Two Florida hedge funds have filed motions in the Western District of Louisiana to become intervenors in disciplinary proceedings against a Houston law firm accused of participating in a litigation-harvesting scheme involving Louisiana hurricane-damage victims.
The Equal Access Justice Fund and EAJF ESQ Fund LP filed the motion in federal court on Sept. 4, arguing that they need to protect their rights after loaning tens of millions of dollars to the McClenny, Moseley & Associates law firm. The law firm has since defaulted on those loans, according to the hedge funds’ court filings.
“The court ruled that MMA, individual attorneys of the firm and all related parties were not entitled to any attorney fees, costs and/or expenses in any of the cases contained in a list attached to the court’s ruling,” a motion for a telephone status conference filed this week by the funds states.
The Western District has suspended MMA attorneys from practicing within its jurisdiction after finding irregularities and improper solicitations occurred related to mass property insurance claims filed by MMA in Louisiana. And in May, the Louisiana Department of Insurance fined MMA $2 million over what the department described as a “massive insurance fraud scheme.”
The funds describe themselves as passive lenders in their court filings. Matthew Monson, an attorney involved in insurance industry cases, said the hedge funds’ efforts to intervene in the MMA case offer the court an avenue to examine the funding behind the property insurance claims in question.
“The court has an amazing opportunity to question these two funds as to who their investors are, what their investors knew and what the funds knew they were investing into,” Monson told the Louisiana Record.
The extent of the tens of millions of dollars in loans and the lenders’ contention that they obtained a security interest in MMA’s case proceeds raise questions about whether the arrangement amounted to law firm profits being essentially shared with nonowners, observers say.
The hedge funds argue in their Sept. 4 motion that the federal Judge James Cain Jr.’s ruling declaring the law firm and “related parties” have no property interest in the insurance case proceeds in question was in error.
“... Neither the lenders nor any other party received notice or an opportunity to be heard regarding the law firm’s interest in case proceeds before the court adjudicated that issue,” the motion says. “... Without all relevant parties to the fee arrangements presenting a case or controversy for the court to resolve, the lenders contend the court lacks jurisdiction to rule as it did.”