A substantial litigation funding industry has arisen to meet the needs of personal injury plaintiffs who often face a prolonged period of time waiting for a judgment or settlement to compensate them. While a serious injury may eventually provide a substantial recovery, it may also leave the plaintiffs unable to work and desperate for some form of income to meet everyday living expenses. They may want and need a way to partially monetize what they expect to receive from a pending case well before it concludes. Litigation funders can provide them with cash to be repaid solely from the proceeds of a judgment or settlement. This is done on a nonrecourse basis, so that if the plaintiff ultimately receives nothing on the claim, the funder will also receive nothing.
Litigation funding also covers other types of situations, for example, where corporations seek to hedge their financial risk for large commercial cases by obtaining the funding they need for litigation expenses on what amounts to a contingent basis from a litigation funding company. This has also become a substantial industry. This article will focus on the issues that relate to consumer litigation funding because of the consumer protection concerns that are not present in commercial litigation funding, although some case decisions which involve other forms of litigation funding will be discussed since they would also apply to consumer litigation funding agreements. The term “consumer litigation funding agreements” will be used to distinguish consumer agreements from commercial agreements.
The litigation funder’s expected return from the proceeds of a case is usually set at a fairly high amount because of the financial risk inherent in this kind of transaction. For example, one New York court dismissed a complaint for legal malpractice against a plaintiff’s personal injury attorneys where the plaintiff received a net amount of $111 after a litigation funder received $96,000 from a $150,000 settlement. The contractual arrangements for litigation funding transactions can vary considerably since very few states have enacted statutes to regulate consumer litigation funding, and the applicable case law raises many unanswered questions.
This article will address the following issues: is a consumer litigation funding agreement legal or instead, is it void on public policy grounds; are there statutes that recognize and regulate consumer litigation funding agreements; how can the plaintiff’s promise to pay in the agreement be enforced; and, where no statutes deal with consumer litigation funding agreements, do other laws that regulate consumer loans apply? This article will not address the legal ethical issues that govern the conduct of plaintiff’s attorneys in such transactions with respect to such important issues as attorney-client confidentiality, control of the litigation, and the exercise of independent professional judgment in order to focus on the legal issues which surround the litigation funding agreements themselves.
Are Litigation Funding Agreements Legal or Void As a Matter of Public Policy?
The initial, overriding issue to be resolved is whether the courts have found, or are likely to find, that a litigation funding agreement is void because it violates public policy. If a litigation funding agreement is void because it violates a state’s common law prohibitions against champerty and maintenance, or for similar reasons, enforceable consumer litigation funding agreements cannot be made.
Champerty and Maintenance Issues
The ancient, interrelated common law prohibitions against champerty, maintenance and barratry would apply to litigation funding agreements unless modern developments in the law have superseded the old rules. While these doctrines have eroded significantly in modern times, or may simply have been abandoned, the process has not been uniform from state to state. To understand what the courts have done on this subject, it is necessary to first look at what these terms mean.
Different courts have applied varying formulations to define the terms, and even the standard definitions have evolved. Some years ago, “champerty” was defined in Black’s Law Dictionary as:
A bargain by a stranger with a party to a suit, by which such third party undertakes to carry on the litigation at his own cost and risk, in consideration of receiving, if successful, a part of the proceeds or subject sought to be recovered.
“Maintenance” was defined separately in Black’s, as a criminal matter:
An unauthorized and officious intermeddling in a suit in which the offender has no interest, to assist one of the parties to it, against the other, with money or advice to prosecute or defend the action.
More currently, Black’s does not have a separate definition for “maintenance” which relates to intermeddling in a suit as opposed to making a deal to share in the proceeds, but instead has combined both concepts in the definition of “champerty”:
An agreement between an officious intermeddler in a lawsuit and a litigant by which the intermeddler helps pursue the litigant’s claim as consideration for receiving part of any judgment proceeds; specif., an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuit who supports or helps enforce the claim.
The prohibition against maintenance has been criminalized in some states, although criminal prosecutions for the offense seem to be quite rare. The Illinois statute uses the following formulation:
If a person officiously intermeddles in an action that in no way belongs to or concerns that person, by maintaining or assisting that person, with money or otherwise, to prosecute or defend the action, with a view to promote litigation, he or she is guilty of maintenance and upon conviction shall be fined and punished as in cases of common barratry.
Thus, champerty and maintenance depend on the elements of: (1) a person who is not a party assists a litigant for some consideration; (2) the non-litigant shares in the proceeds of the case; and (3) there is “officious intermeddling,” which Black’s defines separately as:
A person who confers a benefit on another without being requested or having a legal duty to do so, and who therefore has no legal grounds to demand restitution for the benefit conferred.
Black’s current definition of “barratry” is: “Vexatious incitement to litigation, esp. by soliciting potential clients.” The Illinois criminal provision for barratry, which is related to the criminal provision for maintenance, states as follows:
If a person wickedly and willfully excites and stirs up actions or quarrels between the people of this State with a view to promote strife and contention, he or she is guilty of the petty offense of common barratry; and if he or she is an attorney at law, he or she shall be suspended from the practice of his or her profession for any time not exceeding 6 months.
Since litigation funding related to personal injury actions normally begins with a lawsuit that is already on file, there is little or no probability that the common law or statutory offense of barratry will be found to be involved because the action or quarrel between plaintiff and defendant was clearly not stirred up by the litigation funder. Moreover, the intentional element of “wickedly” or “willfully” exciting or stirring up actions is absent when the litigation funder, by definition, had nothing to do with starting the lawsuit.
Champerty and maintenance, on the other hand, are potential problems for a litigation funding agreement. The agreement could be seen as champertous since the funder is clearly a stranger to the lawsuit as a non-party to it and can be seen as enabling the plaintiff to continue with the suit in exchange for part of the proceeds of suit. Similarly, a litigation funder could be seen as assisting in prosecuting someone else’s lawsuit or as an intermeddler in the suit since the funder has no legal right with respect to the underlying claims.
While modern case decisions which delve into the continuing validity of the doctrines of champerty and maintenance are relatively uncommon, the advent of litigation funding agreements has caused some courts to apply the doctrines as a bar. In Johnson v. Wright, for example, the Minnesota Court of Appeals reviewed a litigation funding agreement where the plaintiff assigned a percentage of her proceeds from a personal injury case for payment of litigation costs and also executed a note for some of the funds advanced to her. The court reviewed prior case law on champerty and maintenance and found that existing precedent would prohibit assignment of a portion of the proceeds of a case as champertous. It declined to distinguish the precedent on the ground that the funder would not control the litigation. Since the note was not made contingent on the outcome of the case, it was found not to be champertous. However, it found that the assignment of the proceeds which preceded execution of the note was champertous. The Johnson court reviewed several recent decisions which had considered the issue of champerty with respect to litigation funding agreements, some of which applied the doctrine and some of which abolished it, but found that “the respondent fails to provide a compelling reason to abandon the doctrine.” It therefore found that the assignment was “void as against public policy.”
One of the cases that the Johnson court followed was the Ohio Supreme Court’s ruling in Rancman v. Interim Settlement Funding Corp. The personal injury plaintiff in that case sought to rescind a litigation funding agreement which required her to repay the money advanced to her at an effective interest rate of 180%. The trial court found that the agreement was a loan at a usurious rate and ordered her to repay the principal plus 8% interest. On appeal, the appellate court found that because the agreement was a loan that had been made by an unlicensed lender, it was void under state law and the plaintiff owed nothing. When the funder appealed, the Ohio Supreme Court held that the agreement was void under the doctrines of champerty and maintenance. It found that “[t]he ancient practices of champerty and maintenance have been vilified in Ohio since the early years of our statehood” as “an offense against public justice, as it keeps alive strife and contention, and perverts the remedial process of the law into an engine of oppression," and held that an assignment of rights to a lawsuit is “void as champerty.” The funder’s advances constituted champerty since the funder sought to profit from the case, and constituted maintenance since the funder had no independent interest in the suit and the agreement gave the plaintiff a disincentive to settle because of the amount of money the funder would get from a settlement. The court’s view of the agreement was summed up by its observation that: “[A] lawsuit is not an investment vehicle. Speculating in lawsuits is prohibited by Ohio law. An intermeddler is not permitted to gorge upon the fruits of litigation.” It therefore affirmed the ruling that the agreement was void and that the funder should get nothing.
