The New York Court of Appeals today accepted the following certified questions from the Ninth Circuit regarding usury and litigation funding in Fast Track Investment Company, LLC, v. Sax.
Whether a litigation financing agreement may qualify as a “loan” or a “cover for usury” where the obligation of repayment arises not only upon and from the client’s recovery of proceeds from such litigation but also upon and from the attorney’s fees the client’s lawyer may recover in unrelated litigation?
And, if so, what are the appropriate consequences, if any, for the obligor to the party who financed the litigation, under agreements that are so qualified?
It seems to me that if there were to be a bright-line rule, non-recourse litigation funding is the sort of thing that would not be usury. Here is an article by some litigation funders (not surprisingly) making this argument (subscription required). The only challenge to making a bright line rule is that there are many cases holding that a court has to look at the substance of an agreement, not how the parties describe it, to tell if an agreement is usurious. (See here and here.