California High Court Revives Organic Labeling Suit

organic2Seven California justices ruled a consumer’s false labeling suit is not pre-empted by the federal Organic Foods Production Act.

Because the statute doesn’t provide a mechanism for consumer complaints, barring consumers from suing over the organic label under consumer protection statutes would not advance the purposes of the federal law, the high court found.

This federal law regulates the methods organic produce farmers may use in order to market their products as organic. The law does not prevent consumers from questioning the truthfulness of an organic label. To buyers and sellers alike, “labels matters”

Michelle Quesada, a California resident who alleged the grower sold conventionally grown herbs as oppose to organic, sued Herb Thyme Farms for false advertising and unfair competition.

The opinion states Herb Thyme processed its organic and conventionally grown herbs in the same packing and labeling facility. During processing, the herbs were mixed and shipped out under the “Fresh Organic” label.

At the trial level Herb Thyme urged the court to grant a judgment on the grounds of federal preemption or in the alternative delay the case until the consumers filed an administrative complaint with the USDA. Herb Thyme was successful with the trial court and the state appeals court.

The appeals court stated while the claim was not expressly preempted, the suits would interfere with federal organic certification scheme and were preempted by implication.

What Does “Organic” Really Mean

The state high court engaged in a further analysis of the purpose, application, and enforcement of the federal act in deciding if the case may proceed.

“Organic” described the process a farmer endured for developing natural soil conditions without the use of chemical additives. As the market for organic produce expanded, it developed a concern for uniform regulation on produce for which consumers were willing to pay a premium price.

The court stated the act prevents states from creating unapproved certification programs, certifying agents, and certifying organic farms. States are free to set more stringent standards than the federal minimum but all programs must meet federal guidelines and be approved by the USDA.

The justices observed that consumer protection from deceptive labeling has by and large been governed by state law, a factor that weighs against the presumption of federal preemption.

In granting immunity to growers, if consumers became aware that state law claims were preempted, they would not pay for organic produce and may believe growers had a “de facto license to violate state fraud, consumer protection, and false advertising laws.”

The case is Quesada v. Herb Thyme Farms Inc., case number S216305, in the Supreme Court of the State of California.

 

 

$20 Million Gas Explosion Verdict Upheld Amidst Claims of Attorney Misconduct

home garage fireA California Court of Appeals has upheld a $20 million verdict against the Southern California Gas Company (SoCalGas) for a natural gas leak and fire that caused second and third degree burns and brain damage to a man when he lit a cigarette in his rented converted garage room.

Pengxuan “Dean” Diao sued SoCalGas and the owners of the home in which he was renting the converted garage when he was 23-years-old.

A SoCalGas employee restored gas service to the main house after an earthquake shutoff valve stopped gas to the property. While attempting to relight a pilot light, the employee inadvertently opened a gas line leading to the converted garage.

While Diao was sleeping in the converted garage, his bedroom filled with about 300 cubic feet of natural gas.  When he awoke, he lit a cigarette and then saw fire engulf his room.  After running out, he noticed skin falling from his arm and was transported to the hospital.

Gas Company stipulated to negligence

Diao suffered from second and third degree burns on 20 percent of his body including to his face, neck, both upper extremities including hands and digits, right lower back and right lower extremity.

He required several painful treatments, including surgery for debridement and skin grafting.  Plaintiff now has severe hyperpigmentation and areas of severe burn scarring.

Diao sued SoCalGas who stipulated to its negligence as a substantial factor in causing Diao’s harm, but denied its negligence to the extent of harm that Diao claimed.  Initially Diao included the above listed injuries.  At his deposition a year after filing his complaint, Diao commented on memory loss and raised for the first time a “potential brain injury claim.”

Traumatic brain injury claim

Diao’s counsel later submitted the traumatic brain injury as a claim, stating they were unaware of it until after the deposition of Neurologist, Dr. Fisk, whom Diao previously retained.  SoCalGas and the homeowners also hired neurologists to have Diao examined.