The Rhode Island Supreme Court made a similar ruling in Toste Farm Corp. v. Hadbury, Inc., where a third party complaint for maintenance against persons who instigated a suit about land partnerships by financing it in exchange for an agreement not to pursue a legal malpractice case had been dismissed on motion. The court noted that the “modern trend” seen in several recent cases was to abolish the doctrines of champerty and maintenance because the evils which they dealt with were taken care of by modern tort actions against actual officious intermeddlers on the one hand and by the Rules of Professional Conduct governing attorneys on the other. However, the court refused to find that dismissal of the complaint for maintenance was error because the doctrine was well recognized in Rhode Island common law and remained applicable since it had not been changed by the legislature or by custom.
Accordingly, where existing case law, however old, has recognized the doctrines of champerty and maintenance and has not been modified or overruled by more current decisions or legislative enactment, the doctrines’ potential continuing validity may prevent litigation funding agreements from being enforceable.
Changes to the Common Law Prohibitions of Champerty and Maintenance
Litigation funders have been successful in overcoming concerns about champerty and maintenance in some jurisdictions, which represent what the Rhode Island Supreme Court perceived to be the “modern trend.” In one case which the Toste Farm court declined to follow, Saladini v. Righellis, the Massachusetts Supreme Judicial Court ruled that the doctrines of champerty, barratry and maintenance would no longer be recognized. The case involved an agreement to advance funds to enable the defendant to hire an attorney to pursue claims against a piece of property in exchange for 50% of the proceeds from the net recovery. The trial court held that the agreement was champertous and therefore void. The Supreme Judicial Court agreed that the agreement was champertous under common law, but found that there was no longer any reason for the doctrine to be applied. The court found that the doctrine was not needed “to protect against the evils once feared: speculation in lawsuits, the bringing of frivolous lawsuits, or financial overreaching by a party of superior bargaining position” because “[t]here are now other devices that more effectively accomplish these ends,” such as rules requiring fees to be reasonable, sanctions for misconduct, and doctrines of unconscionability, duress and good faith and fair dealing. The court further noted that “[w]e have long abandoned the view that litigation is suspect, and have recognized that agreements to purchase an interest in an action may actually foster resolution of a dispute.”
In another case which the Toste Farm court declined to follow, Osprey, Inc. v. Cabana Ltd. Partnership, the South Carolina Supreme Court held that a loan for litigation expenses was not made unenforceable by the doctrines of champerty, maintenance and barratry due to officious intermeddling, after taking its first substantive look at the doctrines since 1830. After reviewing the history and policies behind the doctrines in England from the thirteenth century onward and in early South Carolina, the Osprey court agreed with the Saladini court that the time had come to abolish the “medieval concepts of champerty.” There was no violation of public policy because: the funder would not control the underlying litigation as an officious intermeddler; the funder was not preying on a financially desperate person who could not get a loan otherwise; enforcing the loan would not increase or prolong the litigation; and the funder was not likely to make an investment in frivolous litigation since frivolous litigation would be unlikely to produce the money needed to pay off the loan.
The Florida District Court of Appeals reached a similar conclusion in Hardick v. Homol, after reviewing the courts’ treatment of the doctrines of champerty and maintenance in several jurisdictions. The court found that “the evils intended to be curtailed by allowing causes of action for champerty and maintenance,” such as filing frivolous lawsuits, can be adequately addressed by the modern tort actions for abuse of process, wrongful initiation of suit and malicious prosecution and other remedies. The court accordingly found that a suit against a litigation funder for maintenance and champerty was properly dismissed. The Ninth Circuit likewise concluded in Del Webb Communities, Inc. v. Partington, after reviewing the state of the law in several jurisdictions, that common law claims for champerty and maintenance would not be recognized as torts under Nevada law because the reasons for them have ceased to exist, in a case where a funder used its funds to prosecute claims for other persons under an agreement to be repaid from the suit proceeds.
The cases which have found that litigation funding agreements are not barred by the doctrines of champerty and maintenance have looked at whether the social evils which underlie the doctrines, i.e., frivolous litigation and officious intermeddling, are actually a problem in the context of a litigation funder who makes a rational economic decision that advancing cash to a personal injury plaintiff in exchange for repayment from the proceeds of the case has a good chance of being repaid, with an adjustment in the return to account for the funder’s risk. The courts recognize that while the social evils of frivolous litigation and officious intermeddling can still be present, there are other, more modern and fairer ways to deal with them in tort instead of barring a whole category of consumer transactions on public policy grounds.
Other Public Policy Issues
Champerty and maintenance are not necessarily the only public policy concerns that may arise with respect to litigation funding agreements. For example, the Alabama Court of Appeals held in Wilson v. Harris that a litigation funding agreement was an invalid gambling contract even though it did not meet all the requirements for champerty since the case was already on appeal when the agreement was entered into. A “wager” was involved since a sum of money would be paid “upon the happening of an uncertain event over which neither party had control — Harris's recovery of damages after her personal injury lawsuit survived the appellate process.” The court observed that the argument that no wager was involved because neither party would be a loser if the lawsuit produced proceeds was “unfounded in logic or common sense.” The court concluded that the agreement was void as against public policy and encompassed many of the evils of champerty “because it condones speculation in litigation, makes sport of the judicial process, and tempts the unscrupulous to prey upon the distress of the ignorant and unfortunate.”
A different result was reached by the North Carolina Court of Appeals in Odell v. Legal Bucks, LLC. The personal injury plaintiff in that case sued the funder who advanced cash in exchange for an assignment of a portion of the proceeds of her case and argued that the litigation funding agreement constituted unlawful gambling in addition to being champertous, as well as being a usurious loan and an unfair and deceptive trade practice. The trial court found against her and awarded the funder the amount it claimed was due on the agreement.
On the issue of whether the agreement was an illegal gambling contract, the court of appeals held that there was no “bet” since there must be a winning and a losing party, and both sides stood to gain if the plaintiff succeeded in her personal injury claim, nor was there a “wager” since at least one of the parties, the plaintiff, had an interest in the “contingent event at issue,” i.e., her lawsuit. The court further found that the agreement was not champertous since it gave the funder no control over the personal injury case where there was only an assignment of the proceeds of the claim, not of the claim itself. However, the court found that although the agreement was not a “loan” since the obligation to repay was not absolute, the lender’s “advance” was nevertheless subject to the usury statute and was usurious since it met all the elements of usury. In addition, the court found that the funder failed to have the license required by the state’s Consumer Finance Act, which in turn gave rise to a claim for unfair and deceptive practices.
While it does not appear that the Wilson decision has been followed to void other litigation funding agreements as gambling contracts, the decision does demonstrate that some courts may take offense at the litigation funding concept and find a way to excuse a personal injury plaintiff from having to pay back the cash advanced. Although the Odell court had no problem dismissing the argument that a litigation funding agreement is an illegal gambling agreement and it also found that champerty and maintenance presented no problems, its decision illustrates that there are other important public policy issues to be considered besides champerty and maintenance.
