Law Firm Wins Dismissal of Suit by Client Whose Litigation Loans Ate Up Settlement

By Joan C. Rogers  

A trial court in Brooklyn, N.Y., Jan. 3 threw out a malpractice complaint against a law firm in which a personal injury client claimed that his lawyers failed to warn him that the litigation financing agreements he made with third parties might consume almost all of his recovery (Francis v. Mirman, Markovits & Landau PC, N.Y. Sup. Ct. Kings Cnty., No. 29993/10, 1/3/13).

Justice Bernadette Bayne of the New York Supreme Court, Kings County, pointed out that the lawyers neither referred the client to a funding company nor recommended that he use one, and did not agree to represent the client in connection with the loans. The client did not and could not plead a viable malpractice claim against the defendants who played no role in the lending arrangements beyond simply acknowledging the lenders' lien on the settlement, the court concluded.

Settle and Sue

While Mirman, Markovits & Landau PC was representing Elwin Francis in a personal injury matter, Francis secured cash from litigation funding companies through loans that would be repaid only if he obtained a recovery.

Francis reportedly ended up with only $111 out of the $150,000 settlement the Mirman firm recovered for him; funding companies received nearly two-thirds of the settlement, and the rest went to legal fees and expenses.

Francis sued the Mirman firm and its three principals, Michele S. Mirman, Thomas P. Markovits, and Ronald J. Landau. The complaint asserted that the defendants departed from “good and accepted practices in the field of personal injury law” by allegedly:

• failing to know the lien amount and to confirm it with Francis when they settled the case;

• failing to negotiate a reduction in the lien held by one of the lenders, Law Bucks; and

• falsely representing to Francis and another funding company, Law Cash, that Francis would net $100,000 from the gross settlement amount and that there were no other liens, despite the fact that Law Bucks had a lien of approximately $96,000.


Case Dismissed

The defendants moved to dismiss the complaint. Francis moved to amend his complaint to add claims of intentional wrongdoing.

The court dismissed the complaint, finding that it contained only conclusory allegations and did not allege specific facts indicating that the defendants acted negligently. The plaintiff “has failed to satisfactorily plead any actual or ascertainable damages as a result of the alleged malpractice of the defendants,” Bayne wrote.

Bayne refused to let Francis amend his complaint, concluding that the proposed allegations were insufficient to state a claim. The proposed causes of action for fraud and duress were duplicative of the plaintiff's malpractice claim, and the proposed claim for breach of fiduciary duty failed to state in detail the circumstances constituting the wrong as required for causes of action based on breach of trust, the court found.

Documentary Evidence

Moreover, Bayne held that documentary evidence offered by the defendants--the loan agreements, the settlement closing statement, the retainer agreement, and deposition testimony--strongly supported dismissal of the complaint.

Regarding the loan agreements, Bayne found from reviewing the contracts that “the plaintiff entered into each and every loan agreement involved in this case of his own free will and accord.”

The contracts unambiguously stated the amount borrowed and how much Francis would have to pay upon resolution of the personal injury case, and he was required to initial each page to show that he had read it and understood it, Bayne observed. The plaintiff's understanding of his actions was also evidenced, she said, by the fact that Francis entered into yet another loan contract after the case was settled.

Discussing the settlement closing statement, the court found that it refuted the plaintiff's claim that the lawyers made no effort to reduce the amount of the lien. The statement clearly indicated that the lawyers successfully negotiated a reduction in the amount of one company's lien by almost $2,500, Bayne noted.

Bayne also relied on deposition testimony by a witness for the defendants, who stated: “We made every effort to reduce the Law Bucks lien and they would not--we don't know who these people are. We did not ever do business with them before. I don't believe they were willing to negotiate at all other than a very, very minor amount.”

“[T]he plaintiff entered into each and every loan agreement involved in this case of his own free will and accord.”
Justice Bernadette Bayne

Furthermore, the court pointed out that even though the retainer agreement for the underlying personal injury matter did not address loans from third parties, it clearly confined the firm's representation to the plaintiff's personal injury claim.

Bayne was unswayed by the fact that the law firm signed off on one of the loan agreement contracts. That constituted nothing more than an acknowledgement that the lender was holding a lien against the proceeds of the plaintiff's recovery, and “it was not an agreement to represent the plaintiff for any purposes in connection with the loan agreements,” the court said.

No Referral or Recommendation

The deposition testimony demonstrated, the court added, that the plaintiff entered into these contracts on his own and that the defendants never referred their client to a funding company or recommended that he use one. Other than the acknowledgment of the lien, no evidence indicated that the defendants had any knowledge of the loan contracts or participated in their execution, Bayne said.

“Based upon the documentary evidence, which clearly demonstrates that the plaintiff was fully aware of his actions when he entered into the various loan agreements that resulted in large liens being placed against the proceeds of his underlying personal injury case, this Court is of the opinion that no amendments to the plaintiff's complaint will enable him to successfully plead a case of legal malpractice against these defendants,” the court said.

Adam D. White, New York, represented Francis. The defendants were represented by Lewis, Brisbois, Bisgaard & Smith, New York.

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