The court commented “there were games being played” and that the situation was “all problematic,” but allowed the inclusion of the traumatic brain injury claim and neurologist reports because the initial neurologist report was disclosed and parties were given an opportunity to explore it.

A trial jury returned a verdict in favor of Diao, awarding him $186,718 in past economic damages, $2,600,100 in future economic damages, $8,500,000 in past non-economic damages, and $8,500,000 in future non-economic damages, for a total damages award of $19,786,818.  The jury found SoCalGas 90 percent liable and the homeowners 10 percent liable.

Post-trial motions filed

SoCalGas and the homeowners moved for partial judgment notwithstanding the verdict for a new trial claiming discovery abuses related to the traumatic brain injury (TBI) claim and that Diao presented insufficient evidence of TBI.

They also moved for a reduction in the damages award claiming Diao’s counsel made improper arguments that resulted in an excessive and punitive damages award.

The Court of appeals in reviewing the trial court record, found that substantial evidence was presented at trial to demonstrate that the gas leak, caused by a SoCalGas employee, caused Diao’s Traumatic brain injury.

SoCalGas argued that while making arguments to the jury, Diao’s counsel referred to SoCalGas as a “bully” and “vilified” SoCalGas by “inviting the jury to punish” them for unproven injuries to other hypothetical victims and referring extensively to its wealth and “unlimited resources” used in the case.

The court found that SoCalGas counsel, “did not make any effort to stop the alleged misconduct with even one objection.”

The court agreed with SoCalGas’s characterization of Diao’s counsel’s actions, writing, “We do not condone, and in fact strongly disapprove, Diao’s counsel’s conduct,” but found that his arguments did not “constitute reversible misconduct.”

The court further found that the damage award was not excessive or disproportionate to other awards given for comparable injuries.  In upholding the verdict amount, the court wrote that in light of Diao’s severe and debilitating injuries, the case must be determined on its own facts, and not in comparison to awards of other cases.

 

The case is Pengxuan Diao v. Southern California Gas Company, case number BC481312 in the Court of Appeal of The State of California, Second Appellate District.

200 Women File Class Action Law Suit Against Celebrity Hair Care Product WEN

WEN

Tracie Hashton, former WEN customer, posts her complaint of extreme hair loss on the WEN Facebook page.

More than 200 women in 40 states who used WEN Hair Care have filed a class action law suit against the conditioning hair care system and its creator, celebrity stylist Chaz Dean. The women who joined the class action suit in November 2015 experienced rashes, irritation, hair breakage, and extreme hair loss after using the infomercial-driven product.

Mediation between the parties began just before Christmas 2015, with both sides sitting down in an effort to resolve the claims.

Severe and permanent damage to hair

Chaz Dean gained notoriety due to his high-profile clientele (including model Brooke Shields, singer Alyssa Milano and model Nicollette Sheridan), and built a massive empire around the hair care line he developed: WEN. The women 200 who filed against infomercial giant Guthy-Renker and the brand claim, “Wen products can cause severe and possibly permanent damage to hair, including significant hair loss to the point of visible bald spots, hair breakage, scalp irritation, and rash.”

Chaz Dean

Chaz Dean’s late-night infomercial for WEN products.

Left with anything but red carpet-ready hair, the plaintiffs also claim the brand failed to warn consumers of the risks and dangers associated with the products quickly enough once consumers began complaining of the hazards. The plaintiffs further alleged that the brand was more concerned with protecting itself, removing negative reviews on social media instead of addressing them.

The lawsuit is charging WEN (which is based in California) with violating the California false advertising law, violating the Florida Unfair and Deceptive trade Practices Act, negligence and failure to warn among other things. The lawsuit also claims that Guthy-Renker had “knowledge of a material design defect [and did not] disclose and/or warn plaintiff and other consumers that Wen Cleansing Conditioner can and does cause substantial hair loss [and that] Guthy-Renker concealed customers’ comments concerning hair loss, by blocking and/or erasing such comments from the WEN Facebook page.”

