while waiting for their lawsuits to settle or go to trial.

¶ 2 In exchange, the plaintiffs agree to pay the companies a sum of money from the future litigation proceeds. This sum includes the amount advanced, an additional amount based on a “multiplier” that increases with the length of time it takes to resolve the claims, and various application and administrative fees. If the litigation proceeds are less than the amount due, the plaintiffs are not required to repay the shortfall.

¶ 3 This case concerns the nature of these litigation finance transactions. The companies contend they are asset purchases, but a state regulatory body classifies them as loans. The specific issue we address is whether these transactions are “loans” subject to Colorado's Uniform Consumer Credit Code (the “UCCC” or the “Code”). §§ 5–1–101to 5–13–103, C.R.S. (2015). We conclude they are.

¶ 4 We hold that litigation finance companies that agree to advance money to tort plaintiffs in exchange for future litigation proceeds are making “loans” subject to Colorado's UCCC even if the plaintiffs do not have an obligation to repay any deficiency if the litigation proceeds are ultimately less than the amount due. These transactions create debt, or an obligation to repay, that grows with the passage of time. We agree with the court of appeals that these transactions are “loans” under the Code, and we therefore affirm its judgment.

I. Facts and Procedural History

¶ 5 Oasis Legal Finance Group, LLC; Oasis Legal Finance, LLC; Oasis Legal Finance Operating Company, LLC (collectively, “Oasis”); and Plaintiff Funding Holding, Inc., d/b/a LawCash (“LawCash”), operate nationwide, but they began doing business in Colorado in 2004 and 2001, respectively. They provide money to plaintiffs with pending personal injury claims arising from events such as automobile accidents, slip and falls, construction site injuries, and medical malpractice incidents. The language and structure of Oasis's and LawCash's litigation finance agreements differ, but the salient features are the same.

A. The Oasis Agreement

¶ 6 Oasis's funding agreement is titled “Purchase Agreement.” The agreement labels the tort plaintiff the “Seller” and the funding company the “Purchaser.” It describes the transaction as a sale and assignment—stating, for example, that the “Seller sells and assigns, and the Purchaser buys and assumes, the Purchased Interest.” The agreement defines “Purchased Interest” as “the right to receive a portion of the Proceeds equal to the Oasis Ownership Amount.” “Proceeds” are “whatever [the Seller] receive[s] as a result of the legal claim, for example through a judgment, Arbitration or the like.” “Oasis Ownership Amount” is “the amount Purchaser is to be paid out of the Proceeds” based on an attached payment schedule.¹The tort plaintiff must authorize Oasis to obtain “a consumer credit report and/or other financial and credit information as part of the proposed transaction.”

¶ 7 The Oasis agreement begins with two prominent, capitalized provisions in the signature box. First, it states that “NO PART OF THE PURCHASE PRICE WILL BE USED TO SUPPORT, DIRECT OR MAINTAIN THE LEGAL CLAIM OR ITS PROSECUTION.” Second, it allows for the possibility that the Purchaser mayrecover nothing as a result of the transaction. It makes clear that “IF SELLER COMPLIES WITH THIS PURCHASE AGREEMENT AND RECOVERS NOTHING FROM THE LEGAL CLAIM CITED BELOW, THEN PURCHASER SHALL RECEIVE NOTHING,” while simultaneously emphasizing that “SELLER IS NOT ENTITLED TO RECEIVE ANY PROCEEDS UNTIL PURCHASER HAS RECEIVED THE OASIS OWNERSHIP AMOUNT.”

¶ 8 Oasis also acknowledges in the agreement that “Purchaser shall have no right to and will not make any decisions with respect to the conduct of the Legal Claim or any settlement or resolution thereof and that the right to make such decisions remains solely with Seller and Seller's Attorney.” Consequently, the tort plaintiff retains control of the pending litigation.

¶ 9 In addition, the Oasis agreement requires Seller to treat the transaction as a sale—not a loan—for all purposes, including taxes. Likewise, it requires Seller to describe the Purchased Interest as an asset of Purchaser–not a debt obligation of Seller—in any bankruptcy proceedings.

B. The LawCash Agreement

¶ 10 LawCash's agreement is titled “Funding Agreement,” though an earlier version bore the name “Lawsuit Investment Agreement.” The agreement characterizes the transaction as an assignment of an interest in the proceeds from the resolution of a pending case—but not, it makes plain, an assignment of the lawsuit or cause of action itself.²The amount assigned is equal to “the funded amount, together with accrued use fee, compounded monthly, and other fees or costs, from the proceeds of [the] [L]awsuit.” “Proceeds” include “any money paid as a consequence of the Lawsuit whether by settlement, judgment or otherwise.” The agreement alternately describes the transaction as a grant of a security interest and as a lien in those proceeds. A payment schedule lists payoff amounts, though the current sample agreement does not include any actual figures.³

¶ 11 The LawCash agreement echoes the Oasis agreement in several important respects. First, it restricts a tort plaintiff from using money advanced to finance the litigation proceedings. The money can be used for “life needs only.”

¶ 12 Second, the LawCash agreement acknowledges the possibility that LawCash might receive nothing depending on the outcome of the litigation. It states, for instance, that “there is no guarantee that the plaintiff will be successful or will recover sufficiently to satisfy [LawCash's] lien in whole or in part” and that “LAWCASH will be paid only from the proceeds of the Lawsuit, and agrees not to seek money from me [the assignor] directly in the event that the Lawsuit is not successful.” Likewise, it provides:

If I [the assignor] do not recover any money from my lawsuit, I will not owe LAWCASH anything. If I recover money from my lawsuit, which is insufficient to pay the full amount due to LAWCASH, then LAWCASH's recovery will be limited to the proceeds of the lawsuit.

¶ 13 Third, the LawCash agreement keeps control over the legal claim in the tort plaintiff's hands. It states: “LAWCASH SHALL HAVE NO RIGHT TO AND WILL NOT MAKE ANY DECISIONS WITH RESPECT TO THE CONDUCT OF THE UNDERLYING CIVIL ACTION OR CLAIM OR ANY SETTLEMENT OR RESOLUTION THEREOF AND THAT THE RIGHT TO MAKE THOSE DECISIONS REMAINS SOLELY WITH ME AND MY ATTORNEY IN THE CIVIL ACTION OR CLAIM.”

¶ 14 Finally, the LawCash agreement characterizes the transaction as “an investment and not a loan.”

C. The Litigation

¶ 15 The litigation finance companies commenced this case after a state regulatory body concluded companies in their field were subject to UCCC regulation.

1. The Administrator's Opinion Letter on Pre–Settlement Lender Licensing

¶ 16 In April 2010, counsel for an unrelated business asked the office of the Administrator of the Colorado UCCC (the “Administrator”) for an opinion letter as to whether a business that engages in litigation finance needs any special licenses or is otherwise regulated in Colorado.⁴Counsel explained that the business would be “making non-recourse, pre-settlement loans” in Colorado:

Basically, my client makes an advance to individuals involved in pending litigation based upon its evaluation of the likely settlement amount of the case. If the case does settle, then the advance must be repaid with interest. If the case does not settle and results in a defense verdict or judgment, then the entire advance or loan is forgiven.

¶ 17 In response, the Administrator issued an option letter dated April 29, 2010, on ...