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The Supreme Court of Ohio applied the state’s common law doctrines of champerty and maintenance to loans contingent on the outcome of pending litigation. In 1998, Roberta Rancman was seriously injured in a car accident. She later filed suit against the State Farm Insurance Company seeking benefits under a policy issued to her estranged husband. Rancman then contracted with the Interim Settlement Funding Corporation for an advance on the outcome of her case. Interim agreed to advance Rancman $6,000 in exchange for the first $16,800 she recovered within the following twelve months, $22,200 within the following eighteen months, or $27,600 within two years. Interim later advanced another $1,000 secured by the next $2,800 she might recover on her claim. Rancman had no obligation under the contract if the case was not resolved in her favor.

Although Rancman settled her case for $100,000 within twelve months of the advance, she refused to honor the contract with Interim. Instead, she repaid the $7,000 advance with eight percent interest per annum, and filed suit seeking recision and a declaratory judgment that Interim’s sales practices were unfair. A trial court concluded the loans violated Ohio’s usury law, and an intermediate court of appeals affirmed.

On appeal to the Supreme Court of Ohio, Interim defended the contracts, arguing that the advances to Rancman were investments, and thus outside the applicable usury limits. The supreme court declined to address this defense, and instead held that the advances were void as champerty and maintenance. The supreme court noted that in recent years, the state’s longstanding prohibition on third-party financing of lawsuits has been largely addressed by the provisions of the state professional responsibility code regulating attorneys. Nonetheless, the court held, these regulations did not abrogate the common law doctrines of champerty and maintenance. The court held that Interim’s advancements constituted champerty by seeking to profit from Rancman’s case, and constituted maintenance by purchasing a share of her suit.

The supreme court detailed at length the disincentive to settle imposed by the agreements. The court noted that because Rancman had no obligation if she failed to recover on her action, Rancman would only settle for an amount above the repayment sum, plus costs and fees. Translating this concern into dollars, the supreme court calculated that Interim’s right to the first $19,600 recovered within twelve months, and attorney fees of one-third her recovery, meant that Rancman would not settle for less than $28,000. The court concluded that the contract might therefore prolong litigation in contravention of established public policy.

The case is Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217 (Ohio 2003).

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