Years of Complaints

This is not the first year the hair care system has received serious complaints. Wen-related hair loss complaints on consumer websites date back at least five years. The lawsuit provides online reviews, however, showing that user complaints dated back to 2012. One claimed her hair “was healthy, now it’s like straw and brittle.” Another said, “Almost immediately after using the product I noticed huge amounts of hair caught in the drain.” Yet another said, “I can’t leave my house. I’m depressed. WEN hair products is [sic] responsible for my hair loss.”

More recently, complaints have been taken to Facebook and Twitter, and they also pop up in product reviews on sites like Sephora.com and Amazon. Smaller suits with similar claims have also been filed against WEN dating back to 2014.

Despite the allegations, some consumers continue to rave about the WEN product line, which is said to be natural and formulated to improve both the health and appearance of hair. Dean’s high-profile celebrity endorsers have not commented on the subject. Dermatologists agree that the causes of hair loss are hard to pin down specifically and will be difficult to prove in court.

WEN continues to stand by their products and has issued the following statement:

“With well over 10 million WEN products shipped since 2008, our customers’ overwhelmingly positive response to WEN is a testament to the benefits it can deliver for its users. These benefits are reflected in consistently high rankings from independent consumer product sites as well. There is no scientific evidence to support any claim that out hair care products caused anyone to lose their hair. There are many reasons why individuals may lose their hair, all unrelated to WEN. We intend to vigorously contest the allegations made.”

Amy Friedman, a nurse practitioner who lives in Florida and the lead plaintiff in the WEN class action, bought the Sweet Almond Mint WEN Cleansing Conditioner basic kit in January 2015. We have probably all seen the same infomercial Friedman happened upon while late-night channel surfing. Friedman and her team allege that “within two weeks of beginning use of her WEN Cleansing Conditioner, [she] began losing substantial and abnormal amounts of hair [and] the hair loss continued for approximately three more weeks [and she] lost one quarter to one third of the hair on her head.”

The class action suit also points out that the WEN website clearly states “that these results are not typical,” referencing the cleansing conditioner. Friedman and her fellow plaintiffs, then, are asking a relevant question in their filing: “If the results are not typical, what purpose does this information serve, other than to mislead potential consumers into purchasing defendant’s defective product?”

The WEN Cleansing Conditioner Class Action Lawsuit is Amy Friedman v. Guthy-Renker LLC, Case No. 2:14-cv-MRP-AGR, in the U.S. District Court for the Central District of California.

Lumosity “Brain Training” Game Gets Drained by the FTC

LumosityThe Northern District of California District Court has ordered Lumos Labs, Inc., the creators of the Lumosity “brain training” program, to pay the Federal Trade Commission (FTC) $2 million to settle charges alleging unfair or deceptive acts or practices and false advertisement.

The FTC alleged that Lumosity advertised false and unsubstantiated claims to improve work, school and athletic performance, treat “age-related decline in memory or other cognitive” impairments such as dementia and Alzheimer’s disease, and that it reduced cognitive impairment caused by Turner Syndrome, PTSD, and ADHD.

Misleading advertising

The order enjoined Lumosity from advertising such misleading statements, unless they were made on reliance of scientific evidence to substantiate its claims.  The order required the scientific evidence to include controlled human clinical testing performed by qualified researchers.

The order imposed a $50 million judgement, but required only $2 million.  The court suspended the remainder after reviewing Lumosity’s financial statements and tax returns from 2012, 2013 and 2014.  The order also required Lumosity to provide timely notice to all subscribers that clearly and conspicuously displays a one-step process to cancel an auto-renewal account.

The court also imposed a compliance monitoring provision, requiring Lumosity to maintain all records and any human clinical testing and report to the Commission for 10 years.

