A company that invests in personal injury lawsuits was not usurious in charging an annual percentage-rate return of 45.93 percent on an advance of money to a plaintiff because “the repayment of principal is entirely contingent on the success of the underlying lawsuit” and thus is not a loan, a state appeals court has ruled.
An Appellate Division, First Department panel also ruled that interest rates at issue were not unconscionable because the lawsuit’s plaintiff, Arthur Brunetti, failed to show that he “did not have a meaningful choice in entering into the agreement [with the company, Cash4Cases,] and that the terms of the agreement were unreasonably favorable to plaintiff.”
The underlying lawsuit was brought by Cash4Cases against Brunetti after he received settlement proceeds in his personal injury suit but refused pay Cash4Cases pursuant to the two sides’ “Agreement for Purchase of Claim,” the panel wrote in Cash4Cases v. Brunetti.
After being sued, Brunetti argued that the agreement included an excessive interest rate that was usurious and unconscionable, the panel explained in its Dec. 6 decision.
According to the panel, the agreement had said that Cash4Cases, as purchaser of an interest in a pending personal injury litigation, agreed to advance to Brunetti, as seller, $76,930 at a “Compounded Monthly Carrying Charge” of 3.2 percent and an annual percentage rate of 45.93 percent, in exchange for Brunetti agreeing that repayment would be made from proceeds gained in his suit, the panel said.
The unanimous panel, composed of Justices David Friedman, Barbara Kapnick, Troy Webber, Marcy Kahn and Cynthia Kern, wrote that Brunetti’s usury argument is “applicable only where the underlying transaction constitutes a loan,” citing Siedel v. 18 E. 17th St. Owners and General Obligations Law §5-501.
The justices further wrote that “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,” citing Matter of Lynx Strategies v. Ferreira as well as other decisions.
Addressing Brunetti’s unconscionability argument, the justices pointed out that “it undisputed that [Brunetti] sought a cash advance from [Cash4Cases], was represented by counsel, and acknowledged the terms of the agreement, which showed the impact of the interest rate in six-month increments, by initialing every page.”
The justices added that Brunetti “received funds with no guaranteed obligation to repay, except from the proceeds, if any, recovered in his personal injury action,” and wrote that “although the interest rate was high, given the contingent nature of the transaction, the agreement was not overly unfavorable to defendant.”
The panel’s opinion affirmed the 2017 decision by Manhattan Supreme Court Justice Gerald Lebovits that had granted Cash4Cases’ motion for summary judgment in lieu of complaint.
Raul Sloezen, a lawyer representing Cash4Cases, said that “the [personal-injury lawsuit investment] industry is very happy with the [First Department panel's] opinion.” He added that the decision “affirms what we’ve been saying all along, which is that these contracts are not usurious and not unconscionable.”.
Michael Chenel, an Albany attorney representing Brunetti, could not be reached for comment.