Senior Judge Dudley Bowen, U.S. District Court for the Southern District of Georgia. (Photo: John Disney/ALM)

A federal judge in Augusta "reluctantly" dismissed a putative class action against a litigation funder sued over allegations its fees exceeded interest rates allowed under Georgia law, writing he had no choice under a 2018 Georgia Supreme Court decision.

But in dismissing the claims against Oasis Legal Financing, Senior Judge Dudley Bowen also took a swipe at the Georgia justices, writing they may have lost sight of their duty to ensure that practices shown to be against public policy are not allowed to stand.

"Here, the Georgia Supreme Court may have abdicated this responsibility" when it ruled in Ruth v. Cherokee Funding that neither the Payday Lending Act nor the Georgia Industrial Loan Act applied to money advanced by litigation funders because their repayment is contingent upon the success of the underlying case, Bowen said.

The plaintiffs are litigants who secured loans of $3,000 or less from Oasis while their cases were pending. Repayment terms could often require people to pay significantly more than they received from the loan.

The ruling comes after the case was remanded to Bowen by the U.S. Court of Appeals for the Eleventh Circuit last year, which agreed with him that the PLA and GILA offered class actions as a remedy for aggrieved borrowers.

But last week, Bowen said he was forced to conclude that Ruth barred the plaintiffs' claims and granted Oasis' motion for judgment on the pleadings.

"The court must note, however, the passage quoted by the Eleventh Circuit in this case regarding public policy," Bowen wrote. "The Eleventh Circuit observed: 'It is the duty of all courts of justice to keep their eye steadily up on the interests of the public" and "when they find an action is founded up on a claim injurious to the public … to give no countenance or assistance" to it.

The plaintiffs are represented by Savannah lawyers Robert "Bart" Turner of Savage, Turner, Durham, Pinckney & Savage and Jeremy McKenzie and C. Dorian Britt of Karsman, McKenzie & Hart.

Turner said they are preparing to file a motion for reconsideration.

"Judge Bowen is one of the finest jurists in this state and in this circuit," said Turner. "But we respectfully believe that there was no decision by Georgia's appellate courts that meant he had to make this ruling."

"We believe this whole funding scheme is illusory and harmful to citizens of Georgia, to folks who are in desperate need and are being taken advantage of," said Turner. "You take out a $3,000 loan and a few years later you owe $20,000. That's just not right."

Oasis' counsel includes Abby Vineyard of Barnes & Thornburg in Atlanta, and Christine Skoczylas and William McErlean of the firm's Chicago office. They did not respond to a request for comment.

The suit, initially filed in Laurens County Superior Court, accused Oasis of violating the state's usury law, PLA and GILA, which limit the amount of interest on loans less than $3,000 to 10%.

Oasis had the case removed to the Southern District of Georgia, where it argued it should be dismissed because the lending agreements waived any right to class actions and their forum selection clause required any complaint to be filed in Illinois.

Bowen dismissed the usury claims in 2017 but ruled the PLA and GILA directly allowed the use of class actions to settle disputes alleging a pattern of wrongdoing by borrowers of small sums.

He also said Oasis' forum selection clauses violated the PLA, which deemed provisions used to avoid Georgia courts "unconscionable" and in violation of public policy.

The Eleventh Circuit agreed last year. An opinion written by Judge Adalberto Jordan said "American courts have long refused to enforce contractual provisions that contravene public policy."

"The district court's ruling flowed from its conclusion that enforcing class action waivers in this context would allow payday lenders to eliminate a remedy that was expressly contemplated by the Georgia Legislature and thereby undermine the purpose of the statutory scheme," the 2019 ruling said.

Jordan's opinion noted the Georgia justices' Ruth opinion in a footnote, but said that because Oasis had not argued at the time that its funding arrangements were not "loans" under the PLA and GILA, that argument "is not properly before us."

After the case went back to Bowen, Oasis filed its motion for judgment on the pleadings, citing Ruth as a bar to the suit.

The plaintiffs sought permission to amend their complaint "to allege that the repayment obligation of the Oasis agreements is illusory because Oasis never, or virtually never, bore any risk of non-repayment," Bowen's order said.

"Stated another way," he continued, "plaintiffs allege that Oasis's exorbitant interest rate was high enough that the effective risk of loss is zero."

"The problem with plaintiffs' aggregation argument is that this court is obligated to evaluate the adequacy of the PLA claim with respect to each individual plaintiff, that is, on a transaction-by-transaction basis," said Bowen. "The overall profitability of Oasis's business notwithstanding, Oasis bore a real risk with regard to each plaintiff in this case that it would receive nothing if that plaintiff recovered nothing for the personal injury claim."

He noted that the Georgia Supreme Court had contemplated that argument in Ruth and quoted it as saying, "It is unclear whether the outcome of yet-to-be resolved litigation ever can be certain enough to render a contingency based on the result of pending litigation illusory."

"The court therefore is constrained to conclude that the Ruth decision forecloses plaintiffs' claims under the PLA and GILA" and "will apply Ruth as it must," he said.