The MN Supreme Court rules TPLF agreement’s 60% “repurchase rate”

September 11, 2023 / 33 min read

One of the major issues regarding Third-Party Litigation Funding (TPLF) concerns whether the interest rates charged by litigation funders can, in certain circumstances, be considered excessive, or even legally unenforceable. This very question has been at the heart of an on-going dispute between a plaintiff and her litigation funder in the Minnesota case Maslowski v. Prospect Funding Partners, LLC. for the past several years.

Specifically, the parties in this case have engaged in significant litigation regarding whether the TPLF agreement’s annual “repurchase rate” of 60% is legally enforceable. As discussed more fully below, this case has resulted in several different rulings from the Minnesota state courts thus far, including a 2020 decision from the Minnesota Supreme Court. Now, in a new development, the Minnesota Supreme Court has issued its second ruling on this issue in its new decision, Maslowski v. Prospect Funding Partners, LLC, 2023 WL 5419613 (Minn. 2023).

The author breaks down this latest (and interesting) TPLF opinion from the Minnesota Supreme Court in this case as follows:

Nutshell Summary

In this personal injury action, plaintiff, Pamela Maslowski, entered into a TPLF agreement with defendant, Prospect Funding Partners (“Prospect”). Under the agreement, Prospect paid plaintiff $6,000, along with a processing fee of $1,425, for the right to receive a portion of the proceeds from any recovery in her personal injury lawsuit. As part of the agreement’s repayment schedule, a 30% repurchase rate would accrue on the total ($7,425) every six months for a total annual rate of 60%. Plaintiff was not obligated to repay Prospect if her claim was unsuccessful.

The case eventually settled, but plaintiff refused to repay Prospect arguing that the agreement was not enforceable on various grounds, including that the agreement was champertous, violated Minnesota’s usury statute, and was unconscionable under common-law. Prospect sued plaintiff, her attorney, and her attorney’s firm for breach of contract, and other claims.

The parties have since engaged in significant litigation regarding the enforceability of the agreement before the Minnesota state courts which has resulted in several court rulings to date. The Minnesota district court initially found that the agreement was unenforceable under the champerty doctrine, which was affirmed by the court of appeals. However, in a 2020 decision, the Minnesota Supreme Court reversed finding that the champerty doctrine did not bar enforceability of the agreement. The court, however, remanded the case back to the district court to address plaintiff’s other challenges.

The district court, on remand, ruled, in main part, that the TPLF’s repurchase rate was subject to Minnesota’s usury statute and the court capped the rate at 8% per that statute. The court of appeals affirmed. Prospect then appealed to the Minnesota Supreme Court leading to the supreme court’s new ruling.

On this case’s second appearance before the Minnesota Supreme Court, the court in its new decision, styled as Maslowski v. Prospect Funding Partners, LLC, 2023 WL 5419613 (Minn. 2023), has ruled, in main part, that (i) a repurchase rate charged in a TPLF agreement is not subject to Minnesota’s usury law when repayment of the purchase price is contingent upon recovery in the underlying litigation; and (ii) the rate charged by the funder in this case began to accrue after the agreement was signed, and not after the court’s prior 2020 decision in which the court found that the champerty doctrine did not bar enforceability of the agreement.

However, while the court found that the annual 60% repurchase rate is not subject to Minnesota’s usury statute, it has remanded this case back (again) to the district court, this time for that court to address whether this rate is unenforceable under the common-law doctrine of unconscionability. Thus, we will now need to see how the district court ultimately rules on this question.

As this case heads back to the district court, it is noted that Associate Justice Moore, as part of his separate concurrence, outlines various points for the district court to consider in evaluating whether the TPLF repurchase rate is unenforceable under the common-law doctrine of unconscionability. In addition, it is interesting to note that both the majority opinion, and Justice Moore as part of his concurrence, have invited the Minnesota Legislature to consider addressing whether Minnesota’s usury limits should apply to TPLF agreements, as well as possibly regulating other aspect of TPLF practices.

