Present:    All the Justices

SETTLEMENT FUNDING, LLC

v.   Record No. 061373      OPINION BY JUSTICE ELIZABETH B. LACY
                                         June 8, 2007
CARLA VON NEUMANN-LILLIE

              FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
                      M. Langhorne Keith, Judge

        In this appeal we consider whether the circuit court

erred in refusing to apply the law of the jurisdiction

stipulated in the choice of law provision of a contract and in

its application of Virginia's usury law to the provisions of

that contract.

                                FACTS

        On November 12, 1996, Carla Von Neumann-Lillie (Lillie)

redeemed a winning ticket in the "Money for Life" instant win

game of the Virginia Lottery.    The prize was $1,000 per month

for the duration of Lillie's life.

        Lillie entered into a loan agreement with WebBank

Corporation (WebBank) for $29,000 plus interest.    Lillie was

to repay the loan in monthly installments of $500 for a period

of 178 months, commencing April 1999 and ending January 15,

2014.    The loan agreement contained a choice of law provision,

stating all disputes would be determined in accordance with

the laws of the State of Utah.
        Lillie also executed a secured promissory note in which

she promised to pay WebBank, its successors and assigns, the

principal amount of $29,000 plus interest and a UCC-1

Financing Statement, which was filed in the Circuit Court of

Prince William County on March 10, 1999.    WebBank assigned its

right, title, and interest in the loan to Settlement Funding,

L.L.C.    Lillie then submitted a change of address form to the

Virginia Lottery directing the Lottery to send her award

payments to a post office box in Georgia owned by Settlement

Funding.    Settlement Funding collected the loan payments from

the Virginia Lottery checks and refunded to Lillie any amount

received over the loan payment due.

        After Lillie had paid $13,500 on the loan over 27 months,

she contacted Settlement Funding to pay the balance of her

loan.    Settlement Funding informed Lillie that, including

interest and fees, the prepayment amount was $67,023.    Lillie

claimed she was unaware that any interest was due under the

loan and stopped all payments to Settlement Funding, thereby

defaulting on the terms of the loan agreement.    Subsequently,

Settlement Funding notified the Virginia Lottery of its

security interest in Lillie's Lottery prize, that Lillie had

defaulted on her loan, and that all payments due to Lillie

"must be paid and delivered" to Settlement Funding.




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     On September 21, 2001, the Commonwealth of Virginia State

Lottery Department filed a Bill of Complaint for Interpleader,

asserting that pursuant to Code § 58.1-4013 Lottery prizes are

not assignable.    The circuit court granted the interpleader,

and directed all prize installments be paid to the Registry of

the Court.1

     On October 31, 2001, Settlement Funding filed an answer

in the interpleader action and a Cross-Bill against Lillie.

The Cross-Bill requested equitable relief in the form of a

court order declaring Settlement Funding's security interest

in the Lottery payments valid and enforceable and ordering the

Virginia Lottery to pay the Lottery Prize Payments to

Settlement Funding.

     On May 15, 2002, Lillie filed an answer to Settlement

Funding's Cross-Bill in which she asserted four affirmative

defenses.     First, Lillie asserted that under Code § 58.1-4013,

the security interest in and assignment of the Lottery

winnings was unlawful, and therefore void and unenforceable.

Second, Lillie asserted that the interest sought under the

loan agreement was usurious.    Third, she claimed that the loan

agreement, Security Agreement, Secured Promissory Note, and


     1
       The litigation was originally filed in the Circuit Court
for the City of Richmond but subsequently transferred to the
Circuit Court of Fairfax County.



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UCC-1 Financing Statement were void and unenforceable under

the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq.

(Truth in Lending Act).   Finally, she asserted that Settlement

Funding could not recover in equity because it acted with

unclean hands.   Lillie also filed a third party Bill of

Complaint and Cross-Bill against Settlement Funding asserting

breach of contract, usury, avoidance, and fraud actions.

     In an opinion letter dated November 7, 2005, the circuit

court held that the assignment of Lottery proceeds was

unlawful pursuant to Code § 58.1-4013 and thus Settlement

Funding did not possess a valid security interest in Lillie's

Lottery winnings.   The circuit court also granted Settlement

Funding leave to file an amended pleading against Lillie

seeking a money judgment for a specific sum due under the note

and loan agreement.

