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April 30, 2013

Lawsuit Funder Sues Plaintiffs Firm

“This is not pretty,” writes Alison Frankel in ThomsonReuters

She’s referring to a dispute between a plaintiffs’ law firm and a lender that provided it a loan in order to litigate an antitrust class action.  Now that the class action case has settled, the lender has filed a suit seeking $28 million as repayment for the loan.

Writes Frankel: 

The breach-of-contract suit claims that under a 2004 lending agreement, [plaintiffs’ lawyer] Alioto owes [funder] LFG $28 million of the $49 million he has been awarded as co-lead counsel to a class of indirect purchasers of liquid crystal display screens. LFG asserts that it holds a lien on all of the Alioto firm’s fees and receivables via an $18.3 million credit facility extended by the lender. Alioto, meanwhile, told me Monday that he has repaid $11 million to LFG, which includes “most if not all” of his $7 million to $9 million in principal, plus interest. According to Alioto, the lender is improperly attempting to cash in on his fees from the LCD case.

Third-party funding of litigation raises a host of ethical issues, including the introduction of an outsider with an entirely financial stake into the attorney-client relationship.  This case shows what happens when the relationship between the lawyers and lenders goes bad.  Not pretty at all.

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