For those interested in a more in-depth overview, the following is presented:

Background

Plaintiff, Pamela Maslowski, was injured in an auto accident in 2012.^[1]About two years later, facing economic hardship, plaintiff entered into a “Sale and Repurchase Agreement” with the defendant, Prospect Funding Partners, LLC (“Prospect”) to cover her living expenses while she pursued her personal injury action.^[2]Per this agreement, Prospect paid plaintiff $6,000, along with a processing fee of $1,425, in return for the right to receive a portion of the proceeds from any recovery in her personal injury lawsuit.^[3]As part of the agreement’s repayment schedule, a 30% repurchase rate would accrue on the total ($7,425) every six months for a total annual rate of 60%.^[4]Plaintiff was not obligated to repay Prospect if her claim was unsuccessful.^[5] Plaintiff and her counsel reviewed the contract and signed the last page of the agreement certifying that her lawyer had reviewed the terms with her and acknowledged the payment obligations in the event of a settlement.^[6]

Plaintiff eventually settled her case but refused to repay Prospect arguing that the agreement was not enforceable on various grounds, including that the agreement was champertous, violated Minnesota’s usury statute, and was unconscionable under common-law.^[7] In response, Prospect sued plaintiff, her attorney, and her attorney’s firm for breach of contract, and other claims.^[8] Litigation first ensued over whether New York or Minnesota law was applicable under the agreement’s choice of law clause.^[9] It was ultimately determined that Minnesota law applied and the case was moved to Minnesota state court.^[10]The parties have since engaged in significant litigation regarding the enforceability of the TPLF agreement resulting in various court rulings (including two rulings from the Minnesota Supreme Court) as follows:

Prior Court Rulings

Over the past few years, the issue regarding the enforceability of the TPLF agreement has resulted in several different decisions from the Minnesota district court, court of appeals, and Minnesota Supreme Court.

Very generally, this case’s prior roller-coaster history before the courts, leading up to the Minnesota Supreme Court’s latest decision in this case, is outlined as follows:

2019: MN Court of Appeals affirms district court ruling that the TPLF agreement is unenforceable under the champerty doctrine

In 2018, the Minnesota district court found, in main part, that the agreement the TPLF agreement unenforceable on grounds that it violated Minnesota’s common law prohibition against champerty.^[11] See, Maslowski v. Prospect Funding Partners LLC, 2018 WL 6437456 (Minn.Dist.Ct 2018). The Minnesota Court of Appeals affirmed. See, Maslowski v. Prospect Funding Partners LLC, 2019 WL 3000747, (Minn. App. July 8, 2019). Prospect’s appeal of the appellate court’s ruling was then appealed to the Minnesota Supreme Court.

2020: MN Supreme Court reverses – court rules that the champerty doctrines does not bar enforceability of the TPLF agreement (Maslowski I)

The Minnesota Supreme Court then reversed the appellate court’s 2019 decision in Maslowski v. Prospect Funding Partners LLC, 944 N.W.2d 235 (Minn. 2020) (Maslowski I). Very generally, as part of its reversal, the Minnesota Supreme Court in Maslowski I, agreed that the lower courts “’did not err in determining that under our prior decisions, the contract was unenforceable.’”^[12] However, the court explained that while the agreement “was plainly champertous,” it was not “’void as against public policy as we understand it today.’”^[13] In this regard, the court was of the view that the common law “develops alongside” the needs of the community, and that litigation funding agreements “’allow plaintiffs who would otherwise be priced out of the justice system to assert their rights.’”^[14] Notwithstanding, the Minnesota Supreme Court stated that the courts could still “scrutinize” TPLF agreements to determine whether “’equity allows their enforcement,’” noting, in particular, the common law defense of unconscionability.^[15] The Minnesota Supreme Court then remanded the case back to the district court.

2022: MN Court of Appeals affirms district court ruling that the repurchase rate is subject to MN’s usury statute (caps rate at 8%)

On remand, the district court ruled, in main part, that the TPLF agreement was subject to Minnesota’s usury law, thereby limiting the repurchase rate to 8% annually per the usury statute. On this point, the district court concluded, in part, that while the agreement did not appear to be a “’classic loan,’” the 60% annual repurchase rate was unconscionable on “the sole basis” that it violated Minnesota’s usury statute.^[16] As part of its analysis, the district court interpreted Prospect’s underwriting process as providing assurance that Prospect would receive repayment despite the agreement’s purported contingency.^[17]As part of this ruling, the district court ordered plaintiff to repay Prospect the $6,000 it advanced to her; the $1,425 processing fee; and simple interest on the amount advanced at an 8% annual rate.^[18] In addition, the court ruled that the interest would only begin to accrue following the Minnesota Supreme Court’s prior 2020 ruling in Maslowski I finding that the agreement was not legally enforceable until that date.^[19] Prospect appealed the ruling.

