Title: Rancman v. Interim Settlement Funding Corp.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121, 2003-Ohio-2721.] 
 
 
RANCMAN, APPELLEE, v. INTERIM SETTLEMENT FUNDING CORPORATION ET 
AL., APPELLANTS. 
[Cite as Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121, 
2003-Ohio-2721.] 
Commercial transactions — Small loans — Attorneys at law — Contracts — 
Contract making the repayment of funds advanced to a party to a 
pending case contingent upon the outcome of that case is void as 
champerty and maintenance. 
(No. 2001-2154 — Submitted January 21, 2003 — Decided June 11, 2003.) 
APPEAL from the Court of Appeals for Summit County, No. 20523, 2001-Ohio-
1669. 
__________________ 
SYLLABUS OF THE COURT 
Except as otherwise permitted by legislative enactment or the Code of 
Professional Responsibility, a contract making the repayment of funds 
advanced to a party to a pending case contingent upon the outcome of that 
case is void as champerty and maintenance. 
__________________ 
 
O’CONNOR, J. 
{¶1} 
We are asked to address whether a nonrecourse advance of funds 
secured solely by an interest in a pending lawsuit and at a contracted return 
exceeding 180 percent per year is permissible under Ohio law.  We hold that it is 
not.  Such an agreement constitutes champerty and maintenance and thus is void 
under Ohio law. 
I 
SUPREME COURT OF OHIO 
2 
{¶2} 
Roberta Rancman, appellee, was seriously injured as a passenger 
in a one-vehicle collision in the early hours of March 1, 1998.  Rancman filed suit 
in March 1999 against State Farm Insurance Company, claiming uninsured 
motorist benefits under a motor vehicle policy issued to her estranged husband. 
{¶3} 
Rancman was unwilling to wait until the resolution of her case 
against State Farm to receive the insurance proceeds. In April 1999, Rancman 
contacted appellant Interim Settlement Funding Corp. (“Interim”), seeking an 
advance of funds secured by her pending claim.  In April 1999, after investigating 
Rancman’s case, Interim’s president, on behalf of a second company, appellant 
Future Settlement Funding Corporation (“FSF”), forwarded $6,000 to Rancman in 
exchange for the first $16,800 she would recover if the case was resolved within 
12 months, $22,200 if resolved within 18 months, or $27,600 if resolved within 
24 months.  If the case was not resolved in Rancman’s favor, she had no 
obligation under the contract. 
{¶4} 
In September 1999, Interim advanced an additional $1,000 to 
Rancman, which was secured by the next $2,800 she expected to collect on her 
claim.  The Interim agreement was also without recourse if Rancman did not 
recover in the State Farm action. 
{¶5} 
Rancman settled her case against State Farm for $100,000 within 
12 months of entering the agreement with FSF.  Rancman refused payment on the 
contracts; instead, she tendered the return of the moneys advanced to her at eight 
percent interest per annum.  In December 1999, Rancman filed suit against 
Interim and FSF, seeking rescission of the contracts and a declaratory judgment 
that the defendants’ practices were “unfair, deceptive, and unconscionable sales 
practices * * *.” 
{¶6} 
The case proceeded to a two-day trial before a magistrate.  The 
magistrate concluded that the transactions were loans that violated Ohio’s usury 
law and provisions of R.C. Chapter 1321, the Small Loan Act.  The common 
January Term, 2003 
3 
pleas court adopted the magistrate’s findings and ordered the repayment of the 
principal at eight-percent interest per annum.  The Court of Appeals for Summit 
County agreed that the transactions were loans subject to R.C. Chapter 1321.1  As 
neither Interim nor FSF had obtained a license pursuant to R.C. Chapter 1321, the 
court found the loans to be void under R.C. 1321.02.  This holding prohibited the 
appellants from collecting “any principal, interest, or charges.” 
{¶7} 
The case is now before this court upon our allowance of Interim 
and FSF’s discretionary appeal. 
II 
{¶8} 
Rancman argues, and the courts below held, that certain contingent 
advances on settlements are impermissible loans because the appellants incurred 
virtually no risk in the transactions and because the potential profit on the 
advances exceeds the legally permissible interest rate.  Interim and FSF 
adamantly contend that the advances are investments, not loans, and note that 
there is no statute limiting the return on an investment. 
{¶9} 
It is unnecessary for the resolution of this case to determine the 
threshold level of risk necessary for a contingent advance to be treated as an 
investment rather than a loan.  The advances here are void as champerty and 
maintenance regardless of whether they are loans or investments. 
{¶10} “Maintenance” is assistance to a litigant in pursuing or defending a 
lawsuit provided by someone who does not have a bona fide interest in the case.  
“Champerty” is a form of maintenance in which a nonparty undertakes to further 
another’s interest in a suit in exchange for a part of the litigated matter if a 
favorable result ensues. 14 Ohio Jurisprudence 3d (1995), Champerty and 
Maintenance, Section 1.  “The doctrines of champerty and maintenance were 
developed at common law to prevent officious intermeddlers from stirring up 
                                                 
