Litigation financing has arrived in Minnesota, along with generous, some might say unreasonable, “reimbursement rates,” the term used in place of interest.
In the majority opinion and approval, the Supreme Court asked the legislature to intervene.
The state supreme court overturned the ban on guts in 2020 Maslowski v. Prospect Funding Partners LLC. But that was it Maslovsky Iand referring it to the District Court, and then to the Court of Appeal and the Supreme Court.
This issue is alive and well, and is the subject of a 4-3 opinion Maslowski II, decided on August 23. It returned to the Supreme Court on a partial grant of summary judgment in favor of Prospect and a partial grant of Maslowski’s motion for judgment on the pleadings. He was returned to the district court.
The plaintiff was injured in an automobile accident and subsequently entered into a financing agreement with the appellants, borrowing $6,000 for living expenses plus a $1,425 processing fee. The repayment schedule called for an annual rate of 60%. She will not pay back the money if she loses her case.
After prior litigation, previous courts held that the financing agreement was within the usury statute because it provided for an “absolute obligation to repay” under the common law of usury, even though it was conditional on recovery in a personal injury lawsuit. The Supreme Court said this was wrong.
Judge Anne McCaig, writing for the court, said that the repayment was conditional on recovery from the personal injury: “Prospect’s ability to recover the money awarded to Maslowski simply cannot be said to be absolute.” The court also said that the legislature had not determined that usury laws applied to litigation financing agreements, so the common law applied.
But Maslowski also argued that the 60% interest requirement was unreasonable on its face, although that argument was not taken up by either court below.
It will not be taken up now because it was not raised in the solicitation for review or abstracts. The court referred it to the District Court for a decision.
The next issue was the point at which the repo price on the agreement began to accrue. in Maslovsky I, when the public honor code was abolished. It was not clear if the underlying contract would be upheld. The issue was whether the buyback rate started in 2014, when the agreement was implemented, or in 2020, when the sharing principle was no longer relevant.
But as Maslowski II “The only question remaining before us is whether we can amend and rewrite a valid and enforceable agreement and dictate that the repurchase schedule does not begin under the clear terms of the agreement in May 2014, but instead on June 3, 2020,” the court said. When we made our decision Maslovsky I“.
It decided it could not, rejecting Maslowski’s argument that the court, by overturning the participation ban, effectively undermined her vested right to avoid the contract.
The court said that there was no such vested right to evade its contractual obligations or defend usury.
In previous cases, the Court has reasoned that “usury laws are designed to serve broader societal interests by discouraging certain usurious contracts. If societal interests have changed such that there is no longer a broad interest in discouraging such contracts, there is no reason not to bind the contracting party to terms that the party has voluntarily agreed to.” .
The court also said, “The same reasoning applies to Maslowski’s argument that the overturned common law prohibition on titular contracts gave them a perpetual contractual right to avoid paying the buyback amount according to the schedule set forth in the agreement.”
“The mechanism for protecting individual parties from unfair or unfair contracts is the distinct common law principle of unscrupulousness…that is what the District Court will decide on remand,” McKeag wrote.
Objective and procedural unreasonableness
The agreement, which was written by Judge Gordon Moore III, said he had “serious concerns about litigation costs proportionate to the amount in dispute” and agreed that the case should be re-examined to determine whether the 60% rate in the agreement was unreasonable.
The agreement also called for the legislature to consider regulating the litigation finance industry in Minnesota. Moore said litigation funding raises issues of procedural and substantive unreasonableness, in part because of the disparity in bargaining power between the parties. In addition, Moore writes, many people are excluded from participation in the civil legal system, and regulating funding can increase access and equal opportunity.
The agreement raised other issues. “This case is just one example of the fair cases that district courts will face when disputes arise over the enforceability of a litigation funding agreement — concerns that include not only excessive interest rates but also punitive damages clauses and limitations on the attorney-client relationship,” the agreement said. .
Moore said other issues raised by amicus curiae include interference with plaintiffs’ ability to control litigation and settlement.
In his approval, Moore tipped his hat to Charles Dickens and his novel Bleak House, which revolves around a case that has dragged on for years and is “long in court, forever hopeless”. This case regarding the provisions of the trust fund ended when the fund was emptied with court costs.