A judge has denied a bid by Florida hedge funds to intervene in federal disciplinary proceedings in Louisiana against a Houston law firm accused of unethical and illegal actions for mass-filing hurricane-damage claims in the Bayou State.
Judge James Cain Jr. of the Western District of Louisiana on Sept. 19 denied the motion filed by the Equal Access Justice Fund LP and EAJF ESQ Fund LP to become intervenors in the case involving McClenny, Moseley and Associates.
“Lenders have filed the instant motion to intervene suggesting that they have an interest in any proceeds that MMA would potentially have been entitled,” Cain said in his order. “This court opined that MMA’s conduct in these cases included an abrogation of their responsibility and duties to Louisiana clients, and MMA failed to deposit client funds into a properly registered … trust account in the state of Louisiana.”
MMA also would not gain access to “any fees for ill-begotten gain due to their unethical and illegal behavior,” Cain said, adding that he is denying the motion for intervention as well as a motion for a telephone status conference for the parties.
Earlier this month, the funds filed a Texas lawsuit against MMA in the Harris County District Court to recoup $30 million loaned to the law firm since 2021. The state lawsuit calls on the district court to order the parties to arbitrate the breach-of-contract case, since MMA defaulted on the loans.
The MMA case raises new questions about the issue of third-party litigation financing, whereby a lender provides funds to allow a plaintiff to file a civil case and to provide the plaintiff with a firmer footing when taking on a deep-pockets corporate defendant. In turn, the lender would receive a portion of the damages award if the plaintiff wins the case.
In the MMA proceedings, however, the law firm secured tens of millions of dollars in loans as it was harvesting hurricane-damages property claims with the help of a marketing firm called Velawcity.
MMA was also on the hook to pay out 20% of the law firm’s proceeds to the hedge funds on a monthly basis after the maturity date of the loan, according to the state lawsuit filed by the funds.
The Louisiana Department of Insurance has labeled MMA’s actions in Louisiana a “massive insurance fraud scheme.” The department fined MMA $2 million amid accusations of irregularities and improper solicitations associated with the filing of mass property insurance claims.
The Louisiana Record was unable to obtain comment from attorneys representing the hedge funds, but the spokesman for the Insurance Information Institute emphasized that third-party loans for plaintiffs’ litigation is big business.
“Third-party litigation funding has become a multi-billion-dollar global industry that drives legal system abuse,” Mark Friedlander told the Record in an email. “It turns lawsuits into investments at the expense of insurers and their policyholders. TPLF enables plaintiffs’ attorneys to game the legal system by proactively seeking unassociated third parties to finance their lawsuits.”