Statutory Solutions to Litigation Funding Issues
One obvious solution to the dilemma over whether consumer litigation funding does or does not violate fundamental public policies is for the state legislature to enact a statute to regulate the matter. To date, however, only five states have done so. Each statute has a substantially similar set of provisions, with some exceptions, in the Tennessee statute.
The Rancman case, which banned litigation funding in Ohio, led the Ohio legislature to enact a statute that legalizes consumer litigation funding and imposes requirements on funding companies. The statute regulates companies that make a “non-recourse civil litigation advance,” defined as:
A transaction in which a company makes a cash payment to a consumer who has a pending civil claim or action in exchange for the right to receive an amount out of the proceeds of any realized settlement, judgment, award, or verdict the consumer may receive in his civil lawsuit.
The Ohio statute requires that contracts for litigation advances contain disclosures of the total dollar amount advanced and the total amount to be repaid by the consumer in six-month intervals for a limit of 36 months, an itemization of one-time fees, and a calculation of the annual percentage rate of return which is to include the frequency of compounding, but does not otherwise limit the fees that may be charged. Each contract must allow the consumer to cancel the contract within five business days and it must contain a clear and conspicuous notice about the right to cancel. To avoid any issue over who controls the underlying case, each contract must also contain the following clear and conspicuous statement:
THE COMPANY AGREES THAT IT 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 REMAIN SOLELY WITH YOU AND YOUR ATTORNEY IN THE CIVIL ACTION OR CLAIM.
In addition, the contract must include a written acknowledgement by the consumer’s attorney which states that the attorney has reviewed the contract and is being paid on a contingent fee basis under a written fee agreement, that the litigation proceeds will be disbursed through the attorney’s trust account, and that the attorney is following the consumer’s written instructions with regard to the litigation advance. The attorney’s obligations in the event of a dispute between the funder and the consumer are expressly limited to the attorney’s responsibilities under the Ohio Rules of Professional Conduct. The Ohio statute does not require companies that make non-recourse civil litigation advances to obtain a license from the Ohio Division of Financial Institutions, unlike other categories of financial institutions that make money available to consumers.
Maine enacted a similar statute, which was made part of the Maine Uniform Consumer Credit Code. Under the Maine statute, a “litigation funding provider” is a person or entity which provides “legal funding” to a consumer, which, in language similar to the Ohio statute, is defined as:
A transaction in which a company makes a cash payment to a consumer in exchange for the right to receive an amount out of the potential proceeds of any realized settlement, judgment, award or verdict the consumer may receive in a civil claim or action. If no proceeds in the civil claim or action are received, the consumer is not required to pay the company.
The Maine statute excludes attorneys’ advances to pay for trial expenses from the definition of “legal funding” and provides that legal funding contracts which comply with the requirements of the statute are not otherwise regulated as “consumer credit transactions.”
To comply with the Maine statute, a legal funding contract must be “written in a clear and coherent manner using words with common, everyday meanings to enable the average consumer who makes a reasonable effort under ordinary circumstances to read and understand the terms of the legal funding contract without having to obtain the assistance of a professional.” A five-business-day right to cancel is given to the consumer, as in the Ohio statute, along with the same provision that the litigation funding provider has no right to and will not make any decisions with respect to conducting the underlying action or claim as provided and other required notices. The same written acknowledgments by the attorney as the Ohio statute requires are also part of the statute.
Like the Ohio act, the Maine act does not set a numerical limit on the fees which may be charged for litigation funding, though fees can only be charged for a 42-month period from the date of the contract. The fees may be compounded semiannually, but not less frequently. The contract must also disclose the “annual percentage fee or rate of return” in the prescribed manner.
The Maine statute requires litigation funding providers to register with and be regulated by the state, unlike the Ohio statute, with detailed registration requirements. The Bureau of Consumer Credit Protection of the Maine Department of Professional and Financial Regulation has set up a specific license for legal funders.
Maine’s statute has two provisions that are not included in the Ohio statute. It prohibits requiring mandatory arbitration to resolve contract disputes. It also requires that any provision in the contract for recovery of attorney’s fees and costs must apply to both parties to the contract.
Nebraska enacted a statute with similar provisions. A “civil litigation funding company” provides “nonrecourse civil litigation funding,” defined as:
A transaction in which a civil litigation funding company purchases and the consumer assigns the contingent right to receive an amount of the potential proceeds of the consumer’s legal claim to put civil litigation funding company out of the proceeds of any realized settlement, judgment, award, or verdict the consumer may receive in the legal claim.
Like the Ohio and Maine statutes, the Nebraska statute requires that the consumer can cancel the contract within five business days, and it also requires a 12-point boldface statement that the funding company has no right to and will not make any decisions with respect to the underlying legal claim or its resolution. The consumer’s attorney must also sign a detailed acknowledgement similar to the one required by the Ohio statute which includes, among other things, a requirement that the attorney follow the consumer’s instructions in disbursing funds with respect to the nonrecourse civil litigation funding.
Like the other two acts, the Nebraska act does not limit the fees which the civil litigation funding company can charge, but the fees are limited to the first 36 months. Unlike the other statutes, the Nebraska act requires the civil litigation funding company to compound the fees at least semi-annually, but not based on a shorter time period. The nonrecourse litigation funding contracts must disclose, among other things, an itemization of one-time fees, a schedule of repayments in six-month intervals, the amount of any broker fees involved, and the annual percentage rate of return.
The Nebraska statute contains a specific provision that communications between the attorney and the funding company may not “limit, waive, or abrogate the scope or nature of any statutory or common-law privilege, including the work-product doctrine and the attorney-client privilege.” The statute also provides that if there is a contract dispute between the consumer and the funding company, “the responsibilities of the attorney representing the consumer and the legal claim shall be no greater than the attorney’s responsibilities under the Nebraska Rules of Professional Conduct.”
Like the Maine statute, the Nebraska statute requires that nonrecourse civil litigation funding companies be registered by the Secretary of State and pay registration and renewal fees. The Nebraska Secretary of State has issued a single regulation which sets the amount of the fees for registration and renewal.
More recently, Oklahoma enacted a litigation funding statute which it added to its Uniform Consumer Credit Code. A “consumer litigation funder” is a person who enters into a “consumer litigation funding agreement,” defined as:
- under which money is provided to or on behalf of a consumer by a consumer litigation funder for a purpose other than prosecuting the consumer’s legal claim and
- the repayment of the money is in accordance with a litigation funding transaction the terms of which are included as part of the consumer litigation funding agreement;
As in the Ohio, Nebraska and Maine statutes, a “litigation funding transaction” is defined as:
A non-recourse transaction in which the consumer litigation funder purchases, and the consumer assigns to the funder, a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award, or verdict obtained in the consumer’s legal claim;
The Oklahoma statute contains several counterparts to the other statutes. It provides the consumer with a right to cancel the consumer litigation funding agreement within five business days, and the agreement must make required disclosures about the right to cancel. The agreement must disclose the amount to be paid to the consumer, an itemization of one-time charges, a total of those two amounts as the amount to be assigned by the consumer, and a payment schedule listing dates and amounts due in 180-day increments until the due date of the maximum amount due the funder, although there is no maximum due date beyond which charges cannot be increased, unlike the 36-month limit in Ohio and Nebraska and the 42-month limit in Maine.
As in the other statutes, the consumer litigation funding agreement must also disclose that the litigation funder “may not participate in deciding whether, when, or the amount for which a legal claim is settled,” and, that the funder “may not interfere with the independent professional judgment of the attorney handling the legal claim or any settlement of the legal claim.” Unlike the other laws, immediate members of the consumer’s family, the consumer’s accountant and the consumer’s attorney are excluded from having to comply with the requirements of the law.