1. 
To invoke R.C. Chapter 1321 against the $6,000 loan, the court had first to determine that 
the loan was in fact two $3,000 loans—one from FSF and one from Interim. 
SUPREME COURT OF OHIO 
4 
strife and contention by vexatious and speculative litigation which would disturb 
the peace of society, lead to corrupt practices, and prevent the remedial process of 
the law.”  14 Corpus Juris Secondum (1991), Champerty and Maintenance, 
Section 3.  See, also, Bluebird Partners, L.P. v. First Fid. Bank, N.A. (2000), 94 
N.Y.2d 726, 709 N.Y.S.2d 865, 731 N.E.2d 581. 
{¶11} The ancient practices of champerty and maintenance have been 
vilified in Ohio since the early years of our statehood.  Key v. Vattier (1823), 1 
Ohio 132, 136, 1823 WL 8.  We stated in Key that maintenance “is an offense 
against public justice, as it keeps alive strife and contention, and perverts the 
remedial process of the law into an engine of oppression.” Id. at 143.  We have 
held the assignment of rights to a lawsuit to be void as champerty.  Brown v. Ginn 
(1902), 66 Ohio St. 316, 64 N.E. 123, paragraph two of the syllabus.  We have 
also said “that the law of Ohio will tolerate no lien in or out of the [legal] 
profession, as a general rule, which will prevent litigants from compromising, or 
settling their controversies, or which, in its tendencies, encourages, promotes, or 
extends litigation.” Davy v. Fid. & Cas. Ins. Co. (1908), 78 Ohio St. 256, 268-
269, 85 N.E. 504. 
{¶12} In recent years, champerty and maintenance have lain dormant in 
Ohio courts.  Historically, champertors and maintainors were attorneys, and these 
practices by attorneys have been regulated by DR 5-103 of the Code of 
Professional Responsibility. See, e.g., Disciplinary Counsel v. Williams (1990), 
51 Ohio St.3d 36, 553 N.E.2d 1082.  Nonetheless, the codification of these 
doctrines for attorney discipline did not remove them from the common law.  
“[T]he doctrines of champerty and maintenance appear in numerous Ohio cases as 
contract defenses * * *.”  Tosi v. Jones (1996), 115 Ohio App.3d 396, 400, 685 
N.E.2d 580, appeal dismissed upon the application of appellant in (1997), 78 Ohio 
St.3d 1430, 676 N.E.2d 535. 
January Term, 2003 
5 
{¶13} For example, the Sixth District Court of Appeals voided an 
agreement as champerty and maintenance where a company in the business of 
locating heirs to unclaimed estates contracted with potential heirs for one-third of 
their eventual inheritance.  Finders Diversified, Inc. v. Baugh (Apr. 20, 1984), 
Lucas App. No. L-83-424, 1984 WL 7841.  That court voided the agreement 
because the company agreed to pay the costs associated with locating and 
collecting from the estate (maintenance) and because the company would receive 
a stake in the heirs’ claims (champerty). 
{¶14} The advances sub judice constitute champerty because FSF and 
Interim sought to profit from Rancman’s case.  They also constitute maintenance 
because FSF and Interim each purchased a share of a suit to which they did not 
have an independent interest; and because the agreements provided Rancman with 
a disincentive to settle her case. 
{¶15} The $6,000 advance, for example, gave FSF the right to the first 
$16,800 of the settlement after fees, expenses, and superior liens, if the State 
Farm case settled within 12 months.  If there had not been any superior liens on 
Rancman’s settlement and her attorney had charged a 30-percent contingency fee, 
Rancman would not have received any funds from a settlement of $24,000 or less.  
This calculation gives Rancman an absolute disincentive to settle for $24,000 or 
less because she would keep the $6,000 advance regardless of whether she settles 
with State Farm and would not receive any additional money from a $24,000 
settlement. 
{¶16} Under the same facts, the $1,000 Interim advance would provide a 
settlement disincentive of an additional $4,000.  Thus, with no liens and a 30-
percent attorney fee, the $7,000 advanced to Rancman effectively bars her from 
considering a settlement offer of up to $28,000. 
{¶17} These advances also affect settlement offers greater than $28,000.  
Suppose Rancman decides that she will settle for nothing less than $80,000 minus 
SUPREME COURT OF OHIO 
6 
attorney fees.  Because of the obligation to repay the advances, she would refuse 
to settle until State Farm offers $98,000.2  If the settlement advance agreements 
are enforced, Rancman must receive an $18,000 premium on a settlement offer to 
have the same incentive to settle that she would have had if she had not entered 
into the agreements with FSF and Interim.  This can prolong litigation and reduce 
settlement incentives—an evil that prohibitions against maintenance seek to 
eliminate.  Cf. Cleveland Bar Assn. v. Nusbaum (2001), 93 Ohio St.3d 150, 151, 
753 N.E.2d 183 (Lundberg Stratton, J., concurring). 
{¶18} Equally troubling is a champertor’s earning a handsome profit by 
speculating in a lawsuit and by potentially manipulating a party to the suit.  Key, 1 
Ohio at 146.  The FSF agreement reads, “[Rancman] ACKNOWLEDGES AND 
FULLY UNDERSTANDS THAT FSF MAY, WILL, AND SHOULD MAKE A 
SUBSTANTIAL PROFIT ON THIS AGREEMENT.”  However, a lawsuit is not 
an investment vehicle.  Speculating in lawsuits is prohibited by Ohio law.  An 
intermeddler is not permitted to gorge upon the fruits of litigation. 
{¶19} Except as otherwise permitted by legislative enactment or the Code 
of Professional Responsibility, a contract making the repayment of funds 
advanced to a party to a pending case contingent upon the outcome of that case is 
void as champerty and maintenance.  Such an advance constitutes champerty and 
maintenance because it gives a nonparty an impermissible interest in a suit, 
impedes the settlement of the underlying case, and promotes speculation in 
lawsuits.  The advances made to Rancman constituted champerty and 
maintenance.  Consequently, the contracts requiring their repayment are void and 
shall not be enforced.  Gen. Film Co. v. Sampliner (C.A.6, 1916), 232 F. 95, 99. 
{¶20} Therefore, we affirm the judgment of the court of appeals. 
                                                 