On appeal, the Minnesota Court of Appeals affirmed the district court’s ruling. See, Maslowski v. Prospect Funding Partners, LLC, 978 N.W. 2d 447 (Minn. App. 2022). As part of its ruling, the court of appeals found, in part, that the repurchase rate, despite being labeled as a sale of an interest, was in fact subject to Minnesota’s usury law.^[20] Further, the court found, in part, that the repayment obligation under the agreement was absolute, and thus subject to the interest rate cap under Minnesota’s usury statute, since Prospect claimed that it would not fund frivolous suits and that, accordingly, “’the obligation to repay is therefore absolute unless [plaintiff] chooses to forego pursuing a recovery in the underlying claim.”^[21] In addition, the court of appeals also affirmed the district court’s decision to start the accumulation of interest following the Minnesota Supreme Court’s ruling in Maslowski I.^[22]

Prospect then appealed the court of appeals ruling to the Minnesota Supreme Court thus, returning this case to Minnesota’s highest state court for a second time --- and resulting in the court’s new ruling as follows:

New Ruling

The MN Supreme Court reverses the court of appeals -- rules that the TPLF agreement is not subject to MN’s usury statute limiting interest rates; remands case to the district court to now address whether the 60% annual repurchase rate is “unconscionable” (and, thus, unenforceable) under common law

Following Prospect’s latest appeal, this case came before the Minnesota Supreme Court for the second time in the latest decision styled as Maslowski v. Prospect Funding Partners, 2023 WL 5419613 (Minn. 2023) (Maslowski II).

As part of this appeal, the court had to address the following two questions: (1) whether the agreement is subject to Minnesota’s usury statute (which would cap the repurchase rate at 8% annually); and (2) whether the repurchase rate only began to accrue after the court’s prior 2020 ruling in Maslowski I.^[23]

Regarding these questions, the court in Maslowski II reversed the lower court rulings and found that the repurchase rate charged by Prospect was not subject to Minnesota’s usury law since the repayment obligation was contingent upon plaintiff’s recovery in the underlying litigation. In addition, the court found that assessment of the repurchase rate began to accrue after the agreement was signed and not after the Minnesota Supreme Court’s 2020 ruling in Maslowski I. Further, the court remanded the case back to the district court to address whether the 60% annual repurchase rate is unenforceable under the common law doctrine of “unconscionability.”

Associate Justice Anne K. McKeig delivered the majority opinion for the court, which is broken down, in general, as follows:

1. Minnesota’s usury law does not apply to the TPLF agreement

In assessing whether the TPLF agreement violated Minnesota’s usury statute (codified at Minn. Stat. Ann. § 334.01),^[24]the court noted that the following four elements must be proven: “(1) a loan of money or forbearance of debt, (2) an agreement between the parties that the principal shall be repayable absolutely, (3) the exaction of a greater amount of interest or profit than is allowed by law, and (4) the presence of an intention to evade the law at the inception of the transaction.”^[25]

As part of its analysis, the court focused on whether the TPLF imparted an absolute repayment obligation per element number two above. The court explained that “[u]nder Minnesota law, the element absolute payment means that the payment of the principal cannot be contingent on any event that must occur before payment is required [citation omitted]”^[26]and that “[u]sury cannot be predicated on ‘something occurring which may never occur.’”^[27] Prospect argued that its agreement with plaintiff did not fall within Minnesota’s usury laws because it based repayment on a contingency.^[28]On this point, the Minnesota Supreme Court disagreed with the district and appellate court’s conclusions that the TPLF agreement established an absolute repayment obligation based on its “reasoning that Prospect’s underwriting process seeks to ensure that the parties they contract with will win their underlying case.”^[29]In rejecting this position, the court stated that “something being extremely likely to happen necessarily accepts the possibility, however small, that it may not happen. It simply cannot be said that Prospect’s ability to recover the money given to Maslowski is absolute. As Prospect points out, she could have faced a procedural bar to recovery or could have lost at trial.”^[30]

In addition, the court noted the Minnesota Legislature has not determined whether Minnesota’s usury law applies to TPLF agreements and, “[t]herefore, the common-law definition of usury applies to this case, and the agreement here does not meet the ‘absolute’ threshold set for the usury law to apply.”^[31] On this point, the court noted that in Maslowski I it suggested the possibility of using legislative regulation to “address the concerns surrounding the allegedly predatory nature of some litigation financing agreements”^[32]and that it was “reiterat[ing] here that the question of whether usury limits should apply to litigation financing agreement is likely a question best left to the Legislature.”^[33] Continuing, the court further concluded that “[t]he question before us, though, is a narrow one—does the litigation financing agreement between Prospect and Maslowski fall under Minnesota’s usury law? And under the law as it currently stands, it does not.”^[34]

2. Repayment obligation under the agreement accrued when the parties entered into the agreement

The Minnesota Supreme Court also reversed the lower court rulings that the accumulation of interest did not begin to accrue until after the Minnesota Supreme Court’s ruling in Maslowski I, which abolished the common law prohibition against champerty.