The Oklahoma statute includes licensing and bonding provisions for consumer litigation funders, and provides prohibitions and penalties specifically directed to consumer litigation funders. As in Maine and Nebraska, but not in Ohio, the Oklahoma Department of Consumer Credit has set up a specific license for litigation funders.
Tennessee enacted a litigation funding statute which resembles the other four statutes, except that unlike the others, it places a 10% cap on the annual fees that can be charged, and it prohibits assignment of litigation funding contracts to third parties. One large litigation funder announced that it would no longer do business in Tennessee as of the effective date of the statute on July 1, 2014 because the assignment prohibition and other provisions of the statute would interfere with its ability to obtain funding from banks and other sources. Those provisions may also cause other litigation funders to avoid doing business in the state.
The Tennessee statute defines a “litigation financier” as a person who is “engaged in the business of litigation financing.” “Litigation financing” and “litigation financing transaction” have the following definition:
(A) Means a non-recourse transaction in which financing is provided to a consumer in return for a consumer assigning to the litigation financier a contingent right to receive an amount of the potential proceeds of the consumer's judgment, award, settlement or verdict obtained with respect to
the consumer's legal claim; and
(B) Does not include:
(i) Legal services provided on a contingency fee basis, or advanced legal costs, where such services or costs are provided to or on behalf of a consumer by an attorney representing the consumer in the dispute and in accordance with the Tennessee Rules of Professional Conduct;
(ii) A commercial tort claim as defined by § 47-9-102; or
(iii) A claim under the Workers' Compensation Law, compiled in title 50, chapter 6.
The statute requires litigation financiers to register with the state, and file a $50,000 surety bond. As under the other statutes, litigation financiers must provide a written contract that allows the consumer to rescind the contract within five business days without penalty. If the consumer is represented by an attorney in the underlying case, the attorney must execute a written acknowledgement which includes a provision that the attorney has not received or paid a referral fee or other consideration from the litigation financier and will not do so in the future. Litigation financiers are prohibited from paying commissions or referral fees to attorneys or anyone else and from accepting commissions or referral fees, and are further prohibited from referring consumers to attorneys or health care providers. Arbitration clauses and jury waiver provisions are prohibited.
The Tennessee statute specifies disclosures that must be made in 14-point, bold font concerning the amount of money to be provided to the consumer, the maximum amount of fees that can be charged, the consumer’s right to cancel the contract, a statement that the litigation financier “has no right to and will not make any decisions about the conduct” of the underlying case, and that the consumer is not responsible for any payment to the litigation financier if not enough money is recovered in the underlying case to cover what is owed. With respect to fees, the litigation financier cannot charge an annual fee of more than 10% of the original amount of money provided to the consumer. In addition, the contract is limited to a term of three years and fees other than the annual fee, including underwriting and organization fees, are limited to $360 per year for up to three years for each $1,000 of the unpaid principal amount of the funds advanced. The provisions concerning the annual fee and the maximum yearly fee are to take effect on July 1, 2015, one year after the effective date of the other provisions of the statute.
Securing the Plaintiff’s Promise to Pay by Assignment of the Proceeds
Once past the hurdle of potential voidness under the doctrines of champerty and maintenance or for other public policy reasons, and no statute has been enacted to expressly legalize consumer litigation funding, the next issue for a litigation funder is how to secure payment on the plaintiff’s promise to pay. Even if the underlying agreement to pay is not void on public policy grounds and is therefore enforceable generally, the means to secure payment can present other problems.
Litigation funding agreements are commonly secured by the litigation funder being given an assignment of part of the proceeds of the lawsuit by the plaintiff sufficient to pay off the amount due to the funder under the agreement, to the extent that enough is recovered in the underlying litigation to cover it. As noted above, in the five states where statutes concerning litigation funding have been enacted, the litigation funder’s contractual right to receive a portion of the proceeds of a judgment or settlement is expressly recognized. This creates a right similar to attorneys’ or physicians’ liens which have been created by statute. In the absence of such a statute, an assignment of part of the proceeds can operate as a contractual form of lien between the parties. However, not all such assignments have been recognized by the courts.
The key issue here for consumer litigation funding agreements is whether the courts will recognize an assignment of the proceeds of the plaintiff’s lawsuit so that it can be legally enforced. The courts universally hold that a litigant may not assign the claim itself to a third party since to do so would violate public policy, on grounds of champerty and maintenance. Where the assignment is not of the claim itself but of the proceeds of the claim, some courts have found that the assignment will be recognized, but some have not.
In Leon v. Martinez, for example, the New York Court of Appeals held that a funder can be assigned a percentage of the recovery in a personal injury suit and enforce the assignment against the plaintiff’s attorney who receives the funds. The court ruled that a plaintiff who has made an assignment of part of the proceeds is no longer entitled to receive those funds, finding that nothing in the New York Rules of Professional Conduct required the attorney to act otherwise because the rules only govern the attorney’s handling of funds which the client is entitled to receive. Thus, to the extent that the client has assigned the funds to the litigation funder, the client’s entitlement to receive the proceeds of a case ends.
The same result has been reached in a number of other cases, which typically involve assignments of the proceeds of suit to pay medical expenses in states which have not enacted statutory liens that protect healthcare providers’ fees rather than litigation funding agreements. For example, in Hernandez v. Suburban Hospital Ass’n, the Maryland Court of Appeals held that the plaintiff’s assignment of the proceeds of his suit to pay his medical expenses was not the same thing as an assignment of the suit itself, and therefore was permissible. Several other courts have reached the same result, including Grossman v. Schlosser, where the court applied an 1882 decision by the New York Court of Appeals in Williams v. Ingersoll, in which that court permitted an assignment of a portion of the proceeds of the case to pay attorney’s fees on a contingent basis.
Other courts have declined to recognize such a distinction, however. For example, the Indiana Supreme Court ruled in Midtown Chiropractic v. Illinois Farmers Ins. Co. that an assignment of the proceeds of a lawsuit was just as much against public policy as an assignment of the suit itself, even to pay medical expenses. The court took note of the fact that the legislature had changed the common law to allow liens for some healthcare providers, but not for the category of provider that was involved in the suit, which evidenced a legislative determination on public policy that the majority of the court felt compelled to recognize. Several other courts have reached the same result.
The Idaho Industrial Commission reached a similar conclusion in Industrial Commission v. Oasis Legal Finance, L.L.C. In three consolidated cases, a litigation funder had advanced funds to injured workers in exchange for an assignment of the right to receive a portion of the proceeds of their worker’s compensation claims. When the commission learned of the assignments, it invoked its obligation to determine whether, despite the lack of any objection by the workers, settlements were being made in the workers’ best interests. The commission found that the specific language of the non-assignment provision in the Idaho worker’s compensation law prohibited both the assignment of a claim and an assignment of the proceeds of a claim, unlike similar non-assignment provisions in other states’ worker’s compensation laws. The commission therefore found that the assignments were invalid, although it allowed the litigation funder to recover the principal amounts of its advances in order to prevent the workers from receiving a windfall.
Securing Payment by a Letter of Direction to the Attorney
An assignment of the proceeds of a lawsuit, even if recognized as valid, is not self-executing. Another avenue for securing payment on the plaintiff’s promise to pay a portion of the proceeds is to have the plaintiff execute a letter of direction to the attorney to distribute the agreed upon portion of the suit proceeds directly to the funder. At the same time that the Midtown Chiropractic court held that an assignment of the proceeds was void as against public policy, it noted that if the plaintiff’s attorney agrees to the client’s direction to distribute proceeds, the Indiana Rules of Professional Conduct require the attorney to follow through. The litigation funder in the Idaho Industrial Commission case used an irrevocable letter of direction executed by both the funding recipients and their attorneys to secure payment of its litigation funding advances.
