Today, the North Carolina Court of Appeals allowed a plaintiff to proceed with her lawsuit that "litigation funding," the practice by which private firms make advances to plaintiffs involved in litigation in exchange for a substantial return in the event of a successful result, violates the law of North Carolina. Reversing the trial court, the Court of Appeals let stand claims for usury, unfair and deceptive practices, and a violation of the North Carolina Consumer Finance Act. The Court threw out, however, claims that this practice constitutes "unlawful gaming" and champerty. 

In the case of Odell v. Legal Bucks, LLC, the litigation funder had advanced Ms. Odell $3,000 for her motor vehicle accident claim.  Ms. Odell ultimately settled her claim for $18,000, but found that the terms of her agreement required her to pay Legal Bucks $9,582, or more than triple the advance that she had received. Ms. Odell, certainly unhappy at having to give up more than half of her recovery, then sued Legal Bucks, seeking class certification on her multiple claims.

The principal argument of Legal Bucks against the usury claim was that Ms. Odell was not under an absolute obligation to repay the money she had been advanced, and that the arrangement between them was therefore not usurious.  The Court recognized that the litigation funding was not a "loan," because a "loan" carries the requirement of an unconditional obligation to repay principal, but held that N.C. Gen. Stat. §24-1.1 also covers "advances," which do not have the same requirement. The Court found that the agreement between the parties demonstrated an understanding that the principal of the advance would be returned, meeting a key element of the test for usury. The Court further found that there was no dispute "that the rate of interest provided for in the Agreement substantially exceeds that permitted" by the statute, and that Legal Bucks had "intentionally entered into a contract to receive a greater amount of interest that that allowed" by law.

Since Legal Bucks wasn’t licensed under the Consumer Finance Act, that made out a violation of the Act, as did its violation of the usury statute. The unfair and deceptive practices claim also went forward, over Legal Bucks’ objection that the terms of the agreement had been fully disclosed to the plaintiff. The Court held that:

 "violations of statutes designed to protect the consuming public and violations of established public policy may constitute unfair and deceptive trade practices." In this regard, we note that it is a "paramount public policy of North Carolina to protect North Carolina resident borrowers through the application of North Carolina interest laws." N.C. Gen. Stat. § 24-2.1 (2003). [The] [d]efendants’ practice of offering usurious loans was a clear violation of this policy.

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