On this point, plaintiff argued that the court’s prior decision to abrogate the common-law prohibition against champertous contracts undermined her vested right to avoid the contractual obligations she otherwise agreed by executing the agreement.^[35] However, the court rejected this argument finding, very generally, that under prior precedent, the courts have held “that even if a contract would have been usurious when the parties entered the contract, that same contract cannot be avoided as usurious if the law later changed such that the repurchase rates in the contract were no longer usurious. Rather, the contract is fully enforceable and all interest due is payable as if the prior usury law has never existed.”^[36] The court further stated “[i]n short, Maslowski took $6,000 from Prospect to help her with living expenses during the pendency of her personal injury litigation. She does not have a vested, permanent right to avoid the terms of a champertous contract which she (according to her own argument) illegally but voluntarily made.”^[37]

3. Minnesota Supreme Court remands this case back to the district court to determine if the 60% repurchase rate is “unconscionable” (and thus, unenforceable) under common law

The court noted that district court did not address plaintiff’s “primary” claim that the 60% annual repurchase rate provision was “’unconscionable on its face.’”^[38] The court noted that “[t]he district court’s sole conclusion regarding the repurchase rate, however, was that the rate was usurious under Minnesota law. The court of appeals affirmed the district court’s conclusion related to the usury statute, and therefore the broader unconscionability argument was never addressed by either of the courts below.”^[39]In addition, the court noted that it was “not appropriate for us” to address this argument as the issue was not raised in the petition for review and as “neither of briefs submitted … by Prospect nor [plaintiff] contain any discussion of common-law unconscionability whatsoever” (court’s emphasis).^[40]

Accordingly, based on these facts, the Minnesota Supreme Court has now remanded this case back to the district court to address this issue stating “[b]ecause the district court resolved the unconscionability argument regarding the repurchase rate on the usury statute without considering Maslowski’s primary argument claiming the ‘repurchase rate’ was ‘unconscionable on its face,’ we remand that issue for the district court’s determination.”^[41]

Associate Justice Moore files a concurrence – outlines factors for district court to consider on remand and invites the MN Legislature to consider possible TPLF regulation

As noted above, the Minnesota Supreme Court has remanded this case back to the district court for that court to address whether the agreement’s 60% annual repurchase rate is unconscionable under common law, and thus unenforceable.

As this case make its way back (again) to the district court it is interesting to note that Associate Justice Gordon Moore III filed a separate concurrence in which he agreed with the majority’s ruling that the agreement is not subject to Minnesota’s usury statute and that the case should be remanded to the district court for that court to determine whether the agreement’s 60% repurchase rate is unenforceable under the common-law doctrine of unconscionability.^[42]

Perhaps more interestingly, Justice Moore also commented that “I write separately to aid the district court in making this determination expeditiously in a years-long case that, in Bleak House fashion, ‘still drags its dreary length before the Court, perennially hopeless.'”^[43] In this regard, Justice Moore then utilized the bulk of his concurrence outlining various points for the district court to consider as that court prepares to evaluate whether the agreement’s 60% repurchase rate is unconscionable, noting prior Minnesota precedent holding that “’a court of equity may decline to enforce an unconscionable contract.”^[44]

While a complete examination of Justice Moore’s concurrence is outside this article’s scope, the author provides a general overview of certain key points as follows:

In terms of evaluating whether a contract may be unconscionable, Justice Moore first noted that the United States Supreme Court has described an unconscionable contract as a contract “’such as no [person] in [their] senses and not under delusion would make on the one hand, and as no honest and fair [person] would accept on the other.’”^[45] Justice Moore further noted that another court explained that “[t]he doctrine of unconscionability is not concerned with ‘a simple old-fashioned bad bargain.’”^[46]