Advertisement touched on cognitive fears

Lumosity had been highly advertised on TV, radio, and streaming online advertisements.  It was also marketed through emails, social media, and other websites and used Google AdWords to increase traffic to its website.  The company purchased hundreds of keywords related to memory, cognition, dementia, and Alzheimer’s disease, according to the FTC complaint.

The FTC also alleged Lumosity solicited customer testimonials through contests offering prizes such as a free IPad, trip to San Francisco, and lifetime memberships.  The membership process ranged from a monthly fee of $14.95 to a lifetime membership for $299.95.

“Lumosity preyed on consumers’ fears about age-related cognitive decline, suggesting their games could stave off memory loss, dementia, and even Alzheimer’s disease,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.  “But Lumosity simply did not have the science to back up its ads.”

The case is Federal Trade Commission, Plaintiff, v., Lumos Labs, Inc., a corporation, doing business as Lumosity, and Kunal Sarkar and Michael Scanlon, case number 132 3212 3:16-cv-00001 in the U.S. District Court Northern District of California.

After $8.9M Fraud Verdict Against Star Academy, Students Seek $6 Million Grant Disgorgement

star career academyCamden, NJ — In the wake of an $8.9 million New Jersey Consumer Fraud Act (CFA) verdict in favor of more than 1,000 students against a for-profit school, the plaintiffs have filed a motion for disgorgement of an additional $5.5 million that Star Career Academy received from the United States in the form of education grants — plus $500,000 in interest on the grant money.

Class Action lawyer Thomas More Marrone of MoreMarrone LLC in Philadelphia has also filed a motion to assess an additional several hundred thousand dollars on the verdict under the CFA and a motion for CFA attorney’s fees. The court is expected to consider these motions in the next several weeks.

Last year a Superior Court jury in Camden, NJ, returned a class action verdict against Star Career Academy, a New Jersey for-profit school, under the New Jersey Consumer Fraud Act. (Polanco v. Star Career Academy, et al., Docket No: 415-13, October 29, 2015).

The disgorgement filing continues the Polanco v Star Career Academy case. The verdict in favor of more than 1,000 current and former Surgical Technology Students totaled $8.9 million including treble damages, and came after a five-week class action jury trial.

No program accreditation

Thomas More Marrone of MoreMarrone LLC served as Court-appointed Class Counsel and with co-Class Counsel tried the case to verdict. Under cross-examination at trial, according to court documents, Star’s CEO agreed with Marrone that Star’s Surgical Technology Program did not, in fact, have “program accreditation,” and that it would be “a lie” to say that it did. This testimony contradicted Star’s written statements to New Jersey’s Department of Health and Star’s student body that Star’s Surgical Technology “program” was “accredited.”

After the verdict, Marrone said, “The New Jersey Consumer Fraud Act law places ethical responsibilities on the shoulders of corporations like Star Career Academy and its owners. The jury found that Star violated those responsibilities. It took three years of litigation and five weeks of trial to bring Star to justice, but it was worth it. The Class Members deserve it.”

Based on the court documents, Star Career Academy obtained the Federal Grant money during the years that the jury determined Star Career Academy was engaging in Consumer Fraud.

The case is Polanco v. Star Career Academy, et al. Superior Court of New Jersey, Camden County, Law Division. Docket No: 415-13.

 

$5.9 Million Award Affirmed in Ford Failed Airbag Strict Liability Suit

2005 Mercury SableA Pennsylvania court denied Ford’s appeal to overturn the plaintiff’s verdict in a strict products liability suit, affirming a lower court’s judgment and the plaintiff retains his $5.9 million award.

After an eight-day trial a jury found Ford Motor Company liable for plaintiff, John A. Cancelleri’s injuries after the airbags in his 2005 Mercury Sable failed to deploy during a car accident.

