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NC COA LETS LITIGATION LOAN CASE PROCEED

By Sean E. Andrussier

In Odell v. Legal Bucks, LLC, the NC COA let the plaintiff proceed with usury, Consumer Finance Act and UDTPA claims against defendant Legal Bucks, a business that makes loans to litigants based on reviews of their cases' merits.

In Odell, the plaintiff in a personal injury case had financial difficulties and entered into an agreement with defendant Legal Bucks, whereby plaintiff received a $3000 loan and had to repay it from her recovery in her PI suit. Plaintiff ultimately settled her suit -- but instead of repaying Legal Bucks, she sued them, for, among other things, illegal gaming, champerty and maintenance, violations of the Consumer Finance Act, and unfair and deceptive trade practices. The trial court dismissed plaintiff's claims on dispositive motions, and plaintiff appealed.

The COA affirmed in part and reversed in part. The COA affirmed the dismissal of the illegal gaming claim. The COA held that the agreement here wasn't a bet because the parties desired the same outcome, that plaintiff recover, as opposed to taking opposite sides of an uncertain event. And the agreement was also not a wager because the plaintiff had interests in the suit other than just the possibility of a gain or loss, namely, her legal rights as to the other parties in the PI suit. Therefore, the gaming claim failed.

The COA also affirmed the dismissal of the champerty and maintenance claims. The COA noted that NC law, as opposed to that in other states, requires interfering in a lawsuit for a lender's involvement to become champertous. Here, the evidence indicated that Legal Bucks didn't interfere in the case but rather simply had a financial interest, not enough for these claims to proceed.

Plaintiff's usury claim, however, was allowed by the COA to go forward. The COA held that the plaintiff satisfied the 4 usury elements, 1) a loan or forbearance, 2) an understanding that the money owed would be repaid, 3) payment or agreement to pay interest at a rate higher than that allowed by law, and 4) the lender's corrupt intent to receive more interested that the legal rate.

Plaintiff's claim under the Consumer Finance Act also was allowed to roll forward. The Consumer Finance Act mandates that lenders of small loans ($10 K or less) charging interest rates above the legal rate be licensed by the Commissioner of Banks. Plaintiff alleged that Legal Bucks had no license.

And the COA let plaintiff proceed with her unfair and deceptive trade practices claim. Legal Bucks had disclosed the loan terms. But the COA held that Legal Bucks didn't disclose that the loan agreement violated the Consumer Finance Act, and that therefore the agreement had the capacity to deceive (i.e., the purported illegality was not disclosed). And further, the COA said that the loan agreement violated NC public policy to protect borrowers through interest laws.

As an aside, Legal Bucks made a motion for dismissal or other sanctions based the appellant's violations of the rules of appellate procedure. The COA declined to assess any penalty for what it called "stylistic" violations.

Full post as published by North Carolina Appellate Blog on September 03, 2008 (boomark / email).