2. 
This number is the combination of the $80,000 Rancman desires plus the $10,800 and 
$1,800 premiums she must pay to FSF and Interim, respectively, together with attorney fees on 
these premiums.   
January Term, 2003 
7 
Judgment affirmed. 
 
MOYER, C.J., F.E. SWEENEY, PFEIFER and LUNDBERG STRATTON, JJ., 
concur. 
 
RESNICK and CHRISTLEY, JJ., concur separately. 
 
JUDITH A. CHRISTLEY, J., of the Eleventh Appellate District, sitting for 
COOK, J. 
__________________ 
 
CHRISTLEY, J., concurring. 
{¶21} Although I concur with the majority’s judgment, I write separately 
to emphasize the following point. 
{¶22} It appears from the record that neither party has addressed whether 
the doctrines of champerty and maintenance are applicable to the matter currently 
before the court.  Accordingly, I believe a better course of action would have been 
to allow the parties the opportunity to submit additional briefing on this issue.  
Having said that, however, I agree with the majority’s ultimate conclusion that the 
protections embodied in champerty and maintenance prohibit contracts such as 
the ones presented here. 
 
RESNICK, J., concurs in the foregoing concurring opinion. 
__________________ 
 
Slater & Zurz and Walter Kaufmann, for appellee. 
 
Brouse McDowell, L.P.A., Robert M. Stefancin and Rebecca A. Kucera, 
for appellants Interim Settlement Funding Corp. and Future Settlement Funding 
Corp. 
 
Connie J. Elliano, for appellant Future Settlement Funding Corp. 
 
Todd W. Sleggs & Associates and Todd W. Sleggs, urging reversal for 
amicus curiae Todd W. Sleggs. 
 
Andrew T. Savage, urging reversal for amici curiae LawFunds, L.L.C.; 
Cambridge Management Group, L.L.C.; Capital Transaction Group, Inc.; 
SUPREME COURT OF OHIO 
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ExpertFunding.com Corporation; Funding Office, Inc.; Future Funding of Utah, 
Inc.; Future Settlement Funding of South Carolina, Inc.; Budget Fast Cash, 
L.L.C.; LawsuitFunding.com, Inc.; Litigation Funding, Inc.; Plaintiff Support 
Services, Inc.; Pre-Settlement Funding Corp.; and Shree Rajendra Corp., d.b.a. 
Settlement Financial Group. 
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