From there, Justice Moore commented that “[o]ur court has never explicitly formulated an approach for determining whether a contract is unconscionable” and that “[m]ost courts considering the question require a showing of both procedural unconscionability and substantive unconscionability.^[47] Regarding “procedural unconscionability,” Justice Moore noted that this “concerns the fairness of the bargaining process, including whether the party disadvantaged by the unfair terms ‘lacked a meaningful choice in entering into the contract.’”^[48] As to “substantive unconscionability,” Justice Moore referenced that this concept involves “the actual terms of the agreement, requiring courts to determine whether the challenged provisions ‘unreasonably favor one party over the other’” (Justice Moore’s emphasis). ^[49]

Justice Moore noted that “[b]oth procedural and substantive unconscionability appear particularly relevant to the determination of whether an interest rate in a litigation financing agreement is enforceable.”^[50]With respect to procedural unconscionability, Justice Moore stated, in part, that “[t]he potential disparity in bargaining power between a litigation financing company and an individual plaintiff seeking money to cover her living expenses while pursuing a personal injury claim—as Maslowski alleges was the case here—is deeply concerning.”^[51]

Regarding substantive unconscionability, Justice Moore noted, in part, that a key question is “whether a 60 percent interest rate in a litigation financing agreement ‘shocks the conscience’ and ‘unreasonably favors’ the litigation financing company. This determination involves consideration of the fact that litigation financing agreements are different than traditional loans.”^[52] On this latter point, Justice Moore acknowledged that litigation financing agreements may carry more risk than other types of loans or investments but that this fact “cannot be a carte blanche for litigation financing companies to charge any interest they see fit.”^[53] Justice Moore further commented that of the states that have placed caps on TPLF interest rates, all have settled on caps lower than 60%.^[54]

In addition, Justice Moore also “invited” the Minnesota Legislature to consider TPLF regulation commenting, in part, that “[u]nderstanding that Maslowski may not be the last individual to challenge the enforceability of an interest rate in a litigation financing agreement, I also write to invite the Legislature to consider regulation of the litigation financing industry in Minnesota.”^[55] In this regard, some ideas noted by Justice Moore included possibly making TPLF agreements subject to Minnesota’s usury statute or capping interest rates; disclosure, licensing, and registration requirements; restrictions on advertising and referral fees; and other potential regulatory measures.^[56]

On these points, Justice Moore commented that “until the Legislature steps in to regulate, the onus to ensure that individuals are not taken advantage of by unconscionable financing agreements will rest on our district courts.”^[57] Expanding on this view, Justice Moore further commented that while “[e]quitable remedies like unconscionability are an important backstop for individuals who are able to challenge the enforceability of unfair litigation financing agreements in courts. Nevertheless, Minnesotans may likely be better protected from predatory financing arrangements through prospective and comprehensive regulations—an issue I would encourage the Legislature to address.”^[58]

What’s next?

As noted, this case now heads back to the Minnesota district court for that court to determine whether the TPLF agreement’s annual 60% repurchase rate is unenforceable under the common-law doctrine of unconscionability. The author will monitor developments regarding this case and provide future updates as warranted.

Additional TPLF resources

Please do not hesitate to contact the author if you have any questions. Also, feel free to review the author’s prior articles addressing TPLF issues.

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[1] Maslowski v. Prospect Funding Partners, 2023 WL 5419613, at *1 (Minn. 2023).

[2] Id.

[3] Maslowski v. Prospect Funding Partners, 2023 WL 5419613, at *1 (Minn. 2023). As part of this concurring opinion, Associate Justice Moore indicates in an endnote that Prospect had a right under the agreement to receive a maximum of $25,245 in any proceeds recovered from the lawsuit. Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *9, n.1 (Minn. 2023) (Moore, J, concurring).

[4] Maslowski v. Prospect Funding Partners, 2023 WL 5419613, at *1 (Minn. 2023).

[5] Id.

[6] Id.

[7] Maslowski v. Prospect Funding Partners, 2023 WL 5419613, at *2 (Minn. 2023).

[8] Id.

[9] Id.

[10] Id.

[11] The Minnesota Supreme Court in Maslowski v. Prospect Funding Partners, 2023 WL 5419613 (Minn. 2023) defined “champerty” as follows: Champerty is “’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.’” Maslowski I, 944 N.W.2d at 237 (quoting Champerty, Black’s Law Dictionary (11th ed. 2019)). Maslowski v. Prospect Funding Partners, 2023 WL 5419613, n 1 (Minn. 2023).

[12] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *2 (Minn. 2023), citing, Maslowski I, 944 N.W. 2d at 238.

