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Michigan: Former Prisoners Must Repay Lawsuit Cash Advance Company

Michigan: Former Prisoners Must Repay Lawsuit Cash Advance Company

by David Reutter

The Sixth Circuit Court of Appeals has upheld a district court’s ruling that required eight former prisoners to repay a company that purchased a contingent portion of their lawsuit settlement.

The appellate decision affirmed the judgment of a Michigan federal district court in favor of Money for Lawsuits (MFL), which invests in litigation “by purchasing a contingent right to receive a portion of the plaintiff’s settlement or judgment proceeds.”

MFL had paid about $860,000 to eight former female prisoners who were part of a class-action lawsuit that claimed male prison guards systematically engaged in sexual harassment and abuse. The suit resulted in a $100 million settlement with the State of Michigan. [See: PLN, Dec. 2009, p.30].

The eight women received nearly $5 million from the settlement, and MFL claimed that with interest the former prisoners owed the company about $4.2 million. After they refused to pay, MFL filed suit.

The federal district court ruled in favor of MFL. The women’s attorney, Ralph J. Sirlin, appealed and argued the company had violated Michigan’s usury laws. MFL charges interest of more than 80 percent annually in some cases, which Sirlin said invalidated the agreement between the firm and the women.

The Sixth Circuit, however, held that New York rather than Michigan law applied to the case, as that is what the agreement between MFL and the former prisoners specified. The Court of Appeals agreed with the district court, which also found the agreements the women signed were not loans because the money they received from the company would only be repaid if the lawsuit was successful.

Sirlin criticized MFL’s business model. “The interest rates were astronomical,” he said. “These corporations take advantage of these people.” However, the contractual agreement was valid, and the women could not simply refuse to pay.

The Sixth Circuit also considered a default judgment entered against one of the women, which it upheld because she had failed to show there was a “mistake, inadvertence, surprise, or excusable neglect.” The district court’s order was affirmed. See: Money for Lawsuits v. Rowe, 570 Fed.Appx. 442 (6th Cir. 2014).

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Related legal case

Money for Lawsuits v. Rowe