     Settlement Funding filed an amended "Cross-Claim" seeking

judgment against Lillie for the loan's principal balance plus

accrued interest and penalties for a total of $253,727.89 plus

interest and legal expenses.   Settlement Funding asserted four

counts against Lillie:    breach of contract, quantum meruit,

promissory estoppel, and unjust enrichment.   Lillie raised

several affirmative defenses to the Cross-Claim including:

usury, violations of the Truth in Lending Act, fraud, and

unclean hands.   At the hearing on Settlement Funding's Cross-


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Claim, Settlement Funding argued that Lillie's fraud claim

should be stricken, that the Truth in Lending Act did not

apply, and that Lillie's usury defense based on Virginia law

was improper because the loan agreement contained a choice of

law provision designating Utah law as controlling, and Utah

does not recognize usury protections.   The circuit court

granted Settlement Funding's motion to strike Lillie's fraud

count, but took the remaining matters under advisement.

Following the hearing, Settlement Funding provided the court

with supplemental memoranda detailing Utah law and the status

of WebBank as a Utah industrial loan bank.

     On February 10, 2006, the circuit court issued a letter

opinion in which it declined to apply Utah law on the grounds

that Settlement Funding produced no proper proof as to Utah

law at trial.   Without proof of Utah law, the circuit court

reasoned it must presume Utah law to be identical to Virginia

law and, under Virginia Code § 6.1-330.55, a loan with an

interest rate in excess of twelve percent is usurious.

Accordingly, the circuit court held Settlement Funding could

collect only the principal sum of Lillie's loan, less credit

for payments received, but could not recover interest or fees.

     The circuit court also held the loan agreement violated

the Truth in Lending Act because WebBank failed to provide

mandatory disclosures to Lillie.    The circuit court held that


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because Lillie's statutory damages under the Truth in Lending

Act would more than offset the amount Settlement Funding was

entitled to recover under the loan agreement, Settlement

Funding was not entitled to recover any amount from Lillie.

The circuit court also awarded Lillie $47,164.60 plus interest

in damages for usury under Virginia law, attorney's fees of

$24,694.50 and costs.

     We awarded Settlement Funding an appeal limited to

whether the circuit court erred in (1) failing to construe the

loan agreement under Utah law in accordance with the choice of

law provision in the loan agreement and (2) applying Virginia

usury statutes and concluding the interest rate for the

subject loan was usurious.

                             DISCUSSION

     If a contract specifies that the substantive law of

another jurisdiction governs its interpretation or

application, the parties' choice of substantive law should be

applied.   Paul Bus. Sys., Inc. v. Canon U.S.A., Inc., 240 Va.

337, 342, 397 S.E.2d 804, 807 (1990) (citing Union Central

Life Ins. Co. v. Pollard, 94 Va. 146, 151-52, 26 S.E. 421, 422

(1896)).   Paragraph 13 of the loan agreement provides that the

loan transaction was completed in Utah, that the lender,

WebBank, was doing business in Utah, and that the borrower

agrees that "any and all disputes arising from or concerning


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this Agreement . . . shall be determined in accordance with

the laws of the State of Utah."

     In its February 10, 2006 opinion letter, the circuit

court acknowledged that Utah law would apply under this choice

of law provision but declined to apply Utah law because "there

was no proper proof produced at trial in respect to Utah law."

The record in this case, however, does not support the circuit

court's conclusion.

     At trial, when asked what the substance of Utah's usury

law was, Settlement Funding's counsel responded that "[t]here

is no usury in Utah" and that he would "have that statutory

citation pulled" and "quickly sent over" to prove the absence

of usury law in Utah.   Settlement Funding then submitted two

post-hearing memoranda.   The circuit court, in its opinion

letter specifically indicated that it considered the first

memorandum.   In that memorandum, Settlement Funding again

asserted that Utah has not established any limits on maximum

rates of interest for consumer loans.   Rather, Settlement

Funding pointed out, "the unconscionability provision at

Section 70C-7-106 of the Utah Code provides that the ceiling

interest rate be determined by the market conditions."

Settlement Funding also cited Utah Code 1943, 44-0-2, and Utah

case law regarding usury.




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       These citations to Utah law provided the circuit court

with sufficient information regarding the substance of Utah

law.       See also Code § 8.01-386.       Therefore, the circuit court

erred in refusing to apply Utah law in the construction of the

loan agreement.2

       Accordingly, we will reverse those portions of the

judgments of the circuit court entering judgment in favor of

Lillie based on her claim of usury under Code § 6.1-330.57 and

awarding her damages, costs and attorneys' fees under that

statute and remand the case for further proceedings.

                                   Reversed in part, and remanded.




       2
       In light of this holding, we need not address Settlement
Funding's remaining assignment of error.

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