Welcome back to the Big Law Business column. It’s good to be back after three months of paternity leave. Perhaps next week we’ll catch up on some things we missed in Big Law. This week, we look at a litigation funding dispute in which a funder’s payment is held up in an unlikely venue because of concerns over usury.

Plenty of lawyers who get in bed with litigation funders later try to argue that the deals are illegal because they end up being too expensive.

The fancy word is “usurious.” That’s the centuries-old term used to describe what others would call “loan sharking.” In legal circles, it means lending money at interest rates so high they’re not enforceable.

Most of those arguments lose. Why? In litigation finance, courts usually find that a deal is a deal.

Litigation funders are usually lawyers. They write their own contracts. They are adept at arguing that the money they provide to law firms is not a conventional “loan.” That’s because funders typically only get paid if the cases they invest in win.

Funders have largely persuaded judges and arbitrators that the unique nature of their deals mean they’re not subject to legal limits on interest rates.

They haven’t met Denver Probate Court Judge Elizabeth Leith. The usury argument is winning the day in her courtroom, where a funding dispute is taking place in an unlikely setting over a Colorado conservatorship.

The court in 2020 deemed a $500,000 litigation finance deal “illegal” because its terms required repayment of 10 times the principal. Three years later, the ruling is still keeping a Hong Kong litigation finance company from collecting the more than $8 million it says it’s owed, even after an arbitrator sided with the funder.

The US Court of Appeals for the Eleventh Circuit this week decided the probate court’s rulings can’t be overlooked.

Let me be clear, for fastidious lawyers looking to sneak out of funding deals: This playbook is going to be very difficult to replicate. Few litigation awards wind up in conservatorship.

That’s what happened after lawyers for Paul Horn negotiated a $57 million settlement with AT&T. Horn, who appears to have lived in Thailand for the past 20 years, held an interest in a Colorado telecommunications system that was sold to AT&T. To help afford his fight for his share of the money, he made a deal with Hong Kong’s Noble Prestige Ltd.

Horn and Noble Prestige struck a deal in 2011 in which the funder gave Horn $500,000 in exchange for $5 million or 5% of his award, whichever was greater. That’s an expensive deal, no doubt, but it’s not unheard of in the litigation finance world.

Horn told Noble Prestige he could not pursue his case without the money, according to court filings, which he needed to hire experts to assess the value of his stake in the company. And he seemed relatively confident he had a good claim and that he was going to receive a huge payout—something close to nine figures.

The deal included one particularly interesting wrinkle: Horn was not allowed to accept a settlement worth less than 90% of what he estimated the case was worth: north of $100 million, court documents show. Funders usually say they exert no control over settlements.

He didn’t quite get there, settling for $57 million. So Noble Prestige alleged he breached the terms of the deal.

It’s not clear whether Horn would have owed Noble Prestige anything had he not reached the settlement with AT&T. Litigation funders usually can charge high prices for their money because of the risk that comes with it. They get nothing back if the case isn’t successful.

Things got complicated in 2017 when Horn’s estate was put into a conservatorship in Colorado. Horn has “conversion disorder,” a mental health condition, according to the probate court. The condition rendered him “incapable of making decisions concerning his lawsuit against AT&T,” the court found.

“Because he lacks the ability to make simple decisions, substantial assets belonging to Mr. Horn will be wasted, if not lost, if no Special Conservator is appointed,” Leith wrote in 2017.

The decision put Leith in control of payments from the $57 million award. It turns out that she’s not a fan of the deal Horn cut with Noble Prestige.

In September 2020, Leith ruled that Horn’s estate could not pay a $5 million award to Noble Prestige that had been granted by an arbitration panel in Hong Kong—a sum now up to more than $8 million with interest. She made clear that the terms of the deal are usurious in her view.

Leith noted the deal was called a “loan facility agreement.” She highlighted the repayment terms were ten times the principal. She said the $4.5 million Noble was owed above the principal comes in the form of “disguised” interest. And she wrote that the loan “appears to be illegal under both United States and Hong Kong law.” Finally, Leith called Noble Prestige’s litigation over the deal “frivolous.”

This isn’t a surprising response to a loan with the kinds of terms in Horn’s deal. But it’s also not how most arbitrators have viewed litigation funding contracts.

Just last month a federal court overruled a lawyer’s usury objection to a litigation funding deal, noting the court did not have the power to relitigate an arbitration panel’s decision even if it was incorrect. That came in a case we’ve discussed here before.

It’s worth saying again: The Denver Probate Court’s decision is pretty extraordinary.

Not only did Leith favor the usury argument, but the decision holds up payment of an international arbitration award—something federal courts are loathe to do.

The Eleventh Circuit this week held that the probate court alone has control over the estate, remanding Noble Prestige’s efforts to seek the money through Florida federal court litigation it has pursued since 2020.

Edward Lenci, a Hinshaw & Culbertson partner who represents Noble Prestige, said in an interview he’s confident his client will prevail in confirming and collecting the arbitration award. He said he will seek to have two arbitration awards confirmed by the federal court in Florida.

That will be an interesting challenge if it requires changing Leith’s mind about the contract—something Noble Prestige’s lawyers have not yet tried.

“The Denver court is very hostile to us,” Lenci told the Eleventh Circuit in a 2021 oral argument.

James McCann, an Akerman of counsel who represents Horn’s interests in the Florida case, declined to comment. He said in his oral argument that Noble Prestige has so far ignored the probate court.

“For almost four years now they have disregarded, disrespected, ignored the Denver probate court; instead, proceeding around the country, around the world,” McCann said during the oral arguments.

Worth Your Time

On Big Law and Israel: Davis Polk & Wardwell rescinded job offers to three law students who signed on to statements about the Hamas attack on Israel, Meghan Tribe reports.

On Big Law and Israel II: Davis Polk’s move came after Winston & Strawn rescinded a job offer to Ryna Workman, a New York University law student, who blamed Israel for the deadly attacks by Hamas. Meghan reported this week that Workman said their message “came across as insensitive to the suffering of Israelis,” but was meant bring attention to a lack of coverage about Palestinians.

On Big Law DEI Suits: Affirmative-action opponent Edward Blum threatened two more law firms, Tatyana Monnay reported. Fox Rothschild and Susman Godfrey are now facing possible lawsuits over their diversity fellowship programs, bringing to five the number of legal operations Blum has targeted in the past eight days.

On Lawyer Fees: Attorneys representing municipalities that sued DuPont de Nemours Inc., Chemours Co., and other chemical companies for allegedly contaminating their drinking water with PFAS asked a federal judge for $94.8 million in attorneys’ fees, Samantha Hawkins reports. Brian Fitzpatrick, an expert in legal fee requests whom we’ve covered extensively, said the 8% lawyer fee request comes in below a 9.3% to 13.7% average in billion-dollar cases.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.