Litigation Funder to Receive $1.8 Million from Lawyers It Financed
In a dramatic turn of events within the legal financing world, a litigation funder is set to reclaim a hefty sum of $1.8 million from attorneys who found their personal assets, including their residence, at risk after a business arrangement took a sour turn. This case underscores the complex and often precarious nature of litigation funding agreements, drawing attention to the intricacies and potential risks involved.
The case revolved around Frome Wye Limited, a subsidiary of Woodsford Litigation Financing, and its legal battle against the law firm Hosie Rice, operated by the married duo of Spencer Hosie and Diane Rice. The conflict reached a critical juncture on March 11 when U.S. District Judge Colm Connolly of Delaware made a final judgment in favor of Frome Wye, affirming a previous magistrate judge’s decision that mandated Hosie Rice to settle a debt amounting to $1.8 million with Frome Wye.
Judge Connolly dismissed Hosie Rice’s objections, which notably included a usury claim, as “without merit.” This ruling marked the culmination of a dispute rooted in a funding agreement between Frome Wye and Hosie Rice. Under this agreement, Frome Wye had provided funds to support the law firm’s caseload, with the expectation of receiving a portion of the litigation proceeds recovered by Hosie Rice.
The contention arose from a discrepancy between the parties regarding the nature of a $4 million recovery by Hosie Rice from a client, Space Data Corporation, which Hosie Rice claimed was achieved through a hybrid agreement comprising both contingency and hourly fees. This distinction became pivotal as the agreement with Frome Wye pertained explicitly to proceeds from contingency fees.
Hosie Rice’s stance was that as co-borrowers, Spencer Hosie and Diane Rice were entitled to the protections afforded by Delaware’s usury laws, a view that was ultimately not upheld in court. The depth of the dispute extended to Frome Wye attempting to foreclose on Hosie and Rice’s personal home, a move that was initially undisclosed to the couple despite ongoing communication between the parties. This foreclosure effort, based on the litigation funding agreement making their home security for the borrowed funds, was eventually ceased.
The initial engagement between Frome Wye and Hosie Rice began in October 2018, with the former agreeing to fund the latter’s caseload. Litigation funders, like Frome Wye, engage in the legal arena much like investors in the stock market, financing lawsuits in exchange for a portion of recovered proceeds. This arrangement is premised on the understanding that the funder risks receiving nothing if the case is unsuccessful, a scenario that generally exempts them from laws governing excessive interest rates.
By December of the following year, Hosie Rice had repaid $800,000 of the $1.35 million borrowed, covering both the principal and a predetermined payment due upon recovery. However, Frome Wye argued that an outstanding balance remained unpaid after Hosie Rice’s arbitration victory over Space Data Corporation, leading to legal proceedings and the eventual $1.8 million judgment against Hosie Rice.
This legal ordeal not only highlights the potential financial hazards associated with litigation funding agreements but also serves as a cautionary tale for law firms considering such arrangements to finance their operations. The fine print of these agreements and the nature of the recoveries they encompass can carry significant implications for all parties involved, sometimes extending beyond professional risks to personal financial jeopardy.