Cancelleri had filed suit against Ford, the manufactuer of the Mercury Sable, and the dealership. He claimed a breach of implied warranty of witness, punitive damages, negligence, and strict liability.

A Ford Mustang that attempted to make a left turn into plaintiff’s lane struck the plaintiff. Cancelleri sustained back and spinal cord injuries because of the incident.

Crash reports excluded

Ford argued the verdict should be overturned and they were entitled to a new trial. Ford believed a new trial was necessary because crash reports were excluded, the jury was not asked whether the Plaintiff’s vehicle was unreasonably dangerous, and there was an error in jury instructions.

The court agreed that whether the vehicle was unreasonably dangerous could be a consideration but that a new trial was not necessary. A jury is only required to determine if the vehicle’s design was defective and if any alternatives could have been used at the time the Sable was made.

Excluding the reports of state and industry standards was proper because there was a potential to confuse the jury on the real issue in this case, the quality or design of the product, the court concluded.

Evidence such as the crash reports were previously precluded by the court or were not introduced during the trial thus could not be used.

This case is John A. Cancelleri v. Ford Motor Company, Superior Court of Pennsylvania, Case No. 267MDA2015.

SCOTUS Refuses to Hear Johnson & Johnson Appeal of $140M Children’s Motrin Verdict

Samantha Reckis and her parents a total of $109 million, including interest, a Plymouth Superior Court jury decided on Wednesday. Samantha was 7 when she was given Motrin brand ibuprofen, family attorney Brad Henry said. She suffered a rare side effect known as toxic epidermal necrolysis and lost 90 percent of her skin and was blinded.

Samantha Reckis was 7 when she was given Motrin brand ibuprofen. She suffered a rare side effect known as toxic epidermal necrolysis and lost 90 percent of her skin and was blinded.

The U.S. Supreme Court said on Jan 19 that it will not hear Johnson & Johnson’s appeal of a $140 million judgment in a lawsuit alleging it failed to warn that Children’s Motrin pain and fever medication could cause a devastating skin condition.

The decision leaves intact one of the largest verdicts ever awarded by a Massachusetts jury.

Johnson & Johnson had urged the US Supreme Court to weigh in on its challenge to a $140 million verdict that the pharmaceutical company must pay because of its Children’s Motrin product.

The kids’ anti-inflammatory drug has allegedly caused a potentially deadly skin condition, and Johnson & Johnson is arguing courts should look to a third party for liability: the U.S. Food and Drug Administration, for rejecting the warning labels proposed by the pharma giant.

Deadly Skin Condition

Plaintiffs Samantha Reckis and her parents brought suit against Johnson & Johnson after the Children’s Motrin product caused Samantha to develop toxic epidermal necrolysis, a terrible skin condition that damages the body’s mucous membranes. Reckis lost 80% lung capacity and 90% of her skin. She is also now blind. Reckis experienced these unbelievable side effects in 2003 at the young age of seven.

Reckis’s parents argued the medication should have come with warnings that specifically mentioned toxic epidermal necrolysis, the related skin condition Stevens Johnson Syndrome, and a general warning that rashes or blisters that develop after taking the drug could lead to a “life-threatening” condition. However, the FDA had rejected warnings similar to those urged by Reckis’s parents.

Stevens-Johnson syndrome, a form of toxic epidermal necrolysis, is a life-threatening skin condition in which cell death causes the epidermis to separate from the dermis. The syndrome is thought to be a hypersensitivity complex that affects the skin and the mucous membranes. The most well-known causes are certain medications, but it can also be due to infections, or more rarely, cancers. Toxic epidermal necrolysis and Stevens-Johnson syndrome essentially cause one’s skin to melt off the body.

