Married Lawyers Ordered to Pay $1.8M to Litigation Funder in Landmark Ruling
In a significant ruling, a federal judge has ordered a married lawyer couple to pay $1.8 million to a litigation funder. Delaware judge Colm Connolly affirmed the findings that Hosie Rice LLP must pay Frome Wye Limited, a third-party litigation funder, and subsidiary of Woodsford Litigation Financing. The judgment dismisses Hosie Rice’s objections, including a usury argument, stating that they are without merit.
The dispute arose when Frome Wye claimed it was owed $800,000 out of the $4 million that Hosie Rice had recovered from a client. An arbitration panel supported Frome Wye’s claim, adding over $1 million in interest. Hosie Rice took the matter to federal court to challenge the judgment.
The crux of the disagreement lies in the interpretation of the nature of the $4 million recovery. Hosie Rice argues that it was a hybrid agreement, consisting of both a contingency fee and an hourly fee. Therefore, they contend it was not subject to the funding agreement with Frome Wye, which required repayment from contingency fees. Hosie Rice claims that their status as co-borrowers, rather than guarantors, entitles them to the protection of Delaware’s usury law. However, the court rejected these arguments.
The legal battle took an unexpected turn when Woodsford, without informing the couple, initiated foreclosure proceedings on their personal residence, which had been used as security under the litigation funding agreement. The foreclosure effort was halted later, but Frome Wye prevailed in arbitration, and a panel ordered Hosie Rice to pay the outstanding $800,000 plus interest, bringing the total to $1,817,000.
The saga began in October 2018 when Frome Wye agreed to fund Hosie Rice’s caseload. Litigation funders play a role in the civil justice system, providing financial support for lawsuits in exchange for a percentage of the recovered amount, often exceeding state usury laws. As the recovery is uncertain in unsuccessful cases, funders can justify charging high interest rates.
Hosie Rice had borrowed $1.35 million by April 2019, but they had already repaid $800,000 to Frome Wye in December. This payment consisted of the original $550,000 principle from October 2018 and an immediate $250,000 installment. Frome Wye claims that the remaining $800,000 from early 2019 remains unpaid, even after Hosie Rice won a $4 million judgment for their client, Space Data Corporation. However, Hosie Rice asserts that the recovery from Space Data was not solely through a contingency fee, and therefore, they do not owe anything to Frome Wye.
The case between Space Data and Google involved patent infringement and violation of a non-disclosure agreement. Hosie Rice agreed to reduced hourly fees, while the firm would receive a reduced contingency fee through a hybrid agreement. When Space Data refused to pay, an arbitrator ruled in Hosie Rice’s favor, awarding them $4 million. Frome Wye sought a portion of this award, leading to the ongoing legal dispute.
The ruling against Hosie Rice carries significant implications for the legal industry and litigation funders. It sets a precedent for the enforcement of funding agreements and clarifies the obligations of lawyers who secure such funding. As the case concludes, it remains to be seen whether Hosie Rice will appeal the judgment or seek further legal remedies.
This ruling highlights the complex nature of litigation funding agreements and the potential consequences for lawyers who engage with such arrangements. It also underscores the need for greater transparency and communication between lawyers and litigation funders to prevent unexpected actions such as foreclosure attempts.
Overall, this landmark ruling serves as a reminder to legal professionals of the potential risks and obligations associated with engaging with litigation funders and the importance of carefully reviewing and understanding the terms of funding agreements.