A client’s letter of direction requiring the attorney to distribute a portion of the proceeds of a settlement or judgment to the litigation funder should be found to be irrevocable, rather than revocable at the client’s will, because it is a form of agency coupled with an interest. This doctrine goes back to Chief Justice Marshall’s opinion in Hunt v. Rousmanier’s Adm’r, where the Supreme Court held:
As the power of one man to act for another, depends on the will and license of that other, the power ceases when the will, or this permission, is withdrawn. The general rule, therefore, is, that a letter of attorney may, at any time, be revoked by the party who makes it; and is revoked by his death. But this general rule, which results from the nature of the act, has sustained some modification. Where a letter of attorney forms a part of a contract, and is a security for money, or for the performance of any act which is deemed valuable, it is generally made irrevocable in terms, or if not so, is deemed irrevocable in law. Although a letter of attorney depends, from its nature, on the will of the person making it, and may, in general, be recalled at his will; yet, if he binds himself for a consideration, in terms, or by the nature of his contract, not to change his will, the law will not permit him to change it.
In that case, the Court dealt with an estate whose decedent had given a power of attorney over two ships as security for loans where the creditor sought to enforce the powers to sell the ships in order to pay off his loans to the ship owner. Applying the exception to the general rule of revocability discussed in the foregoing excerpt would not have made the power effective since it would not be enforceable in a court of law after the person who executed the power died. As the Court put it, “this power, although a complete security during the life of Rousmanier, has been rendered inoperative by his death.” However, the Court held that the power was nevertheless enforceable by courts of equity because they had the power to remedy a mistake of law, in this case, a mistake as to the effectiveness of a power after the death of the decedent. Thus, the power of attorney that was given as security for loans was held not only to be irrevocable because it was coupled with an interest as a result of the consideration given for it, but also to survive death, and was found to be enforceable against the estate.
This doctrine continues in full force today. If a letter of direction is given to the plaintiff’s attorney in the underlying personal injury case in connection with and as security for the amounts advanced to the plaintiff by a litigation funder, it is coupled with the funder’s financial interest. Courts should therefore find it to be irrevocable by its nature.
Determining Whether a Litigation Funding Agreement Is a “Loan”
Since a consumer litigation funding agreement involves providing a consumer with money under a contract to repay it plus a charge for the funding, the transaction resembles a loan. If it is found to be a “loan”’ in the legal sense of the term, there are significant ramifications. Loans to consumers are tightly regulated under state laws which require lenders to be licensed by state authorities and place numerous restrictions on what form loans may take. In addition, the Truth in Lending Act and Regulation Z promulgated thereunder impose a detailed disclosure regimen on consumer loans which must be strictly complied with. State usury laws place limits on what interest may be charged on loans. Thus, if a consumer litigation funding agreement is made in the form of a nonrecourse loan that is due upon termination of the underlying personal injury case (the “loan model”), it is subject to many limitations that must be carefully observed by the litigation funder.
For these reasons, although some consumer litigation funding agreements follow the loan model, such agreements are frequently drafted in the form of an assignment of a portion of the proceeds of the case for a fee (the “assignment model”). This is done with the intention of avoiding the agreements being classified as loan documents. In the Idaho Industrial Commission case, for example, the litigation funder’s general counsel testified that the litigation funding agreement was not a loan because “a true loan creates an obligation for the repayment of a debt certain, whereas the Oasis purchase agreement creates an obligation only upon the occurrence of certain contingencies.”
If the agreement is not a “loan,” the litigation funder can avoid licensing requirements for consumer lending, it will not have to make disclosures that are required under federal or state laws for loans, and it may not be subject to state usury laws. This can be particularly important given the high charges which are often made under litigation funding agreements for advancing money to the consumer. Whether an agreement which follows the assignment model rather than the loan model nevertheless qualifies as a “loan” under state law accordingly becomes critically important. For example, one litigation funder was charged in Maryland with operating as an unlicensed lender. It entered into a consent order with the state financial regulator under which it agreed to stop entering into litigation funding agreements with Maryland residents and to collect only the rate of return set by law for loans on existing contracts.
The answer to this question requires looking at some fundamental issues, starting with the definition of “loan.” The term is defined in Black’s Law Dictionary as: “A thing lent for the borrower’s temporary use; esp., a sum of money lent at interest.” Another definition by one court is: “a loan is money borrowed, to be paid back at all events.” A definition by another court is: “A loan of money is a contract by which one delivers a sum of money to another and the recipient agrees to return at a future time an equivalent sum either with or without interest or other legitimate charges.”
The definition of “loan” becomes important because state licensing laws for consumer lenders depend on what kind of transaction meets the definition. For example, the Illinois Consumer Installment Loan Act requires licensure if a person “engage[s] in the business of making loans” in the state without defining the term “loan.” Similarly, the Illinois Payday Loan Reform Act defines a “loan agreement” for a payday loan as “a written agreement between a lender and a consumer to make a loan to the consumer,” requiring licensure under that statute, again without defining the term “loan.” Accordingly, one must look to common law to determine whether the transaction in question is a loan.
Likewise, the definition of “interest” must be examined because state usury laws impose draconian penalties for loan transactions in which the interest charged exceeds the legal rate. Black’s Law Dictionary defines “interest” as:
The compensation fixed by agreement or allowed by law for the use or detention of money, . . .; esp., the amount owed to a lender in return for the use of borrowed money.
One court defines “interest” in a similar fashion:
Interest is the compensation that a debtor pays to his creditor in recompense for his detention of a debt. . . . Just as a tenant pays rent for the use of property, a debtor pays interest for the use of other money.
Decisions in several cases have turned on these distinctions. In Rancman, for example, the decision in the Ohio Court of Appeals against the litigation funder turned on the common law definition of “loan” as:
A contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which he borrows; the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. If such is the intent of the parties, the transaction will be considered a loan without regard to its form.
The litigation funding agreement was found by that court to be a loan “because no real probability existed that non-payment would occur.” The court therefore found, as a result, that the defendant’s funding agreements were subject to the licensing requirements of the Ohio Small Loan Act.
The Michigan Court of Appeals issued a similar ruling in Lawsuit Financial, L.L.C. v. Curry. The plaintiff funder made “non-recourse cash advances” totaling $177,500 during the course of the defendant’s personal injury case, which resulted in a settlement of $4.7 million. The funder sought to recover $887,500 on its litigation funding agreement, which was the minimum amount set in the agreement. The trial court granted summary judgment dismissing the funder’s suit to recover that amount. The court of appeals affirmed, finding that the funder’s “contingent advances” were really a loan because at the time that the advances were made, the funder had an absolute right to repayment because the personal injury defendant had admitted liability so only the amount of the tort recovery remained to be determined. Viewed as a loan, the interest rate in the litigation funding agreement was clearly usurious and the plaintiff funder was barred from recovering any interest.
As noted above, the North Carolina Court of Appeals took a different view of whether the litigation funding agreement before it was a “loan” because there was no absolute requirement to repay the obligation if the underlying lawsuit was not successful. Nevertheless, the funder’s “advance” was found to be subject to the usury statute, and it was found usurious because it exceeded the limits of the statute. The Odell funder was also found to be subject to the licensing requirements of the North Carolina Consumer Finance Act, and its failure to have a license created liability under the statute.
The assignment model for litigation funding was approved in Anglo-Dutch Petroleum Int’l, Inc. v. Haskell, which involved a series of commercial litigation funding agreements where the defendant had given an assignment of proceeds from its lawsuit to recover $650,000,000 for misappropriation of trade secrets to raise a total of $560,000 for litigation expenses. The plaintiff funder sued to recover on the funding agreements after the defendant refused to pay and got a summary judgment that was affirmed on appeal. The defendant asserted that the litigation funding agreements violated the Texas usury law because there was no real contingency involved in the agreements, which were structured as payments for partial assignments of the defendant’s litigation claim, and even if there was a contingency, the agreements were no longer contingent after the underlying case settled. The Texas Court of Appeals found that in order to qualify as “usury,” there must be an absolute obligation to repay as well as a loan of money at too high an interest rate, and the contingent nature of the agreements showed that they were different from a loan. Since there was no “loan,” there was no “interest” being charged either.