Petitioning for Certiorari

Johnson & Johnson had sought in a brief filed December 30, 2015 for the U.S. high court to review the Massachusetts Supreme Judicial Court’s decision affirming the multi-million dollar February 2013 verdict. Johnson and Johnson said in its filing,

“It is beyond dispute that the specific warning language the [Massachusetts Supreme Judicial Court] said Massachusetts law required was proposed to the FDA, rejected by the FDA, and then proposed again at trial by respondents . . . The FDA acts intentionally and purposely when it includes particular language in one label (for patients under a physician’s care) but rejects its inclusion on another label (for over-the-counter consumers) – especially given that this same language was proposed for both products.”

The warnings rejected by the FDA were proposed by a citizens’ petition and not Johnson & Johnson. The Massachusetts high court used these facts to reason that the FDA may not necessarily have rejected such warnings if Johnson & Johnson itself had proposed them.

Johnson & Johnson believes this holding to be based on speculation and has also argued that the FDA specifically requires similar warnings for prescription ibuprofen products, not over-the-counter products (including Children’s Motrin). Johnson & Johnson believes this shows the FDA’s intent not to apply such warning labels to over-the-counter medication, regardless of the entity proposing the warnings.

The case is Johnson & Johnson et al. v. Lisa Reckis et al., case number 15-449, in the Supreme Court of the United States.

Their Duty Alone

Meanwhile, a Philadelphia jury returned a $10 million verdict against Johnson & Johnson in 2010, after siding with a family who said their 3-year-old daughter was struck with Stevens-Johnson syndrome after taking Children’s Motrin in 2000. The Pennsylvania Supreme Court declined to hear an appeal of the case in March after the state’s Superior Court upheld the verdict in July 2014.

Another ongoing case against the pharmaceutical company is Brown et al. v. Johnson & Johnson et al., case number 2:12-cv-04929, in U.S. District Court for the Eastern District of Pennsylvania. Riley Brown (age 3 at the time) was hospitalized for nearly a month after taking Children’s Motrin and saw more than 30 percent of her body affected by the painful skin condition. She was left blind in one eye and now has a severe sensitivity to light in the other. Brown has undergone multiple eye surgeries since she was stricken with SJS/TEN, including a failed cornea transplant.

Brown’s attorney told the eight-member Pennsylvania jury in September, “The law is that the drug manufacturer, the one who is making the profit by selling the drug, has a duty. Our country, our government, has decided that the duty is going to fall on the drug manufacturer to make their product safe. It is not a delegable duty. They can’t push it off on the FDA. They can’t push it off on a doctor. They can’t push it off on mom. It is their duty and their duty alone.”

Court Affirms Bank of America Liability for Sale of Mold-Infested Home

Despite the “as is” clause in a home mortgage contract, the Wisconsin appeals court ruled that Bank of America’s (BOA) deceptive representation of a home induced plaintiff Catherine Fricano to make a purchase she would not have made otherwise.mold-remediation

Shortly after closing on the property, Fricano proceeded with upgrades house when she discovered mold “saturated” throughout the home.

This required Fricano to strip the house down to studs and have the entire interior reconstructed because of the extensive water and mold damage.

Fricano filed a fraudulent misrepresentation suit under WIS. STAT. §100.18. She alleged BOA misrepresented the condition of the home, and claimed that since it acquired the home by foreclosure it had “little or no direct knowledge regarding the condition of the home.” Her broker stated the “we know nothing!” language was very common with foreclosures.

The bank argued Fricano’s claims were barred by the state statute, evidence was legally insufficient to prove Fricano was materially induced to purchase, and that it was the bank’s intent to induce her.

Bank’s Pre-Sale Activities

When the bank acquired the home, the listing agent notified Bank of America of the “severe water damage.” The same agent conducted an inspection and warned that mold may develop. A water bill showed that 246,500 gallons of water in February. A pipe burst causing the entire house to flood, and ceilings to cave in.

There were reports and pictures showing visible mold in several parts of the home including the living room ceiling, kitchen, and basement. Seven months later BOA approved mold and remediation work, but the agent informed the bank the work was unsatisfactory.