[13]Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *2 (Minn. 2023), citing, Maslowski I, 944 N.W. 2d at 238.

[14] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *2 (Minn. 2023), citing, Maslowski I, 944 N.W. 2d at 238-41.

On this point, the court stated, in part, as follows:

We decline ... to hold that the contract between Maslowski and Prospect is void as against public policy as we understand [the public policy] today. Champerty is a common law doctrine, and the development of the common law is “determined by the social needs of the community which it governs.” We have previously explained that, as society changes “the common law must also evolve” with it. Our review of changes in the legal profession and in society convinces us that the ancient prohibition against champerty is no longer necessary. Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *2 (Minn. 2023), citing Maslowski I, 944 N.W. at 938.

[15] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *2 (Minn. 2023), citing, Maslowski I, 944 N.W. 2d at 241.

[16] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *2 (Minn. 2023).

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *3 (Minn. 2023), citing Maslowski v. Prospect Funding Partners, LLC, 978 N.W. 2d 447, 458 (Minn. App. 2022).

[22] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *3 (Minn. 2023), citing Maslowski v. Prospect Funding Partners, LLC, 978 N.W. 2d 447, 459-60 (Minn. App. 2022).

In addition, the Court of Appeals concluded that the Minnesota Supreme Court’s decision abolishing champerty in Maslowski I did not apply retroactively because the earlier decisions declaring the contract champertous and therefore void were not “’erroneous.’” Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *3 (Minn. 2023), citing Maslowski v. Prospect Funding Partners, LLC, 978 N.W. 2d 447, 460 (Minn. App. 2022).

[23] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *3 (Minn. 2023).

[24] Minn. Stat. Ann. § 334.01 states, in full, as follows:

Subdivision 1. General. The interest for any legal indebtedness shall be at the rate of $6 upon $100 for a year, unless a different rate is contracted for in writing. No person shall directly or indirectly take or receive in money, goods, or things in action, or in any other way, any greater sum, or any greater value, for the loan or forbearance of money, goods, or things in action, than $8 on $100 for one year. In the computation of interest upon any bond, note, or other instrument or agreement, interest shall not be compounded, but any contract to pay interest, not usurious, upon interest overdue, shall not be construed to be usury. Contracts shall bear the same rate of interest after they become due as before, and any provision in any contract, note, or instrument providing for an increase of the rate of interest after maturity, or any increase therein after making and delivery, shall work a forfeiture of the entire interest; but this provision shall not apply to notes or contracts which bear no interest before maturity nor shall it apply to any agreement which extends the maturity date of any contract, note, or instrument, and provides for an increased rate of interest after the original maturity date on the indebtedness then due. Any agreement which extends maturity date of any contract, note or instrument shall not provide for an increased rate of interest in excess of $8 on $100 for one year.

Subd. 2. Contracts of $100,000 or more. Notwithstanding any law to the contrary, except as stated in section 58.137, and with respect to contracts for deed, section 47.20, subdivision 4a, no limitation on the rate or amount of interest, points, finance charges, fees, or other charges applies to a loan, mortgage, credit sale, or advance made under a written contract, signed by the debtor, for the extension of credit to the debtor in the amount of $100,000 or more, or any written extension and other written modification of the written contract. The written contract, written extension, and written modification are exempt from the other provisions of this chapter.

Subd. 3. Contracts under Employee Retirement Income Security Act of 1974. A contract entered into on or after December 31, 1974, for the loan or forbearance of money, goods, or things in action and any extensions, including extensions of installments and related changes in its terms between a participant, former participant, or beneficiary, and a plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974, United States Code, title 29, chapter 18, as amended through December 31, 1982,¹ is exempt from the provisions of this chapter.

[25] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *3 (Minn. 2023), citing Miller v. Colortyme, Inc., 518 N.W.2d 544, 549 (Minn. 1994) (quotation omitted); see also Rathbun, 219 N.W.2d at 646. We look to the “substance and effect of transactions” to determine whether an agreement is usurious. Adjustment Serv. Bureau v. Buelow, 196 Minn. 563, 265 N.W. 659, 661 (1936) (“There is no shift or device on the part of the lender to evade the law under or behind which the law [court] will not look to ascertain the real nature and object of the transaction.”). This determination is not made by merely adopting “what the parties represent the transaction to be, but by considering the whole evidence to ascertain whether or not it is in substance a contracting to receive usurious interest for a loan or forbearance of money.” Dunn v. Midland Loan Fin. Corp., 206 Minn. 550, 289 N.W. 411, 413 (1939). To violate the usury law, “a lender need only intend to charge a rate that is in fact usurious.” Miller, 518 N.W.2d at 550. Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *4 (Minn. 2023)

[26]Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *4 (Minn. 2023), citing Ordway v. Price, 156 Minn. 160, 194 N.W. 321, 322 (1923).