The court also found that the agreements did not violate Texas public policy against champerty because under Texas law, being “champertous in nature” as the defendant claimed the agreements were does not make an agreement automatically void. There was no evidence to show that the funder had preyed on a financially desperate plaintiff since the plaintiff had solicited the funding after it failed to obtain a conventional loan to pay for its litigation expenses. In addition, there was nothing in the litigation funding agreements that permitted the funder to select counsel for the plaintiff, to direct trial strategy, to participate in settlement discussions or to pay for trial counsel. There was also nothing in the agreements that would act to increase or prolong litigation because a funder “would be unlikely to invest funds in a frivolous lawsuit, when its only chance of recovery is contingent upon the success of the lawsuit,” and “the manner in which the agreements were structured may actually have encouraged settlement.”
However, in one recent case where consumer litigation funders followed the assignment model by structuring their agreements as an assignment for a fee, as opposed to a loan, the court found against the funders. In Oasis Legal Finance Group, LLC v. Suthers, the two plaintiff litigation funders sought a declaratory judgment against the Colorado Attorney General and the Administrator of the Colorado UCCC finding that the contracts under which they provided money to tort plaintiffs were not “loans” governed by the Colorado UCCC. The trial court found in favor of the Administrator on summary judgment and certified the ruling for appeal. The Colorado Court of Appeals, affirming the summary judgment, found that the definition of “loan” under the UCCC includes “[t]he creation of a debt by the lender’s payment of or agreement to pay money to [a] consumer,” that the word “debt” was not to be given a narrow interpretation, and that no unconditional obligation to repay the money was required to make the transaction a “loan.” The court found that the transactions with the litigation funders “constituted loans because even though the tort plaintiffs’ debts to the funders were not fixed at the time they signed litigation funding agreements,” the debts “could become fixed in the future depending on the results of the tort actions.” The court found that several cases from other states, including Anglo-Dutch Petroleum, were inapposite because they dealt with issues of whether an agreement was usurious and the case at bar did not raise any issue about usury.
The Kansas Supreme Court reached a similar conclusion under the Kansas UCCC in Decision Point, Inc. v. Reece & Nichols Realtors, Inc. In that case, two real estate agents got cash advances from a funder for an assignment of a percentage of their anticipated commissions. The trial court found that the UCCC precluded assignment of the real estate agents’ earnings. On appeal, the funder asserted that the Uniform Commercial Code (“UCC”) applied rather than the UCCC, and that the UCC allowed such a transaction. The question of whether the UCC or the UCCC applied turned on whether the transactions constituted “consumer loans” subject to the Kansas UCCC. The court found that that the transactions did qualify as consumer loans because the debtors were acting as individuals rather than as a brokerage firm when their debts to the funder were created, and they used their commissions “primarily for personal living expenses.” The transactions were also subject to a finance charge because the cash advances were discounted on a variable rate depending on when real estate transactions were scheduled to close that would produce commissions to pay off the cash advances, and the advances did not exceed the $25,000 limit on consumer loans in the statute. Since the funding transactions constituted “consumer loans,” the funder was found to have violated a Kansas statute which prohibited the assignment of future earnings as security for the repayment of consumer debt.
In the absence of a statute like those which have been enacted in Ohio, Maine, Nebraska, Oklahoma and Tennessee that recognize and regulate consumer litigation funding agreements, it is difficult to predict with a high degree of confidence whether the courts will agree that a litigation funding agreement that follows the assignment model instead of the loan model, being structured as an assignment of proceeds from a lawsuit in exchange for a substantial fee that varies over time, does not constitute a “loan” subject to regulation as such. Even if the courts of a particular state do not find that public policies against champerty and maintenance or gambling contracts bar consumer litigation funding agreements, they may still be troubled if litigation funders fail to comply with state law requirements for consumer loans.
Consumer litigation funding is a growing business, but its expansion beyond the five states which have enacted statutes that expressly permit it or other states where the courts have ruled that litigation funding agreements are legal and enforceable is faced with a number of uncertainties. Case law on champerty and maintenance continues to operate as a bar to such agreements in several jurisdictions. In others, the agreements may not be barred on public policy grounds, but they face other legal obstacles. If the agreement is drafted on the assignment model, courts may determine that it is really a disguised loan made by an unlicensed lender which lacks the disclosures required of loans by federal and state law, and it may exceed the legal interest rate as well. If the funder proceeds on the loan model, it must obtain the proper lending license from the state, and conform the terms of the loan to the limitations placed by state law on it. In addition, other state case law may prohibit a litigation funder from taking an assignment to secure the loan. However, it appears that an irrevocable letter of direction from the client to the attorney to distribute proceeds from the litigated claim to pay off a consumer litigation funding agreement made in connection with such an agreement will be enforceable.
The statutes which have been enacted to date appear to provide appropriate protections to consumers who enter into litigation funding agreements in terms of guarding against agreements that are overreaching. With respect to the high cost for litigation funding services, most of the statutes have opted for a disclosure regimen which is designed to inform the consumer what the cost is, as opposed to placing a limit on the fees that can be charged, except to cap the time period over which fees can increase after a contract is entered into.
 See, e.g., Aaron Katz & Steven Schoenfeld, Third-party Litigation Financing: Commercial Claims as an Asset Class, Practial Law The Journal | Litigation 18 (July/Aug. 2013); Leigh Jones, Another Litigation Finance Firm Opens Its Doors, Nat’l L.J. (Apr. 8, 2013), available at http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202595145560 (Chicago-based litigation financing company with $100 million in capital set up to make $5 million investments in commercial cases).
 See Joan C. Rogers, Law Firm Wins Dismissal of Suit by Client Whose Litigation Loans Ate Up Settlement, Bloomberg BNA (Jan. 13, 2013), available at http://www.bna.com/law-firm-wins-n17179872101/. However, in a Michigan case, the court did not allow the funder to recover a minimum contract amount of $887,500 for cash advances totaling $177,500. See Lawsuit Funding, L.L.C. v. Curry, 261 Mich. App. 579, 683 N.W.2d 233 (2004), discussed infra at notes 162-65.
 The American Bar Association has published a lengthy white paper on the ethical issues surrounding what it terms “alternative litigation finance,” which covers both commercial and consumer litigation funding agreements. See generally Am. Bar Ass’n, Commission on Ethics 20/20 Informational Report to the House of Delegates (Feb. 2012) [hereinafter ABA Report] at 1, 5, available at http://www.americanbar.org/content/dam/aba/administrative/ethics_2020/20111212_ethics_20_20_alf_white_paper_final_hod_informational_report.authcheckdam.pdf.
 See, e.g., Fastenau v. Engel, 125 Colo. 119, 122, 140 P.2d 1173 (1952) (“Common-law maintenance and champerty no longer exist in Colorado”).
 See generally ABA Report, supra note 3, at 9-12.
 Black’s Law Dictionary at 292 (4th ed. 1968) (citing Small v. Mott, 22 Wend. (N.Y.) 405 (1839); Gilman, Son & Co. v. Jones, 87 Ala. 691, 5 So. 785 (1888)).
 Id. at 1106 (citing Wickham v. Conklin, 8 Johns. (N.Y.) 220).
 Black’s Law Dictionary at 262 (9th ed. 2009) (noting that the courts disagree on what constitutes champerty).
 See, e.g., Ga. Code § 13-8-2(a)(5) (contracts of champerty also prohibited); Miss. Code § 97-9-11.
