The Georgia Supreme Court has been asked to decide whether litigation funding agreements amount to illegally high interest loans or investment contracts that reward risk.

Industry groups are focused on the outcome, having filed amicus briefs in support of the litigation funding company being sued.

“It's a monstrous industry,” Darren Summerville of the Summerville Firm told the high court during oral arguments Monday.

Summerville represents Ronald Ruth, Kimberly Oglesby and a potential class of others in the same situation. They were hurt in car crashes and needed money while they waited for their claims to be settled. They hired a lawyer who had them sign powers of attorney, which he used to enter into agreements with Cherokee Funding. Ruth and Oglesby said in their lawsuit they never saw the agreement or had it explained to them.

Ruth received $5,300 for living expenses until his claim settled, after which Cherokee demanded $84,000, according to the lawsuit. Oglesby received $400. When her claim was paid, Cherokee deducted $1,000. Ruth and Oglesby said Cherokee charged a “monthly use fee” of 4.99 percent and compounded that and other add-ons for an annual rate of 80 percent.

“It's illegal, because it's too high an interest rate,” Summerville said.

Representing Cherokee, Laurie Webb Daniel of Holland & Knight argued that the cash advances are not loans at all because they carry no guarantee of repayment. If the claim fails to bring a settlement, Cherokee cannot collect. Instead, she said, the arrangements are high-risk investments that carry a return “due to the inherent uncertainty of litigation.”

But then Daniel accidentally called the deals loans herself. “Excuse me, funding,” she added.
She quickly picked up a point Justice David Nahmias had made earlier in a question: It doesn't matter what the parties call them; they're either loans or not, contracts or not.

That's the question for the justices, who will have to either reverse or affirm a decision by the Georgia Court of Appeals saying the litigation advances are investment contracts and overruling a trial judge who said they were high interest loans.

If Summerville wins, the case will go to trial in Chatham County. “Given the array of artifices that might cleverly camouflage illegal interest, the issue is traditionally one for a jury, and certainly not subject to a motion to dismiss,” Summerville said in his brief.

If Daniel wins the point, the case likely would be tossed—an outcome that would reflect what other courts have done, she said in her brief: “Litigation funding agreements would 'not be void as usurious' because 'there was no guarantee of repayment.'”

The case is Ruth v. Cherokee Funding, No. S17G2021.