[27] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *4 (Minn. 2023).

[28] On this point, the court noted as follows: “Prospect’s main contention is that the Agreement cannot fall within the purview of Minnesota’s usury laws because it is based upon a contingency: whether Maslowski recovers in the underlying lawsuit. According to the Agreement, if Maslowski ‘RECOVERS NOTHING FROM THE LEGAL CLAIM,” then Prospect “SHALL RECEIVE NOTHING.’ But Maslowski was ‘NOT ENTITLED TO RECEIVE ANY PROCEEDS’ from the personal injury lawsuit ‘UNTIL PURCHASER HAS RECEIVED’ payment. Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023) (emphasis in original).

[29] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023).

[30] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023).

In support of its ruling, the court noted that its conclusion is align with rulings from other jurisdictions commenting as follows:

Other jurisdictions to consider this question have reached the same conclusion. See, e.g., Anglo-Dutch Petro. Int’l v. Haskell, 193 S.W.3d 87, 96–97 (Tex. App. 2006); Dopp v. Yari, 927 F. Supp. 814, 823 (D.N.J. 1996) (“[T]he collection of interest in excess of the lawful rate is not usurious if collection of the entire interest is at risk and depends upon a contingent event and provided ... the contract was entered into in good faith and without the intent to evade the usury laws.”); Ruth v. Cherokee Funding, LLC, 304 Ga. 574, 820 S.E.2d 704, 710 (2018) (holding a litigation financing agreement is not a loan “when the obligation to repay is only contingent”); Cash4Cases, Inc. v. Brunetti, 167 A.D.3d 448, 449 (N.Y. App. Div. 2018) (holding usury law did not apply to litigation financing agreement based on the contingent nature of repayment). Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023).

With respect to the above, the court noted that other jurisdictions have applied state usury laws to TPLF arrangements. On this point, the court note these contrary decisions as follows:

But some courts have decided to apply their jurisdiction’s usury laws to litigation financing agreements based on the particular circumstances of the agreement at issue. In Echeverria v. Estate of Lindner, No. 018666/2002, 7 Misc.3d 1019A, 801 N.Y.S.2d 233, 2005 WL 1083704, at *8 (N.Y. Sup. Ct. Mar. 2, 2005), the court decided that it would apply the usury limit to a litigation financing agreement. The court particularly noted that the case involved strict liability, making it virtually certain that the plaintiff would recover. Id. Similarly, in Lawsuit Financial, L.L.C. v. Curry, 261 Mich.App. 579, 683 N.W.2d 233, 237, 240 (2004), the court found the absolute obligation of repayment satisfied where the plaintiff had already won a substantial verdict in the case and was merely facing challenges to the amount awarded. These two circumstances—a strict liability case and a case with liability already settled before the agreement was made—do not exist here. Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023).

[31] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023).

[32] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023), citing Maslowski I, 944 N.W. 2d at 241.

[33]Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *5 (Minn. 2023).

[34] Id.

[35] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *7 (Minn. 2023).

[36] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *7 (Minn. 2023), citing United Realty Tr., 269 N.W.2d at 743; see Ewell v. Daggs, 108 U.S. 143, 149–51, 2 S.Ct. 408, 27 L.Ed. 682 (1883).

[37]Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *8 (Minn. 2023).

[38] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *6 (Minn. 2023).

[39] Id.

[40] Id.

[41] Id.

[42] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *9 (Minn. 2023), Moore, J, concurring,

[43] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *9 (Minn. 2023) (Moore, J, concurring), citing Charles Dickens, Bleak House 4 (Chapman & Hall 1914) (1853).

[44] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023) (Moore, J, concurring), citing Abernethy v. Halk, 139 Minn. 252, 166 N.W. 218, 220 (1918)

[45] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023) Moore, J, concurring), citing Hume v. United States, 132 U.S. 406, 411, 10 S.Ct. 134, 33 L.Ed. 393 (1889).