BOA proceeded with listing the home for sale and potential buyers started viewing the property.

Plaintiff’s Inspections

Fricano participated in several walk-throughs of the home. Fricano, her fiancé, and real estate agent admitted to seeing mold in the basement and noticed a musty smell.

Before closing Fricano hired an inspector who conceded mold was present in the basement and many walls had been replaced throughout the house. He recommended she consult an environmental specialist about mold removal.

Because the specialist did not report damage in the livable areas of the home, Fricano proceeded with the closing.

Banks Arguments Denied

Under the Wisconsin fraudulent misrepresentation statute, a party is not relieved from liability of deceptive practices by making statements in a contract disclaiming knowledge of defects.

As a buyer Fricano was entitled to “rely upon and expect full and fair disclosure of all material facts related to the property.” Bank of America made affirmative misrepresentations about the condition of the home, thus the court stated an “as is” clause is not a complete bar when a claim is based on affirmative misrepresentations.

The statute states that the misrepresentation must be made to a member of the public. BOA argued because Fricano made an offer on the home she was no longer a member of the public but instead shared a “particular relationship.” However, the court held there was no contract between the plaintiff and bank when the bank misrepresented its knowledge of mold issues.

The banks remaining arguments were without merit and it did not matter that Fricano had notice of the issues through home inspections. The court stated, “in some cases a plaintiff’s believe of a defendant’s representations are unreasonable as a result the plaintiff’s reliance is also unreasonable.”

 

This case is Catherine Fricano v. Bank of America NA , Appeal No. 2015AP20, State of Wisconsin Court of Appeals District II

Illinois Judge Affirms $2M Award for Wrongful Foreclosures

Hammer v. RCSAn Illinois district court judge affirmed a $2 million verdict against a Texas-based mortgage servicer for its collection activities against an elderly homeowner.

Alena W. Hammer filed suit in 2013 after Residential Credit Solutions filed two wrongful foreclosures, although Hammer had previously completed a loan modification with the Federal Deposit Insurance Corporation.

In April 2015, a federal jury found in Hammer’s favor on all claims of breach of contract, violations of Illinois Consumer Fraud Act and the real Estate Settlement Procedures Act.

FDIC took over as receiver

Originally, Hammer’s home loan was serviced through AmTrust Bank, and it initiated foreclosure proceedings after she defaulted on payments in 2009. The foreclosure was stayed after AmTrust failed, and the FDIC took over as the receiver for AmTrust.

Hammer testified that she received her loan package a few days after it was due to be signed and returned. However, once she received the package she inquired about additional fees and immediately made the first payment.

In July, the loan was transferred to RCS. Up to this point, Hammer had not signed the loan agreement but she continued making the required payments.

The agreement was not signed and notarized until late August 2010 when Hammer was instructed by a FDIC loan negotiator to cross out the principal, write the principal amount less additional fees, and return the signed copy to RCS.

RCS told Hammer her modification was invalid and she needed to submit a new agreement with RCS directly. Hammer refused and continued making her lower payment.

RCS reinstated the 2009 foreclosure proceeding initiated by AmTrust, which was dismissed. Several months later the company filed a second action. Hammer alleged RCS illegally set up a escrow account and charged Hammer for insurance, taxes and 21 unexplained fees after the dismissal of the first suit.

Missed deadline

RCS raised several contract formation issues in post-trial motions. Because Hammer failed to timely accept the loan modification and made a handwritten change to the principal amount, RCS believed a contract was not formed.

District Judge Thomas Durkin stated the defendant waived this argument by failing to raise the issue in their written 50(b) motion. Further stating that “arguing timeliness in various points throughout the proceeding is insufficient to preserve the issue for a Rule 50(b) motion.” Durkin denied the motions.

Hammer and the FDIC had completed their negotiations prior to Hammer receiving the loan package based on the parties’ intent.