 720 Ill. Comp. Stat. 5/32-12.
 Black’s Law Dictionary at 1195 (9th ed. 2009).
 Id. at 170 (9th ed. 2009) (noting that barratry is a crime in most jurisdictions).
 720 Ill. Comp. Stat. 5/32-11. See also S.C. Code § 16-17-10. Montana and New York prohibit attorneys, but not others, from buying claims for the purpose of filing suits, although the New York provision allows referral fees and has other exceptions. See Mont. Stat. § 37-61-408; N.Y. Consol. Laws § 488.
 682 N.W.2d 671 (Minn. App. 2004).
 Id. at 677-78 (applying Huber v. Johnson, 68 Minn. 74, 70 N.W. 806 (1897); Hackett v. Hammel, 185 Minn. 387, 241 N.W. 68 (1932)).
 Id. at 677.
 Id. at 677-78.
 Id. at 679-80.
 Id. at 681.
 99 Ohio St. 3d 121, 789 N.E.2d 217 (2003).
 Id. at 122.
 Id. at 122-23.
 Id. at 123 (citing Key v. Vatier, 1 Ohio 132, 136, 143 (1823)).
 Id. (citing Brown v. Ginn, 66 Ohio St. 316, 64 N.E. 123 (1902)).
 Id. at 124.
 Id. at 125.
 798 A.2d 901 (R.I. 2002).
 Id. at 905 (citing Hardick v. Homol, 795 So. 2d 1107, 1110-11 (Fla. App. 2001)); Alexander v. Unification Church of America, 634 F.2d 673, 678 (2d Cir. 1980) (New York law); Security Underground Storage, Inc. v. Anderson, 347 F.2d 964, 969 (10th Cir. 1965) (Kansas law); McCullar v. Credit Bureau Systems, Inc., 832 S.W.2d 886, 887 (Ky. 1992); Tosi v. Jones, 685 N.E.2d 580, 583 (Ohio App. 1996); Saladini v. Righellis, 426 Mass. 231, 687 N.E.2d 1224, 1227 (Mass. 1997); Rice v. Farrell, 28 A.2d 7 (Conn. 1942).
 Id. at 906 (citing Kelley v. Blanchard, 31 R.I. 57, 82 A. 728 (1912); Martin v. Clarke, 8 R.I. 389 (1866)). See also Hall v. State, 655 A.2d 827 (Del. Super. 1994) (citing Gibson v. Gillespie, 152 A. 589, 593 (Del. Super. 1928); Bayard v. McLane, 3 Del. (3 Harr.) 139, 208, 213 (Del Super. 1840) (agreement to assign the right to recover currency and an automobile seized by police is void as champerty).
 426 Mass. 231, 687 N.E.2d 1224 (1997).
 Id. at 232.
 Id. at 233.
 Id. at 234 (citing Thurston v. Percival, 1 Pick. 415, 416-17 (1823)).
 Id. at 235-36.
 Id. at 234 (citing Joy v. Metcalf, 161 Mass. 514 (1894)).
 340 S.C. 367, 532 S.E.2d 269 (2000).
 Id. at 369, 373 (citing State v. Chitty, 17 S.C. Law (1 Bail.) 379, 400 (1830)).
 Id. at 374-81.
 Id. at 380-81.
 Id. at 382-83.
 795 So. 2d 1107 (Fla. App. 2001).
 Id. at 1110-11 (citing Alexander v. Unification Church of Am., 634 F.2d 673, 678 (2d Cir. 1980) (New York law); Security Underground Storage, Inc. v. Anderson, 347 F.2d 964, 969 (10th Cir. 1965) (Kansas law); McCullar v. Credit Bureau Systems, Inc., 832 S.W.2d 886, 887 (Ky. 1992)).
 Id. at 1111.
 Id. at 1111-12.
 653 F.3d 1145 (9th Cir. 2011).
 Id. at 1155-57.
 688 So. 2d 265 (Ala. App. 1996).
 Id. at 269-70.
 Id. at 268.
 Id. at 270.
 192 N.C. App. 298, 665 S.E.2d 767 (2008).
 Id. at 303.
 Id. at 304.
 Id. at 306.
 Id. at 307-11.
 Id. at 312-13.
 Id. at 314-17.
 Id. at 317-20.
 Ohio Rev. Code § 1349.55(A)(1) (effective Aug. 27, 2008).
 Id. § 1349.55(B)(1).
 Id. § 1349.55(B)(2).
 This avoids issues of officious intermeddling. See supra note 42.
 Id. § 1349.55(B)(3).
 Id. § 1349.55(B)(6).
 Id. § 1349.55(C).
 See http://www.com.ohio.gov/fiin/ (last visited July 16, 2014).
 Maine Rev. Stat. Ann. tit. 9-A, § 12-101 (effective Jan. 1, 2008).
 Id. § 12-102(3).
 Id, § 12-102(2).
 Id. § 12-103(1)-(2).
 Id. § 12-104(1).
 Id. § 12-104(3)-(7).
 Id. § 12-104(9).
 Id. § 12-105(1).
 Id. § 12-105(2).
 Id. § 12-105(3).
 Id. § 12-106.
 See http://www.maine.gov/pfr/consumercredit/licensing/litigation_funding/index.html (last visited July 16, 2014).
 Maine Rev. Stat. Ann. tit. 9-A, § 12-104(8).
 Id. § 12-104(11).
 Neb. Rev. Stat. § 25-3302(1), (4) (effective Apr. 13, 2010).
 Id. § 25-3303(1)(b)-(c).
 Id. § 25-3303(1)(f)(iv).
 Id. § 25-3305(1).
 Id. § 25-3305(2).
 Id. § 25-3303(1)(a).
 Id. § 25-3306.
 Id. § 25-3303(2).
 Id. §§ 25-3308, 25-3309.
 Neb. Admin. Code tit. 433, ch. 5, available at http://www.sos.ne.gov/rules-and-regs/regsearch/Rules/Secretary_of_State/Title-433.pdf (last visited July 16, 2014).
 Okla. Stat. § 14A-3-801(6) (effective May 29, 2013).
 Id. § 14A-3-801(11).
 Id. § 14A-3-806.
 Id. § 14A-3-807(C).
 Id. § 14A-3-807(B).
 Id. § 14A-3-807(D)(1)-(2).
 Id. § 14A-3-802.
 Id. §§ 14A-3-809 through14A-3-813.
 Id. §§ 14A-3-814,14A-3-815.
 See http://www.ok.gov/okdocc/Consumer_Litigation_Funder_/index.html (last visited July 16, 2014).
 Tenn. Code Ann. § 47-51-101 et seq. (effective July 1, 2014).
 Id. § 47-51-110(a).
 Id. § 47-51-105(9).
 Steven R. Strahler, “Too Poor to Sue? These Guys Could Help,” Crain’s Chicago Business, at 1 (July 21, 2014); see “Law Financing Company to Leave Tennessee,” Knoxnews.com (July 1, 2014), available at http://www.knoxnews.com/news/2014/jul/01/lawsuit-loan-company-to-leave-state-after-new/.
 Tenn. Code Ann. § 47-51-102(2).
 Id. § 47-51-102(3).
 Id. § 47-51-103(a).
 Id. § 47-51-103(b).
 Id. § 47-51-104(1)-(2).
 Id. § 47-51-104(4).
 Id. § 47-51-105(1)-(2),(4).
 Id. § 47-51-105(7).
 Id. § 47-51-106.
 Id. § 47-51-110(a).
 Id. § 47-51-110(c).
 Tenn. Pub. Ch. No. 819, §3.
 See, e.g., Hernandez v. Suburban Hosp. Ass’n, 319 Md. 226, 233-34, 572 A.2d 144 (1990) (citing cases).