[46] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023) (Moore, J, concurring), citing Hume v. United States, 132 U.S. 406, 411, 10 S.Ct. 134, 33 L.Ed. 393 (1889), citing Energy Home, Div. of S. Energy Homes, Inc. v. Peay, 406 S.W.3d 828, 835 (Ky. 2013)

[47] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023), Moore, J, concurring, citing 8 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 18:10 (4th ed. 2010); see, e.g., Summers v. Crestview Apartments, 357 Mont. 123, 236 P.3d 586, 590 (2010); Quicken Loans, Inc. v. Brown, 230 W.Va. 306, 737 S.E.2d 640, 657 (2012); Strand v. U.S. Bank Nat’l Ass’n ND, 693 N.W.2d 918, 924 (N.D. 2005).

[48] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023) (Moore, J, concurring), citing Kindred Healthcare Operating, Inc. v. Boyd, 403 P.3d 1014, 1022 (Wyo. 2017).

[49]Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023) (Moore, J, concurring), citing Kindred Healthcare Operating, Inc. v. Boyd, 403 P.3d 1014, 1022 (Wyo. 2017) and Gandee v. LDL Freedom Enters., Inc., 176 Wash.2d 598, 293 P.3d 1197, 1199 (2013) (“A term is substantively unconscionable where it is one-sided or overly harsh, [s]hocking to the conscience, monstrously harsh, or exceedingly calloused.”(alteration in original) (citations omitted) (internal quotation marks omitted)).

[50] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *10 (Minn. 2023) (Moore, J, concurring).

[51] Id.

[52] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *11 (Minn. 2023) (Moore, J, concurring).

[53] Id.

[54] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *11 (Minn. 2023) (Moore, J, concurring), citing Nev. Rev. Stat. § 604C.310 (40 percent annually); Ind. Code § 24-12-4.5-2(a)(1)(A) (36 percent annually); Ark. Code Ann. § 4-57-109(b)(1) (17 percent annually, per Ark. Code Ann. § 4-57-104 and Ark. Const., amend. LXXXIX, § 3); Tenn. Code Ann. § 47-16-110(a) (10 percent annually). Id. at *11. Further, in addition to the above jurisdictions noted by Justice Moore, the author notes that West Virginia (W. Va. Code § 46A-6N-9), Illinois (815 ILCS § 121, et. seq), and Montana (2023 Montana Laws Ch. 360 (S.B. 269) have also enacted statutes limiting litigation funder fees. In addition, it is noted that Colorado’s Supreme Court has held, in part, that a TPLF company agreeing to advance money to tort plaintiffs in exchange for future litigation proceeds is making a loan, thereby subject to regulation under Colorado’s Uniform Consumer Credit Code. Oasis Legal Finance Group v. Coffman, 361 P. 3d 400 (Nov. 16, 2015). In this case, two national TPLF companies brought an action against Colorado’s Attorney General and Uniform Consumer Credit Code (UCCC) Administrator for declaratory judgment that funding agreements for personal injury litigation were not loans. The Attorney General and UCCC Administrator counterclaimed, in part, to enjoin these companies from making or collecting loans without being properly licensed. The Colorado Supreme Court held, in pertinent part, that the TPLF companies in this case who had agreed to advance money to tort plaintiffs in exchange for future litigation proceeds were making “loans” making them subject to Colorado’s UCCC provisions, even if the plaintiffs did not have to repay any deficiency if the litigation proceeds were ultimately less than the amount due. See, Oasis Legal Finance Group, LLC v. Coffman, 361 P.3d 400, 401 (2015). Similarly, the South Carolina Department of Consumer affairs issued a ruling that entities funding litigation in exchange for a portion of the recovery proceeds are providing loans subject to compliance under South Carolina’s laws governing lending. See, The Florida Senate, Bill Analysis and Fiscal Impact Statement, Senate Bill 1750, prepared by the Committee on Banking and Insurance (March 23, 2021), at 5-6, citing, South Carolina, Department of Consumer Affairs, Administrative Interpretation: Legal/Litigation Funding Transactions, (Nov. 14, 2014), Administrative Interpretation 3.104, 106-1403, https://consumer.sc.gov/sites/default/files/Documents/Business%20Resources%20Laws/Administrative%20Interpretations/Chapter%203/3.104%2C106-1403%20Litigation%20FundingTransactions.pdf .

[55] Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *9 (Minn. 2023) (Moore, J, concurring).

[56]Maslowski v. Prospect Funding Partners LLC, 2023 WL 5419613, at *12 (Minn. 2023) (Moore, J, concurring).

[57] Id.

[58] Id.