The FDIC transferred the loan to RCS including all relevant files and other written communications, this conduct and other written communications showed a clear intent to form a binding loan agreement even though the agreement was not signed by the deadline.

The judge wrote Hammer’s lawsuit against RCS had more to do with how RCS behaved after the initial foreclosure suit rather than as a punishment to the company as RCS argued.

Hammer v. Residential Credit Solutions Inc, Case No 1:2013cv06397, Northern District of Illinois.

Litigation Finance Companies Subject to Lender Laws

loans

The court interpreted the statute: a loan is the creation of debt by a lender’s payment of or agreement to pay money to the consumer.

The Colorado Supreme Court ruled that money advances from litigation finance companies to tort plaintiffs were loans subject to the Colorado’s Uniform Consumer Credit Code.

The litigation, which began after unrelated parties requested the office of the Colorado UCCC to issue an opinion letter on whether the businesses at issue required a special license.

The litigation finance companies involved, Oasis Legal Finance Group, Oasis Legal Finance Operating Company, and Plaintiff Funding Holding d/b/a Law Cash, purchased interest in potential proceeds of personal injury cases.

Funds for personal expenses

The tort plaintiffs are loaned no more than $1,500 with restrictions not to use on the pending legal claims. The purpose of the funds is for plaintiffs to cover personal expenses while the case is pending.

The plaintiffs would not be responsible any shortfalls at the conclusion of the litigation, nor would the plaintiff pay if there was no recovery. However, the money was loaned with interest. When the case concluded, plaintiff would pay the amount loaned, a multiplier, and application and administration fees.

These advances were essentially short-term loans, and the length of the case increased the plaintiffs repayment. The court agreed with the appeals court that “the transactions created debt, or an obligation to repay, that grows with the passage of time.”

“Purchase Agreements”

In each defendant’s agreement, the plaintiff maintained all control over the litigation proceedings.

The differences were time for repayment, multipliers, and the specific language of the agreement. For example, Oasis required plaintiffs to sign a “Purchase Agreement.” It allowed plaintiffs to repay within six months, with additional fees. As the “Purchaser” the plaintiff agreed to assign Oasis any future proceeds from pending litigation. Oasis also requested financial information such as a credit report.

Law Cash’s agreement was titled “Lawsuit Investment Agreement.” The loan was described as a security interest and as a lien in litigation proceeds with a payoff schedule.

Like Tax Return Loans

The opinion letter issued in April 2010 stated the advances were loans similar to loans issued to taxpayers in anticipation of federal and state tax refunds. The taxpayer assigned their refunds in return for an immediate lump sum of cash.

The Administrator launched an investigation into LawCash and Oasis after writing the writing the opinion letter, although both companies had voluntarily ceased business in the state. The Administrator informed both companies that they violated the Colorado UCCC by issuing loans to tort plaintiffs and offered to settle. Both companies declined and the case proceeded.

In the current proceeding, the LawCash and Oasis attempted to classify the agreements as sales and assignment of assets because the agreements stated the transaction was not a loan. The state argued although the plaintiffs were not required to pay back any deficiencies, future proceeds secured the loan and it included high interest rates.

The court interpreted the UCCC directly: a loan is the creation of debt by a lender’s payment of or agreement to pay money to the consumer. The court further defined debt as described under the code. Based on the definition, the court agreed that the Administrator’s findings were correct and the transactions mirrored the elements of a consumer loan.

Additionally, the court disagreed that the transactions were not loans because the repayment did not exceed recoveries. Both companies investigated the plaintiff’s claims prior to issuing a loan. In the normal course of business, the companies expected full repayment of the loan and generally received that.

Ultimately the court’s decision rested on the fact that the UCCC definition of a loan, debt, increasing amount of repayment, and the creation of debt for the plaintiffs.

 

This case is Oasis Legal Fin. Grp, et al v. Coffman, Supreme Court of Colorado, Case No 13SC497