A Kentucky man who was injured when a gas can exploded doesn’t owe litigation funder Prospect Funding Holdings LLC $1.5 million or more in interest on four loans, the Sixth Circuit ruled April 25.

The loan agreements for Christopher Boling’s underlying product liability case violate Kentucky laws against usury, a panel of the U.S. Court of Appeals for the Sixth Circuit said in an unpublished opinion. And they violate a Kentucky statute banning a non-party from funding a suit in exchange for a contingent interest in the recovery, a practice called champerty, the court said.

The loans created an effective annual interest rate of 79 percent, the appellate panel said.

Boling’s Blitz USA Inc. gas can exploded in 2008 when a hot metal eye bolt ignited vapors from the can, he alleged in his underlying suit against Blitz.

Prospect’s two loan agreements, and two others in which another funder assigned its rights to Prospect, provided $30,000 to support Boling’s suit against Blitz. The agreements charged more than $4,500 in fees and the loans accrued interest at almost 5 percent per month, compounded monthly, the court said.

Boling’s suit against Blitz was resolved in 2014, according to the court.

Blitz entered bankruptcy in 2011, in part because of similar lawsuits over exploding gas cans, and created a personal injury trust.

After Boling’s suit was resolved, Prospect asked him for $340,405, according to the court. By March 2017, the district court calculated the outstanding balance at $1.5 million.

The court waded through a procedural thicket to determine that Kentucky law applied to the agreements. And under Kentucky law, they aren’t valid, it said in an opinion by Judge Danny J. Boggs.

Litigation funding is allowed in some states, but Kentucky’s ban on champerty encompasses the “assistance” Prospect provided here, it said.

And “the interest rate provided for in the Agreements far exceeds the permissible statutory rate,” violating the usury law, the court said.

Chief Judge R. Guy Cole Jr. and Judge Julia Smith Gibbons also served on the panel.

Bishop Korus Friend and the Abney Law Office represented Boling.

Hegge & Confusione represented Prospect.

The case is Boling v. Prospect Funding Holdings, LLC, 6th Cir., No. 18-5599, unpublished 4/25/19.