 84 N.Y.2d 83, 638 N.E.2d 511, 614 N.Y.S.2d 972 (1994).
 Id. at 88.
 Id. at 89-90.
 319 Md. 226, 235, 572 A.2d 144 (1990).
 Id. at 235.
 19 App. Div. 2d 893, 244 N.Y.S.2d 749 (1963).
 89 N.Y. 508, 520-21 (1882).
 19 App. Div. 2d at 893-94, 244 N.Y.S.2d at 750-51 (1963) (noting subsequent New York statute codifying common law rule that prohibits transferring a personal injury cause of action). See also Block v. Calif. Physicians’ Serv., 244 Cal. App. 2d 266, 271-73, 53 Cal. Rptr. 51, 53-55 (1966); Achrem v. Expressway Plaza Ltd. P’ship, 112 Nev. 737, 741, 917 P.2d 447, 448 (1996); Charlotte-Mecklenberg Hosp. Auth. v. First of Ga. Ins. Co., 340 N.C. 88, 91, 455 S.E.2d 655, 657 (1995); In re Musser, 24 B.R. 913, 920-21 (W.D. Va. 1982) (Virginia law).
 847 N.E.2d 942 (Ind. 2006).
 Id. at 947.
 Id. at 946-47. See also State Farm Mut. Auto. Ins. Co. v. Estep, 873 N.E.2d 1021 (Ind. 2007), where the court held that a chose in action consisting of a claim for legal malpractice cannot be assigned on grounds of public policy.
 See, e.g., Karp v. Speizer, 132 Ariz. 599, 601, 647 P.2d 1197, 1199 (Ariz. App. 1982); S. Farm Bureau Cas. Ins. Co. v. Wright Oil Co., 248 Ark. 803, 809, 454 S.W.2d 69 (1970); Town & Country Bank of Springfield v. Country Mut. Ins. Co., 121 Ill. App. 3d 216, 218-19, 459 N.E.2d 639, 640-41 (1984); Quality Chiropractic, PC v. Farmers Ins. Co. of Am., 132 N.M. 518, 529, 51 P.3d 1172, 1183 (N.M. App. 2002); Harvey v. Kleman, 65 Wash. 2d 853, 858, 400 P.2d 87, 90 (1965).
 No. 2007-028248, 2012 WL 369798 (Idaho Ind. Comm. Jan. 13, 2012).
 Id. at *8-9 (citing Idaho Code § 72-404).
 Idaho Code § 72-802, which provides:
Compensation not assignable — Exempt from execution. No claims for compensation under this law, including compensation payable to a resident of this state under the worker’s compensation laws of any other state, shall be assignable, and all compensation and claims therefor shall be exempt from all claims of creditors, except the restrictions under this section shall not apply to enforcement of an order of any court for the support of any person by execution, garnishment or wage withholding under chapter 12, title 7, Idaho Code.
 Idaho Indus. Comm’n, 2012 WL 369798, at *10-14 (citing Williams v. Blue Cross of Ida., 2011 Idaho 126, 260 P.3d 1186, 1193 (2011); distinguishing Ky. Emp’r Mut. Ins. Co. v. Novation Capital, LLC, 2011 WL 832316 (Ky. App. Feb. 25, 2011), and Rapid Settlements LTD’s Application for Approval of Structured Settlement Rights v. Symetra Assigned Benefits Serv. Co., 133 Wash. App. 350, 136 P.3d 765 (2006) (North Carolina law)).
 Id. at *14-15.
 847 N.E.2d at 947-48.
 See 2012 WL 396798, at *3.
 8 Wheat. (21 U.S.) 174 (1823).
 Id. at 202-03.
 Id. at 210.
 Id. at 211-16.
 See, e.g., Farns Assoc. v. S. Side Bank, 93 Ill. App. 3d 766, 773, 417 N.E.2d 818 (1981) (“[s]uch a power of negotiation coupled with an interest is from its very nature irrevocable”) (citing Babcock v. Chicago Ry., 325 Ill. 16, 31-32, 155 N.E. 773 (1927) (“[w]here an authority or power is coupled with an interest or is given as a security it is from its very nature irrevocable unless there is an express stipulation that it may be revoked”)); Sarohkan v. Fair Lawn Mem. Hosp., 83 N.J. Super. 127, 135, 199 A.2d 52 (1964) (“[t]he law has recognized, as an exception to the general rule, that ‘an agency coupled with an interest’ cannot be revoked by the principal during the term fixed for its existence”) (citing Hunt v. Rousmanier’s Adm’r, 8 Wheat. (21 U.S.) 174 (1823); Chapman v. Bates, 61 N.J. Eq. 658, 665 (1900)).
 Pub. L. No. 90-321, 82 Stat. 146 (codified as amended at 15 U.S.C §§ 1601-1667f (2012)).
 12 C.F.R. pt. 1026 (2013).
 See generally R. Rohner & F. Miller, Truth in Lending (3d ed. 2014) (2 vols.).
 See generally ABA Report, supra note 3, at 12-13.
 2012 WL 396798, at *7.
 In the Matter of Oasis Legal Finance, LLC, No. DFR-EU-2008-241, 2009 WL 7228842 (Md. Comm. Fin. Reg. Aug. 6, 2009).
 Id. at *2.
 Black’s Law Dictionary at 1019 (9th ed. 2009).
 Beebe v. Kirkpatrick, 321 Ill. 612, 617, 152 N.E. 539 (1926).
 Wayne Pump Co. v. Dep’t of Treasury, 232 Ind. 147, 156, 110 N.E.2d 284, 287 (1953).
 205 Ill. Comp. Stat. 170/1.
 815 Ill. Comp. Stat. 122/1-10, 3-3.
 See, e.g., 815 Ill. Comp. Stat. 205/6 (usury violation entitles injured party to recover twice the interest paid or payable under the agreement, whichever is greater, plus attorneys fees and court costs). See generally John L. Ropiequet & Eugene J. Kelley, Jr., Usury Strikes Back: Recent Developments Under the Illinois Interest Act, 50 Cons. Fin. L.Q. Rep. 118, 124 (2005) (discussing the Illinois usury provision).
 Black’s Law Dictionary at 886 (9th ed. 2009).
 Carswell v. Rosewell, 150 Ill. App. 3d 168, 173, 501 N.E. 2d 695 (1986).
 Rancman v. Interim Settlement Funding, 2001 Ohio 1669, 2001 Ohio App. LEXIS 4814, at *5 (Ohio App. 2001) (unpublished) (citing Springgate v. Daneman, 32 Ohio App. 279, 283, 167 N.E. 908 (1929)).
 Id. at *8.
 Id. This decision was affirmed by the Ohio Supreme Court on different grounds. See supra text accompanying notes 24-28.
 261 Mich. App. 579, 683 N.W.2d 233 (2004).
 Id. at 586-87.
 Id. at 588-90.
 Id. at 590-91.
 192 N.C. App. at 312-13.
 Id. at 314-17.
 Id. at 317-20.
 193 S.W.3d 87 (Tex. App. 2006).
 Id. at 95.
 Id. at 96.
 Id. at 104.
 Id. at 105.
 __ P.3d __, 2013 WL 2299721 (Colo. App. May 23, 2013), cert. pending, No. 13 SC 497.
 Id. at *1.
 Id. at *2 (citing Colo. Rev. Stat. § 5-1-301 (25)(a)(I); State ex rel. Salazar v. Cash Now Store, Inc., 31 P.3d 161, 166 (Colo. 2001)).
 Id. at *3.
 282 Kan. 381, 144 P.3d 706 (2006).
 Id. at 384.
 Id. at 386-87.
 Id. at 387-88.
 Id. at 389.